Because I'm greedy and I want every dollar I can get my hands on, and then some. That all right with you, or you got a problem with it? . . . :-)
It's just business. People with whom I do business and to whom I have to pay my bills do it to me: people with whom they do business and to whom they have to pay their bills have it done to all of them. Go around to all of them, get most of them to pull it back a notch and go easier on me to a degree that'll make it worth doing, and I'll be happy to sit down and negotiate the same with you.
It is the market, not the seller's investment or equity, and not the individual circumstances of either the seller or the buyer, that determines the price of any good or service sold by anyone. And markets have to be free, transactions have to be consensual and voluntary, for a market to work. I can't make you rent a room from me at whatever price I want, or hand over whatever amount of money; you can't make me give you a room, or rent one to you at whatever price you dictate. Trade within a market means each of us has to go into the transaction voluntarily, consensually, and willingly; and once the exchange is done no one goes away unhappy. If I can't come to terms with you, I'll just have to find another customer: if you can't come to terms with me, you'll have to find another hotel.
My goal (my job, my duty, if I'm managing the hotel for a third party or have outside investors) is to rent my rooms for the best price that I can get - that the market will pay me - for them. If you show up and are ready, able and willing to rent one, you're part of the market.
If I try to ask too much for the room and hold out for that price, and you don't want to pay that much, then you'll walk away; and if I can't get another taker to rent that room, I get nothing at all for the room and perhaps begin to wonder, maybe I should have been a bit more open to what you were willing to pay. If every room in town of comparable quality rents for a hundred dollars a night, that's what I'm going to ask you to pay; and if you don't want to pay that and I'm pretty confident that someone else will if you don't, I'm going to refuse to rent it to you at a lesser price. If you find you can't get a better deal elsewhere, the entire town is selling out of hotel rooms, and you could end up sleeping in your car or driving through the night to the next town to try your luck with the hotels there, you might reconsider. It's your choice. (The process is called 'price discovery'. The price at which we eventually arrive is the market price. 'Fair market value' is the price at which a willing seller who is under no compulsion to sell, and a willing buyer who is under no compulsion to buy, will arrive and settle upon.)
My investment, my equity, my carrying costs, have nothing to do with the market price or fair market value. All of this remains true even if:
Am I 'cheating' him by not disclosing my own circumstances? No. Another thing to note, in each of those four example cases, is that market forces do just as much to put a lid on what I can charge as they do to establish what they customer must expect to pay. It's a two-edged blade, it's sharp on both sides, it swings both ways, it's an all-round leveler. I don't owe him to accommodate burdens caused him by his personal circumstances, or to share the benefit of my own more positive circumstances; any more than he owes me to accommodate any burden unique to my personal circumstances, or to disclose to me that he'd just hit the lotto last week and offer to pay me ten times as much for his room based upon his newfound affluence. All of the above is irrelevant to the market value of the room.
Some twenty years ago, when I was working at a hotel off I-95 in North Carolina, there was an older motel a few exits up the way. It had been built some thirty years earlier. It was well-designed, had a modern styling (for the sixties, anyway) and had been maintained well over the years. It was well-run, they were careful who they rented to, and the housekeeping was done at a level that kept the entire hotel and each of its rooms immaculate. The debt on the property that the owners incurred by building it had been paid off long ago: they owned it free and clear, it was paid for. And they charged $23.95 per night for their 120 or so rooms - lower, even, than older more run-down properties along that corridor could charge and meet their expenses - all this at a time were even most Class A hotels could get $60 to $75 per night (they now get twice that much). No gimmicks, none of this fine-print-on-the-I-95-billboard that said 'senior citizen rate, upstairs rooms only, Tuesday through Thursday' - it was $23.95 per night, they were debt-free and their overhead was low enough that they could do that and make a tidy profit, and they were nice people who were content to do that. (Needless to say, they filled their hotel on most nights; and none of their competitors rented any rooms at all - at least not to any guests who knew about them -- until they had done just that.) But they didn't owe anyone to do it: it was only because they were extraordinarily nice people that they did.
As for myself, I'm not a bad guy. I might give you a break (or even a complimentary room) in extenuating circumstances that I can verify - you were in a car accident and stranded in town, you have a near relative in a hospital and your means were limited, any number of reasons. One hotel near where I live put up the entire population of a nearby apartment complex for a few nights after a bad fire had destroyed much of it and left them all homeless, until social service agencies could relocate most of them.
But unless you've done something really great for me in the past, I don't owe you to give you a room at my cost, or even at a discount equal to my cost plus a 'reasonable profit' as determined by anyone other than myself - consistent with what the market will allow (Michael Forrest Jones' answer to Is price discrimination good or bad? ). I want my customers to be happy, but that, I'm not obligated to do. And as long as I stay within what the market will allow, the market will support me.
I know that that's not what you, and many other consumers, want to hear. But again, consider the other guy - my investors, my client owners, who sign my company to manage their hotel investments for them. They want the best use made of their property, and they want it run in a way that will maximize its value and profits.
If you were one of them, of course, you'd feel quite differently.
Here again, people with whom I do business and to whom I have to pay my bills demand it of me: people with whom they do business and to whom they have to pay their bills demand it of all of them.
Here again . . . go around and get all those people to lighten up a bit on myself, my investors, and my client-owners; and I'll be happy to sit down with you and we can work out something . . .
Originally appeared on Quora
It's just business. People with whom I do business and to whom I have to pay my bills do it to me: people with whom they do business and to whom they have to pay their bills have it done to all of them. Go around to all of them, get most of them to pull it back a notch and go easier on me to a degree that'll make it worth doing, and I'll be happy to sit down and negotiate the same with you.
It is the market, not the seller's investment or equity, and not the individual circumstances of either the seller or the buyer, that determines the price of any good or service sold by anyone. And markets have to be free, transactions have to be consensual and voluntary, for a market to work. I can't make you rent a room from me at whatever price I want, or hand over whatever amount of money; you can't make me give you a room, or rent one to you at whatever price you dictate. Trade within a market means each of us has to go into the transaction voluntarily, consensually, and willingly; and once the exchange is done no one goes away unhappy. If I can't come to terms with you, I'll just have to find another customer: if you can't come to terms with me, you'll have to find another hotel.
My goal (my job, my duty, if I'm managing the hotel for a third party or have outside investors) is to rent my rooms for the best price that I can get - that the market will pay me - for them. If you show up and are ready, able and willing to rent one, you're part of the market.
If I try to ask too much for the room and hold out for that price, and you don't want to pay that much, then you'll walk away; and if I can't get another taker to rent that room, I get nothing at all for the room and perhaps begin to wonder, maybe I should have been a bit more open to what you were willing to pay. If every room in town of comparable quality rents for a hundred dollars a night, that's what I'm going to ask you to pay; and if you don't want to pay that and I'm pretty confident that someone else will if you don't, I'm going to refuse to rent it to you at a lesser price. If you find you can't get a better deal elsewhere, the entire town is selling out of hotel rooms, and you could end up sleeping in your car or driving through the night to the next town to try your luck with the hotels there, you might reconsider. It's your choice. (The process is called 'price discovery'. The price at which we eventually arrive is the market price. 'Fair market value' is the price at which a willing seller who is under no compulsion to sell, and a willing buyer who is under no compulsion to buy, will arrive and settle upon.)
My investment, my equity, my carrying costs, have nothing to do with the market price or fair market value. All of this remains true even if:
- I inherited the hotel from Grandpa, whose investment managers built the hotel sometime in the last five years, and I pretty much received it as a 'gift' when he passed away a couple years ago. I don't owe you to pass the 'savings' on to you because I paid nothing for it myself: it's my hotel by birthright, and the market value of the rooms will prevail if I rent you a room at all, unless it's my choice to cut you a break. Grandpa wouldn't have had it any other way.
- I just built the hotel myself last year, am now carrying a mortgage on it at a eighty percent loan-to-value ratio, which renders my profit margins slim to nonexistent. My big mortgage payment doesn't entitle me to a higher rate from you: the market value of the rooms will still prevail if you choose to rent a room there at all; and if comparable rooms in town go for a hundred bucks, you're going to go elsewhere if I try to charge you more than that, unless you have some reason to not mind paying the extra cost. It's your choice.
- I bought the hotel twenty years ago, at a price reflective of what I could buy such a hotel for twenty years ago, with a mortgage based on revenue that was in turn based on room rates at they were twenty years ago, and have taken care to keep it up flawlessly since, so that now, this hotel could hold its own in competition with even the newest, slickest, shiniest Hampton Inn or Courtyard by Marriott. I don't owe you to pass along the savings from my mortgage being paid off or nearly paid off, nor do I owe you to pass along the savings that came about because I bought the hotel years ago and and along the way paid for it with cheaper dollars: I worked for it and it's mine: the ability to do that and enjoy the high profit margins is part of my just reward for staying with it so many years, managing it with more skill and care than my crosstown competitors who have let their properties run down and have downscaled them several times over the years (Michael Forrest Jones' answer to I am a hotel owner. I sometimes have guests sneaking in more guests who are not registered... ), choosing a good, sustainable location in the beginning when I bought my property, reinvesting my returns in the hotel as necessary to keep it up, and keeping my guests happy through all of that. The market value of the rooms will prevail if I rent you a room at all, unless it's my choice to cut you a break.
- I'm a profligate big spender who likes to indulge my tastes for kept women, a 15,000-square-foot home on an estate that requires a domestic staff, pricy imported cars, and riotous living to a degree much more than what is sustainable from the profits of the hotel -- or even if I spend money on behalf of the hotel in ways that don't exactly add to the value of the rooms (e.g., padding the payroll, overpaying favored employees, decorating, splurging on office equipment). Or maybe I got sued a few years back, or I have personal debt problems. Not your problem. You don't owe me to rent a room for more than you'd pay for a comparable room elsewhere in town to accommodate my 'needs' or 'costs'; and chances are, you won't. The market, not my needs, will prevail.
Am I 'cheating' him by not disclosing my own circumstances? No. Another thing to note, in each of those four example cases, is that market forces do just as much to put a lid on what I can charge as they do to establish what they customer must expect to pay. It's a two-edged blade, it's sharp on both sides, it swings both ways, it's an all-round leveler. I don't owe him to accommodate burdens caused him by his personal circumstances, or to share the benefit of my own more positive circumstances; any more than he owes me to accommodate any burden unique to my personal circumstances, or to disclose to me that he'd just hit the lotto last week and offer to pay me ten times as much for his room based upon his newfound affluence. All of the above is irrelevant to the market value of the room.
Some twenty years ago, when I was working at a hotel off I-95 in North Carolina, there was an older motel a few exits up the way. It had been built some thirty years earlier. It was well-designed, had a modern styling (for the sixties, anyway) and had been maintained well over the years. It was well-run, they were careful who they rented to, and the housekeeping was done at a level that kept the entire hotel and each of its rooms immaculate. The debt on the property that the owners incurred by building it had been paid off long ago: they owned it free and clear, it was paid for. And they charged $23.95 per night for their 120 or so rooms - lower, even, than older more run-down properties along that corridor could charge and meet their expenses - all this at a time were even most Class A hotels could get $60 to $75 per night (they now get twice that much). No gimmicks, none of this fine-print-on-the-I-95-billboard that said 'senior citizen rate, upstairs rooms only, Tuesday through Thursday' - it was $23.95 per night, they were debt-free and their overhead was low enough that they could do that and make a tidy profit, and they were nice people who were content to do that. (Needless to say, they filled their hotel on most nights; and none of their competitors rented any rooms at all - at least not to any guests who knew about them -- until they had done just that.) But they didn't owe anyone to do it: it was only because they were extraordinarily nice people that they did.
As for myself, I'm not a bad guy. I might give you a break (or even a complimentary room) in extenuating circumstances that I can verify - you were in a car accident and stranded in town, you have a near relative in a hospital and your means were limited, any number of reasons. One hotel near where I live put up the entire population of a nearby apartment complex for a few nights after a bad fire had destroyed much of it and left them all homeless, until social service agencies could relocate most of them.
But unless you've done something really great for me in the past, I don't owe you to give you a room at my cost, or even at a discount equal to my cost plus a 'reasonable profit' as determined by anyone other than myself - consistent with what the market will allow (Michael Forrest Jones' answer to Is price discrimination good or bad? ). I want my customers to be happy, but that, I'm not obligated to do. And as long as I stay within what the market will allow, the market will support me.
I know that that's not what you, and many other consumers, want to hear. But again, consider the other guy - my investors, my client owners, who sign my company to manage their hotel investments for them. They want the best use made of their property, and they want it run in a way that will maximize its value and profits.
If you were one of them, of course, you'd feel quite differently.
Here again, people with whom I do business and to whom I have to pay my bills demand it of me: people with whom they do business and to whom they have to pay their bills demand it of all of them.
Here again . . . go around and get all those people to lighten up a bit on myself, my investors, and my client-owners; and I'll be happy to sit down with you and we can work out something . . .
Originally appeared on Quora
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