PROMOS AND THE POWER OF 3

My partner, Brian McGough, brought up an interesting tidbit in our morning meeting yesterday. For the first time ever, Canyon Ranch is allowing 2 night stays versus the customary 3 night minimum, a clear violation of the Koch Curve and the theory of triangles.

I had just gotten back from a family vacation in London where I noticed many hotels offering a free room night with every two paid nights. Here, the hotels are incorporating the power of 3 into their marketing pitch. The marketing executives may be pursuing the right mathematical process but a 50% giveaway is a bad signal for the industry. Demand is falling off a cliff, particularly in the gateway cities.

Here is a sampling of hotel promotions:

• Intercontinental Hotel Group - Holiday Inn two-nights-for-one
• Starwood: offering a “pay your birth year” promotion for the second and third nights of a 3 night stay
• Four Seasons: a number of Four Seasons hotels offering a 3rd night free
• Baltimore: City-wide promotion, 3rd night free
• Luxor Las Vegas: Stay 2 nights and get the 3rd night free
• Marriott: 2 nights, third night free at Rive Gauche in Paris

Margins are looking scary. It might be time to call for another 25% reduction in EPS estimates for the hotel owners.