Have You Looked at Your Rates Lately?

Hoteliers are increasingly using analytical approaches in determining optimal rate spectrums that are based on the price sensitivity of demand and the capacity of distribution. For example, a resort hotel with strong weekend business needs to know how to drive demand into the weekdays – by both season and by market segment. To efficiently achieve this, it is critical to have access to the right variables or data points, such as room type, length of stay, and day of week.

Hoteliers need to also have access to at least 15 months of historical, transaction-level data to compare current and anticipated activity levels. This data should include:

  • Original booking date, arrival date, and departure date
  • Number of rooms associated with the transaction
  • Rates and room types, such as “deluxe” or “standard”

Gleaning this information gives the hotel valuable insight into the intended – and unintended – trends in how the hotel is shifting its customers. Are more customers paying for the deluxe room types or are they getting automatic upgrades? How are refurbishment periods or special events impacting the hotel’s demand or pricing?

Below are some additional areas of focus that hoteliers should consider when they are reviewing their rate spectrums:

  1. Begin with Best Available Rate (BAR) pricing. These rates are the most important for hoteliers to focus on because they affect more offers than hoteliers may initially realize – such as all their BAR-derived prices.
  2. Fencing and discount strategies are important. Demand should determine when to open and close fences, and hoteliers should use fencing strategies to ensure productivity of pricing and avoid cannibalization.
  3. Build a repeatable process. About every 12 to 14 months, preferably around planning season, it is important for hoteliers to re-evaluate their rate spectrum.
  4. Focus on the most price sensitive market segments. Price points with the most price sensitivity will likely be the most productive, or booked.
  5. Look for broad ranges between minimum and maximum BARs. If a broad range between the highest and lowest BAR rate plan exists, it could an indicator that the structure hasn’t considered some internal or external factors. These factors could include strategy, market conditions, competitors, and price sensitivity. Hotels with an overly broad BAR spectrum should use this opportunity to re-evaluate these factors, particularly when the hotel is rarely – or never – selling the BAR rates at either end of their spectrum.
  6. Make sure reservation systems accept new BAR levels. Some reservations systems and online channels set limitations on the amount of BAR levels that hoteliers can configure. It is important to check to see if channels need to be configured to accept new BARs, or if any rate restructuring should stay within its current levels.
  7. Prices don’t always go up. Sometimes price points need to be adjusted lower than the current BAR rates to capture demand and ensure the hotel’s competitiveness. This is a perfectly suitable strategy depending on the price sensitivity of customers and whether results are driven by increased volume over increased rate.

Hotel revenue analytics is here. Zooming in on the three “Pillars of Pricing” – demand, competition and price sensitivity – allows hoteliers to easily determine pricing strategies that maximize demand and optimize revenue. With the right pricing models in place, hoteliers can achieve valuable returns to the bottom line. Through providing a much clearer vision of their data, analytics bring hoteliers more accuracy and consistency (rather than relying on gut instinct) to the forecasting process and revenue strategies.

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