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Neil L. Salerno, CHME, CHA

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Featured Article

"What the Heck is Hotel Revenue Management, Anyway?"

 

Changing Your Rate Strategy to Improve Your ADR
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Today’s "Guaranteed Lowest Rate" on the Internet
Now Viewed as the Hotel’s Published Rack Rate

By: Neil Salerno, CHME, CHA

From the time when I was still a young hotel sales pup, the only rates published to the consumer were our highest rack rates; and sometimes other specially created rates for specific hot dates or specific market segments. Times were good. 

We were able to leverage special rates against our rack rates to show consumers the real value of the discount presented to them. “Our rack rate is $125, but we are prepared to offer your group a special rate of $90.” We knew then, as we still do today, that people bought the value of saving $35; a 28% discount! They bought the value; not just the rate!

Ironically, the same rate of $90 loses much of its value if the rack rate is only $100; not as great a deal. Note that the only thing that changed is the imagined rack rate, which is the rate which created the value and was the rate first presented. That rack rate defined your hotel.

Today’s “best rates” on the Internet have thrown a huge monkey-wrench into the mix. A published “lowest rate” is now viewed as the hotel’s published rack standard rate. No matter how many reservations you are receiving directly from the Internet, many experts feel that as many as 75-80% of all reservations are, first, researched on the Internet. Even at half that number, that’s a lot of viewing. We’re actually promoting our lowest rates. 

Personally, I hate the fact that our industry has made the Internet a bargain basement for hotel rates. Selling by rate is not the best way to market a hotel; or anything else for that matter. It’s unfortunate that this strategy was created as a knee-jerk reaction to the overwhelming marketing success of online third-party suppliers. Franchisors needed to take action.

As GDS production continued to wane, franchisors were faced with dwindling GDS income while facing the third-party supplier’s overwhelming control over Internet sales. Internet sales continue to grow at an astounding rate. In 2004, Internet sales exceeded GDS sales for the first time in history. Third-party suppliers were poised to dominate travel sales. 

In order to take control of this progressively valuable resource, franchisors countered the efforts of the third-party suppliers by creating a guaranteed lowest rate on their web sites; an attempt to draw Internet users to their sites and away from third-party sites. The problem they still face is the fact that only 20% or so, of Internet users search by hotel brand name. Third-party suppliers still dominate search engine results. 

Some hoteliers think it’s horrible that third-party suppliers would actually want to profit from investing many thousands of dollars to promote our hotels. Suppliers use pay-per-click listings for search engines, radio, television, and magazine advertising to promote our hotels and spend huge amounts of money to do it. Aren’t they entitled to make a profit?

That’s why I find it abhorrent that they are viewed as the enemy. True, their “profit” is generally the difference between the rates you give them to sell and those rates which you sell on your own. But, the big question is; aren’t they selling the rooms you aren’t selling on your own? 

There are still many hotels that struggle with lower average rates, especially as compared with some of the peak years of the past. Part of that, at least, is caused by this new Internet exposure. Those hotels, which have recovered and gained in average rate, have changed their overall rate selling strategy. 

Develop a Rate Strategy

Rates should not be developed in a vacuum. Use the STAR report, Hotelligence Reports, and any other reports you can find to gather the rates being offered by your competition. For those who don’t feel they have competition, why aren’t you full?

Next, determine where your hotel ranks within your competition set and where you want to be. Create an honest comparison of your hotel and your competing hotels; not just the brick and mortar, but services offered, staff, management, and sales teams. 

Remember…your rates position your hotel. People that don’t know your hotel often judge it by the rates offered. In their effort to determine “value” people will use your rates as their first criteria. 

What if I was selling a new car called the Zenith; it sells for $22,500. If I added a photograph and listed all its features, which compare it to a Mercedes, would you believe it? Does it make sense? It’s too cheap to compete with a Mercedes; it would definitely make you suspicious. This is what often happens when you discount your product. “He, who discounts his product, is the only one who knows what it’s really worth”. 

People will first judge your hotel by the rates offered. Deep discounts will under-value your hotel and make it less appealing. Higher rates will raise their expectations and impression of your hotel. Be prepared.

All deep discounting should be done, in private, on specific business only. Discounting based on volume or to cover specific slow periods is an acceptable practice, which is easily understood by the consumer. Publishing discount rates should be limited by effective dates and/or market segment.

Develop a Rate Potential

It’s basic, but average rate is not what you sell a room for; it’s what you sell all your rooms for. The primary reason why we segment markets is that each market has its own rate potential. Certainly the corporate group market has the potential to produce higher rates than most SMERF groups. 

The market mix of business in your hotel should be the framework for developing rates. Discounted rates need to be offset by higher rates. Be careful when publishing deeply discounted rates on the Internet; not only do they position your hotel, but they can also negatively impact your average rate, unless they can be offset by other higher rated market segments.

You should know what rates you need to sell in other market segments in order to achieve your desired average rate. This means developing a rate potential. If I sell the number of rooms, in each market segment, what average rate can I achieve, using the rates I am currently selling? If that answer is no, you have some work to do.

Be Creative

We know that most franchises will require you to publish your lowest rate on their site. Franchisors need your support; after all they are selling your hotel too. But, once Internet users are on your viewing page, you still have the opportunity to sell higher rates.

It’s amazing that so many hotels do not take advantage of this opportunity. After selecting arrival and departure dates, most booking engines will show all rates available for your hotel. Here is your opportunity to be creative. 

How well do the room descriptors represent your room-types and upgrades? To be honest, my impression is that most hotels spend a lot of time and effort on developing the copy for their sites and as little time as possible describing room types and upgrades. Upgrades end-up being the last rooms sold; and those are usually left unsold.

Create some value-packed packages. Mixing other value elements into packages can make higher rates appear more attractive. 

If you have your own web site, get going with the search engines. People need to find your web site in order to book with you. Send bookings through your franchisor’s booking site, if they require it. 

Considering the low cost and great R.O.I. of having your own web site, every hotel should have its own web site; unless you want your Internet fate solely in the hands of your franchisor’s 20% exposure.

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