The Rate Game: How Should You Set Room Rates?

There are many misconceptions about what hotel rates should be. It is true that rates fluctuate up and down depending on specific market conditions. But the questions that most hotel revenue managers need to face is, how high or how low should they go to achieve profit optimization. Some yield management strategist still holds to the belief that they can keep their rates consistent with previous years. Meanwhile, some are adapting a more aggressive hotel pricing strategy in order to keep up with the challenges today.

Trying to maintain the same rate because the “product is worth it” simply does not make sense during today’s economic downturn because hotels risk losing their remaining market share. Don’t make the mistake of maintaining this mindset even if all evidence points to the contrary. Remember that a product, hotel inventory or otherwise, is only worth what consumers are willing to pay for it. If very few people are willing to pay, yield indices, RevPAR, and market share all become out of balance.

Meanwhile, it also isn’t a good idea to go as low as possible. Slashing rates below profitable levels may acquire market share but at the expense of increasing hotel profits. Both RevPAR and other yield indices suffer in this instance as well. So what is the solution? Effective hotel revenue management. With good yield management strategy, hotels can increase RevPAR without losing market share or profits.

Stop Tinkering with the Published Rate Structure

It is highly likely that you’ve experienced a drastic decline in revenue. Business and leisure travelers are cutting back and it is tempting to decrease your rates to go after a larger share of the market. But your “value rate” such as group rates, LNR, etc should be able to compensate for the rack segments.

Aggressively Seek Out Groups

Bid on one-time groups, tours, and large groups to increase your occupancy. Some steps you can take include looking back at files and prospects you previously rejected because the proposed rate was too low for you. Then watch out for tour buses and company vehicles in your company’s parking lot. Check your competitor’s rate and try to meet it.

Before you utilize this strategy though, it is essential for you to know just how low you can go. It is never good to be in the position of having to call back during the negotiation process. Act on the opportunity while it is available.