Pricing: Room Rates of Green Hotels Versus Non-Green Hotels
By Michelle Millar Assistant Professor Hospitality Management, University of San Francisco | November 18, 2012
There is a perception that green hotels are more expensive for hotel guests than conventional hotels, and many survey results say that guests are willing to pay more – up to 10% more – to stay in a green hotel (e.g., LEED certified). As a hotel guest, would you be willing to pay more money per night to stay in a green hotel? As a hotel manager, would you be willing to charge your guests more to stay in your green hotel? Or, perhaps the question is, are hotel managers taking advantage of the opportunity to charge more (since guests are willing to pay more) for their green hotels?
Green Certified Hotels
There over 130 LEED certified hotels in the United States today. Sponsored by the U. S. Green Building Council (USGBC), LEED, Leadership in Energy and Environmental Design, is the most common standard that hotel owners follow in the United States when they decide to green their hotels, their operations, thus making them more sustainable. By following the LEED standards owners are not only able to reduce environmental impacts but are often able to increase operational efficiency, and reduce operating costs. Obtaining one of the 4 levels of LEED certification (certified, silver, gold, or platinum) can be quite expensive, although the costs have certainly decreased over the past several years. Despite the cost of LEED, there are still over 1500 hotels online to receive the certification.
Because some hotels do not want to pay the high cost of LEED, they are receiving green certification from other agencies. For example, there are several states that provide certification. California, Florida, New York, Indiana and Oklahoma are just a few of the proposed 31 states that certify hotels. The State of California has certified over 300 green hotels, and the State of Florida has certified just fewer than 700 green hotels. Green Globe, Eco Hotel and the Green Hotel Association also provide varying degrees of certification. While the sustainable criteria for achieving the certifications is different for each program, or state, and may be different from LEED, the commonality among them is reduced impact on the environment, which results in improved efficiency in operations.
A premium is the "excess price paid over and above 'fair' prices". Whole Foods, and Toyota with its Prius hybrid are excellent examples of companies that use premiums as a tool to charge more for their organic or green products, and they both have customers that happily pay those premiums. It is often said managers in the hotel industry are charging premium room rates for their green certified hotels. Premiums are a great tool that managers can use to profit from guests that are selecting a hotel based on the fact that the hotel has something to offer that may not be provided by another hotel – in this case green services or amenities. At the same time, hotel guests also perceive that green hotels are more expensive than their traditional counterparts. In fact, in many surveys over the past couple of years, travelers have indicated that they are willing to pay up to 10% more in some cases, for a green hotel. It's unclear why they are willing to pay a premium. Perhaps it is what I would call a "Whole Foods" effect – just because it's at Whole Foods, has a particular label (e.g., green, organic, sustainable), then it must be good and worth the extra money. A certified green hotel must also be special, and therefore worth a higher room rate. At the very least, consumers are used to paying more for organic or sustainable products, so they expect to be charged accordingly for a green hotel. Either way, it appears that travelers are not opposed to higher room rates for green hotels.