Between 2010 and 2020, the face of the luxury market in Paris fundamentally changed. In 2010, the small group of the most exclusive hotels in Paris had relatively uniform performance. The difference in REVPAR between the first and last hotels in the sample was barely a hundred euros. Between 2010 and 2019, openings and renovation projects doubled the number of rooms and marked a renewal in the history of luxury hotels in Paris.

While demand appears to be growing at a steady pace, the 8% increase in supply is a signal that might seem worrying. However, this “over-supply” has not given way to a price war, but rather to a new segmentation or even a fragmentation in the “Palace” ranking’s own exclusive segment. 

In 2020, it is clear that the market for Palace-class hotels is now completely fragmented. Between the first Palace in this group and the last, there is a difference of more than 500 euros in REVPAR. The price differentials are also indisputable: just over 700 euros on average for the last and nearly 1400 euros for the best, i.e. a differential of 700 euros or double the starting price, a sign that the “Palace” ranking has become too broad. Thus, there is no longer a single price segment but several segments with vastly different prices in the “Palace” category. The ultra-luxury segment, with an average price above 1,000 euros, and two other sub-segments that are much more exposed to competition from the 5-star Luxury category. It is obvious that price and occupancy rate (REVPAR) are an acknowledgement by customers of the exclusivity and consistency of the client experience provided to them in this segment with specific rules and codes.  The price spectrum in other segments (3/4 and 5-star) is less steep and relatively more concentrated.

In our opinion, the main explanation for these price differentials within the same “Palace” category, once homogeneous, is linked to the exclusivity (or not) and the quality of the Customer Experience created and offered within each establishment.

Behind the Customer Experience in prestigious hotels lies the powerful VISION of a creator in relation to the “spirit of the place”.  The embodiment and perception of this vision only make sense in the eyes of customers when operational execution successfully translates this FOUNDATIONAL VISION that represents the DNA of the project. While the Customer is the final arbiter of the performance achieved by the Palace hotels, the success of each establishment is the work of a vision relayed over time by a team.

Our analysis of the individual performance of Palace hotels in Paris over the last 10 years shows a strong correlation between price and Customer Experience. These are “the uniqueness and exclusivity of the product and service” in their most advanced operational execution on a daily basis, which only Customers recognize by paying the price and by being loyal.

Reality inevitably imposes itself in the Palace class of establishments, which now more than ever groups together a diversity of establishments with very different service values, no doubt inviting a market segmentation that is more in line with the reality of prices and experience.  We assert that the administrative “Palace” distinction is no longer homogenous because the opinion of the sole arbiter—the customer—has not been considered over time.