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If
the three important factors in real estate are location, location, location, the
big three in playing the rate game are
positioning, positioning, positioning!
The last edition of this newsletter aroused
vigorous debate via email, at a seminar that I presented for the Wisconsin
Innkeepers Association annual meeting and at a corporate seminar that
I recently conducted. Let me say it one more time, I am not advocating a
wholesale reduction of the rate structure of any hotel. What I am advocating is
the positioning of the rate structure vis-à-vis product and rate category and
the discounting of rates to fill opportunity periods in the form of special
promotional rates for certain time periods.
Selective discounting has to be well
targeted by market segment or specific client profiles that can address those
opportunity periods. This principle works equally well for corporate based
hotels as well as resorts.
Let's look at some specific examples. A
corporate hotel is running in the mid sixty-percentile midweek. This is
significantly lower than in previous years and their midweek prime occupancy
period is running one day shorter than in the past. They now are running 60-65%
Tuesday and Wednesday nights while Mondays and Thursdays have fallen to
approximately 50%. For simplicity's sake, let's say that this is a 100-room
hotel, which means that on any given night, they have between 35 and 50 rooms to
sell. There is a highway construction project in the area and their competition
for that business is a limited service property across the street.
In this situation (an actual one) the
General Manager was smart enough to realize that an additional 15 rooms for five
nights a week was worth lowering his rate to $46 ONLY for this specific group.
He included a coupon for a $4 discount on a full hot breakfast, something that
he does for all of his government accounts (a segment that has increased by 15%
due to this) and successfully landed the business even though his competitor was
offering a rate $2 cheaper.
Say what you will about lowering rates but
this hotel is running ahead of last year in revenue, market share penetration
and REVPAR in a market where all of these indices are declining among the
competitive set.
Let's look at another example, a resort
situation. This property is newly renovated and presents well. However, the
statistics indicate that their Occupancy and REVPAR has been declining in
inverse proportion to their rate. In addition, an aggressive competitor is
'dogging' their rate, that is, the competition is entering into the reservation
system a promotional rate that is $10 to $30 less based on opportunity periods.
Once the GM realized this, he met and in some periods reduced his promotional
rate to be slightly lower than theirs. He is only offering so many rooms at this
rate so he can build his occupancy and rate structure. This is called yield
management, an art that has been lost of late. When this GM analyzed his actual
fill nights in high season, he realized that there was some opportunity there as
well, i.e., he was not as full as he thought at mid-week during high season. The
hotel is now actively targeting a lower rated market segment; skiers at colleges
and universities within drive distance, who have the potential to use the resort
during this period. The rate is very discounted rate and they are promoting it
directly to the institutions student unions and through student newspapers.
Creative thinking out of the box!
I challenge you to do the following:
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Make
sure that your rate is positioned properly against the
competition by shopping their reservation system and analyzing their positioning
on the electronic distribution channels. They may be undercutting you without
your even knowing about it.
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Analyze
your data for the past two years. In many ways 2001 was not
representative, especially Q4. Find out how many 'fill nights' you actually had
versus what you think you had. |
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Use
this data to identify opportunity periods where selective
discounting can benefit the hotel.
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Think
creatively out of the box. Develop a strategy with your sales
department and reservations to 'fight back' and target those market segments
that can fill your opportunity periods |
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Be
willing to take risks. Not every idea will work or work
immediately. If you are cost-analyzing your promotions, you won't be out of
pocket too badly if the first idea doesn't produce as well as you thought. Move
onto the next one. |
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These are examples of rate
positioning and selective discounting to fill rooms that would otherwise be left
empty. Stubbornly holding on to a rate structure or rate because 'the product is
worth it' will leave you with declining revenues, REVPAR and market share. Your
product is only worth what people are willing to pay for it at any given time. |
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