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Confusion
abounds in regard to where the rates should be. There is still a segment of the
hotel population that is in denial and wants to keep rates at their 2000 level
because "the product is worth it." Sales is frustrated that they are
losing business to other hotels that are slashing rates in a bid to increase
occupancy and getting grief from above because they can't "sell the
rate." Neither stubbornly maintaining rates nor 'slashing' works in the
current economic climate.
The nature of the rate game has changed. In
the above scenario which side is playing the game to win? Neither. If this were
a gaming table in Las Vegas, both sides would lose their shirts.
Make no mistake, in the first scenario the
product is only worth what someone is willing to pay. If fewer people are
willing to pay, market share declines and the REVPAR and Yield Indices are out
of balance. In the second scenario, slashing rates may build market share
penetration but REVPAR and Yield will decline to unacceptable levels.
I would submit that there is a smarter way
to play this game so that both sides have win-win and ultimately the hotel wins.
However, only certain players can play this game.
The first qualification is that you had to
have enjoyed market share above 100% until at least Q4 2001 and your current
published rates are positioned well against the competition in your product
category. All others shouldn't e to this gaming table until they have at
least established the second qualification above.
Leave
the published rate structure alone. You have probably already
noticed a sharp decline in rack, corporate and other programs tied to rack rate
as well as a sharp increase in the discount market segments. Somewhere in the
middle is the 'value rate.' This is the rate that the middle 50% of your
customers are paying, those that have negotiated rates or LNRs, large group
rates, etc. The increase in rooms in the discount segment should offset the loss
in rack segments. It is the average rate paid by your locally negotiated
accounts that is probably your 'value rate' in the market. By 'value rate', I
mean the rate that is considered good value by those in your local market with
the potential to give you business and those that call the hotel directly rather
than Central Reservations. This should be e your 'sell' rate across the front
desk for walk-ins and reservations.
Discount
everything else like crazy! Actively seek out and aggressively
bid on tours, one-time groups like construction crews and large groups from
accounts that you know are bidding out meetings or groups. Selectively trade
rate for volume in Q4 2002 and Q1 2003. This takes a certain amount of skill on
the part of the sales person.
Here are some of the steps to follow:
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Prospect
all those files that you previously rejected because the rate was too low.
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Keep
your eye on your
competitor's parking lot for tour buses and
company vehicles.
Know who is using your competition at what rate - if you don't know
call and shop them. |
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Get
a clear understanding of the lowest rate you can quote and the guidelines.
You want to be able to close on the first call - don't be in the position of
having to check and call back. If you can pique the prospect's interest you need
to be able to act on that opportunity.
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Call
them and grovel - indicate that you are offering substantial
discounts on a limited basis. |
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The
first person to quote a rate loses! Ask them what rate they
are looking for, their budget for this project, what they are currently
receiving elsewhere and what it would take to get their business. You may not be
able to meet or beat the rate but at least you know what the ballpark looks like
and you can value-add to make your slightly higher rate more attractive. |
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This strategy works if you are
projecting few or no 'fill nights' in the fourth and first quarter. You have
inventory to sell. Anything that you sell in these circumstances is incremental.
The benefits to the hotel
include increased market share, incremental revenue and the ability to retain
staff during a down period. This is playing the Rate Game to win!
Make no mistake about it --
those properties that maintain or increase market share in these economic times
will be the ones well positioned to move the rate when the economy begins to
turn upward!
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