Having identified the product strategy it is time to focus on price.
- Selling the Right Room
- To the Right Guest
- On the Right Night
- At the Right Rate
- Through the Right Channel
Price matters. As revenue managers none of like to hear it; reality is that consumers still rate price as one of the top factors when making a buying decision. As you will have read in previous Articles like ‘BAR More Than Just a Rate Code‘ I am a big believer in flex pricing based on market demand.
The right rate is the rate that the consumer views as a good value which will cause them to book. Sounds simple enough; where it gets tricky is when pricing for each of the markets that will be layered into your hotel to maximize the revenue, while preventing people who would have bought at a higher rate to buy down.
The chart below shows one of the fundamental learning’s of Revenue Management 101. Layering in a number of different segments of business leads to a better result in RevPAR than keeping one price for all.
Segment Your Business
Setting Up Your Rate Strategy
When setting up your rate strategy here are a few things to consider.
1. All rates should fit into one of the following buckets:
o BAR (Best Available Retail Rate): the anchor of the rate strategy representing the fair market price based on demand. As demand changes so will the BAR price.
o Package (Room plus Inclusions): floats off BAR at a premium; shows value when compared to the sum of the parts a la carte.
o Qualified Discounts: floats off BAR at a discount offered to a portion of the population that qualifies.
o Corporate Rates: continue to be both flat and floating prices depending on account. Where possible avoid Last Room Availability allowing for yield opportunity.
o Group Rates: should also be based on demand, while group rates normally provide a volume discount; be sure to measure demand first. There are times where group rates should be at or even higher than BAR.
2. Float as many rates off BAR as possible; allowing for ease of measurement and efficient yielding.
3. Take your competitor pricing into consideration; don’t allow it to dictate your pricing.
4. The consumer determines the right price for your product, be sure to test your pricing, measure the response, and repeat continuously.
5. When Unconstrained Demand is higher than your physical supply shut the back doors in to lower rates. This is the first place to look when your ADR is surprisingly low in high demand periods.
Pricing is a critical element to a solid hotel revenue strategy; take the time to set up your rate plan so that it makes sense and listen to the consumer.