The Business Of Snobs

As I’ve alluded to approximately 2,355 times over the past few weeks, I’ve got some holidays coming. I’m kind of excited about them, can you tell?

I’ve narrowed my choices down to just a few – Orlando, Las Vegas, and a resort vacation to Mexico have made it to my all important top 3. I’m leaning towards Vegas, mostly because I figure it’ll offer the most fun for a guy who is travelling alone. This is where you all feel sorry for me not having a girlfriend. I’ve been to Vegas before, and it was a good time. Flights are cheap, so are hotels, and I hear getting a hooker to your room is as easy as ordering a pizza. Sounds like a sexy time. Although considering it’s Vegas, I’m sure picking up a drunk girl would be easier than making another Paula Deen diabetes joke. (Still topical!)

As I’ve researched hotels in the area, I’ve discovered a couple of things:

1) People are much too willing to pay a 2x premium to stay right on the strip.

2) Holy crap, do some people complain about the tiniest of flaws in their hotel room.

I read reviews from people who were mad about people walking down the hallways late at night, because they’ve obviously mistaken Vegas for Branson, Missouri. There were people mad because the casino was SMOKY. Not their room, the casino. Some of these people were so pissed off that they’d give the hotel a one star review for something that most of us would consider a minor inconvenience.

Keeping with the Vegas theme, let’s take a look at two hotels, right across the street from each other, The Excalibur and The MGM Grand. From my crack research (read: pulling stuff out of my ass), a typical night at the MGM will set you back $120. Take a short walk across the street to the castle themed Excalibur though, and rooms are going for almost half as much, $66 per night.

We all know why the rooms at the MGM demand a premium. They’re nicer, probably bigger, they’re in a swanky hotel instead of one infested by all sorts of wiener kids, and so forth. Sometimes they have UFC events there, which I’d argue should actually reduce the value of the rooms, but whatever. I guess people are into UFC.

But look at the fixed costs for a second. Since they’re just across the street from each other, we can argue the cost of the land is pretty much the same. It definitely costs more to build a nicer hotel and to keep it nice, but I’d argue only 10 or 20 percent more. Staff costs are maybe a little more, since you’d have to hire a few more fancy-pants chefs and whatnot. The expectations of cleanliness would be higher as well, which would cost extra too.

But all things considered, the Grand has to be making more money for MGM than the Excalibur. And from a quick glance of MGM Resorts’ 2010 annual report (2011 isn’t out yet) the MGM Grand had an operating income of $84M, while the Excalibur made less than half that, $39M. It was nice of the folks from MGM to break down results per hotel for us.

But wait, some of you are saying, does it really make more money? Isn’t the Grand a much bigger resort than the Excalibur? Excellent observation grasshopper. Let’s look at operating income per room:

Grand: $84M divided by 5,044 rooms = $16,653

Excalibur: $39M divided by 3,981 rooms = $9,796

(Aside: Thank God Wikipedia is back to normal. That was a rough day.)

Comparing these two hotels isn’t really the best comparison. One caters to families and to budget conscious travelers, while the other caters to trophy wives and to dudes with more money than brains. I would suspect convincing a girl to go back to your hotel room would be much easier if said room was located in the MGM Grand. And, you know, if she was drunk. You stay at the Grand if you want a better experience and maybe even more importantly, if you value the good experience.

I’m the furthest thing from a MGM Grand customer. I have only stayed in one hotel room in my life I was dissatisfied with, and that was only because of the location. (South Central LA. THERE WERE BLACK PEOPLE!) I put pretty much zero value on luxury. I go on vacation to do stuff, not to stay in my hotel room. I am not a travel snob.

Meanwhile, one of my buddies is. We went on a weekend trip a few years ago now, and he insisted we stay in the nice hotel that set us each back an eighty dollar bill for the night. He enjoyed the fluffy pillows and the spacious shower and the dead hooker flat screen TV. He enjoys the finer things, at least when traveling.

What’s the point of all this? In business, you can either provide a commodity, or cater to the snob. The Excalibur strives to offer a very average hotel at a very average price. They’re catering to the average Joe. Meanwhile, the MGM Grand, which is right across the street, offers a better experience to the traveler who wants to indulge.

If you have a blog, and you’re writing yet another post titled ’5 Ways To Get Out Of Credit Card Debt’, which category do you belong in? How about if you just invest in mutual funds or index funds and call it a day? How about if you work at Wal-Mart compared to Whole Foods?

Some of the world’s largest businesses are built by catering to snobs. How many Apple fanboys are there out there? How many of you are a little bit addicted to your $4 Starbucks coffee? Are there any BMW fans out there? There are a million other brands that cater exclusively to people who value a high quality product, price be damned.

And yet, as Wal-Mart, Coca-Cola, The Gap and Microsoft show, businesses can be successful doing the exact opposite. They cater to everybody. Snob businesses exist because of the shortcomings of these behemoths.

That’s the beauty of capitalism. Both types of businesses can exist, and both can thrive. Which one is better?

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