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.

Focusing on Increasing Hotel Sales

Sales forecast is not something that most hotel revenue managers want to focus on. But this is an essential element to consider because it will affect the company’s strategy, hotel rate positioning, and pricing strategies among others. Every start of the year, most people look back at what happened the previous year. And for the new strategy to be successful, it is critical to know what worked and what didn’t in the previous years and how these can be improved upon in the next year. In addition, hotel revenue managers should not only lay out the forecast and stick to it stubbornly. It is sometimes wise to consider the current market condition to change the hotel rate strategy appropriately.

After this step, the next one is implementation. This is where more problems start to occur. Many hotel revenue managers say that they have a problem about “time management”. They take unnecessary calls that could have been left to the secretary to answer. They welcome interruptions from different people within the hotel. And they spend too much time in redesigning work flow and other systems. While this initiative may be necessary, it is the task of the hotelier to know which area should be prioritized.

In truth, most revenue managers don’t have an issue with time management; they have sufficient organizational skills to manage their time effectively. Their main concern should be their lack of focus. Focus is different from management. It is not about organization but about prioritization. The organization with streamlined operations may not experience profit optimization if it is targeting the wrong market. In the same way, managers who put their time and effort into unproductive undertaking will yield no tangible results.

Fortunately, there are things that can help hoteliers and staff keep their focus on the right things. Among the steps they can take include:

Analyzing Daily Activity – writing down the activity of the day and then analyzing it will determine how productive the hotel revenue manager is. This will help them identify which tasks needs to be eliminated and which should be placed at the top of the list.

Prioritized Identified Areas – once the critical aspects of operations have been identified, the next step is to know which proposals, contracts, or any other tasks should be done for the day.

Reduce Interruptions – one of the things that make a person less productive is distractions. By eliminating interruptions and other unnecessary tasks, the main priority can be finished during the day or during the specified timeframe.