For some hoteliers, the first reaction they have when facing an economic slowdown is to slash prices.

But is this really a good strategy?

If you look at historical data, the answer is clear: you should never, ever reduce prices as a quick-fix remedy.

All studies carried out in the wake of the 9/11 attacks in New York City showed that price cuts damage the long-term health of your business.  One report by Cornell University, titled “Hotel Pricing in a Networked World,” shares this insight:

“It should come as no surprise that discounting has a chilling effect on revenues. The discounting concept is based on the core micro-economic principle that reducing your price means that additional consumers will enter the market and you will sell more rooms.  The hotel industry has never been able to apply this principle successfully, and the CHR study demonstrates why this is so.

New consumers do not enter the market in response to hotel discounting.  Instead, current customers simply get more for less and revenues fall.“

So what should be your pricing strategy?

Try this: Leave your prices where they are, but increase your perceived value.

Instead of discounting, focus on building your overall value package.  Sell the experience – work to position your hotel as a destination.

Explore social media networks, and look for recurring themes of what guests like about your hotel.  Improve and showcase your specialties.  Put them at the core of your marketing efforts.

But never fall for the price cutting trap.

So far in 2008, a number of negative events have taken place in the world economy.  First, oil prices soared over the summer, causing many people to re-think their travel plans. Then, the credit crisis intensified, causing the stock market to plunge and several established banks to fail.  Speculators wonder if the US and the rest of the world is headed for a prolonged period of economic recession.

As expected, the travel industry has taken a hit with this news.  A new survey by Travelocity showed that 66% of respondents’ travel plans are affected.  Many marketing professionals in hospitality are worried about how they can weather this storm.

But let’s take a step back and look at the big picture.

With all the gloom and doom going around, there remain some good opportunities for the savvy hotel marketer.

Life will still go on.  Business travel will still take place.  Weddings will still happen.  People will still take vacations, even if they tend to stay closer to home now.

You now have the opportunity to gain market leadership in this environment.  While everyone else is cutting back on marketing, you can gain market share by consistently running a smart promotions strategy.

Now is the time to increase your marketing, not decrease it.

Of course, you’ll have to play smarter.  The same old tactics and campaign may no longer be sustainable.  You’ll need to think outside the box, and develop a campaign that takes into consideration new trends in media and travel.

How can you play smarter?  That’s the subject of this series, and I’ll be showing you specific tactics in the days ahead.

Let me ask you this: how has your hotel been affected by the economy?