Why the Best Available Rate is not the best anymore
Many times I have either been asked or have discussed with colleagues or industry experts whether lowering the published rates for a future period is a correct strategy.
The major common concerns are always the following:
- What are the implications of price reductions.
- What will the already booked guests’ reaction be, finding out that the best rate that they originally booked is not the best anymore?
Let’s start acknowledging that – referring to point 1. – discounting does not (necessarily) work and does not (always) increase demand. I am putting a couple of words into brackets because as long as it is true that discounting does not necessary lead to a revenue increase; there may be cases and conditions when you need and will have to revise your rates as luckily (or unluckily it depends on how you see it..) we do not live in 2007 anymore and change is ruling the way we work today.
So, get comfortable on the fact that your pricing is not written on the stone and get out of the old fashioned (but unfortunately still popular) myth that your rates have to only go one direction – raise – the closer you get to the arrival date or the greater is your Hotel’s occupancy getting.
Guessing why? Your goal is to increase RevPAR and not only rate or occupancy; so all the external factors have to be taken into account when adjusting your pricing: competitive rates, price sensitivity, market availability & supply, pace and trends.
Would the equation be as simple as + occupancy => + rate, there would not be so many busy Revenue Directors out there!
This is even truer if we remember that pricing is just the edge of the iceberg…
Still frequently indeed, revenue management gets associated with pricing only, giving low credit to the power of what lies underwater – segmentation, length of stay, lead time, product/room type and channel of distribution to name a few – has in driving your revenues up to the next level … but at the same time securing your rate positioning!
So when you find yourself in a challenging situation, experiencing for instance an unpredictable change of demand, competitive benchmark rate dumping or some unexpected event/cancellation negatively impacting your revenues; before acting on the mere Best Available Rate, explore “underwater”:
- Are you opening up availability to any possible segment mix? Are your corporate/wholesale/group rates available? How can you move your business mix?
- Are you acting on the average stay instead of the one night only pricing, offering fenced rates on minimum mandatory nights?
- Based on the lead time, are you working on offerings or promotional activities targeting the early bookers or the last minute ones?
- Have you checked your channel distribution and did you make sure that you are leveraging all distribution opportunities? (Opaque sites, GDS, Internal deals?)
- Are you flexing your oversell strategy by room type?
- Are you leveraging any cross and up-selling opportunities?
Are you playing smart or are you being outsmarted?
And if (as per point number 2.) you are still concerned about the booked guest’s reaction on the new rate products or offers that you make available in the market; a good easy start would maybe be rethinking the definition of your rate and simply replace “best ” with “open”, “rate of day”, “flexible” or something similar..
In the 3.0 era of dynamic pricing and ever evolving distribution and fenced/promotional/tactical/opaque/prepaid/advanced purchase rates, are we sure we are still delivering the right message to the guest? (or better, is the guest perceiving the message the same way we mean to deliver it?)
[Originally posted on LinkedIn. March 7th, 2017]