The Unchangeable Power of the Value Equation

In Hawaii, we regularly see business cycles that careen between boom and bust.  Looking carefully, any marketer will notice that an underlying cause of the cycles is upsetting equilibrium in the brand's value equation.

The value equation, very simply, is in equilibrium, when the customer is getting approximately the same value from a product or service as its cost.

The problem in maintaining equilibrium, as usual, is greed.  In Hawaii, as visitor counts rise, hotels start raising room rates.  That would be okay as long as the hotels improved their level of service, targeted a different customer, or if the destination was able to enhance the brand to increase its appeal.  Unfortunately, the opposite often happens.  While demand and occupancy are high, hotels are often loathe to increase staffing, so service levels actually go down.  And, bingo, the value equation is out of balance.

So, time and again, we see the same story.  Boom, then bust.  High occupancy followed by screaming price promotions when occupancy falls off.

All it takes to remedy this is to hire some good, strategic marketers and take the long term view of the business.