Hotel Revenue Manager Tips: How to Avoid Dropping Rate Day-of

“We’ve lost our minds! We’re slashing prices left and right! See this price?! $149.95??? SLASHED! Now we’re at $89.95! See that price over there? $219??!?! SLASHED! Now only $129!!!! They need to put me in a straightjacket!!! I’m Slash-Happy!!!”

Unless you regularly appear on day-time television ads in a vertical pinstripe seersucker suit, in front of a large “Warehouse” or “Liquidator” I wouldn’t advise the above strategy to drive business. So why do so many hotel owners and operators employ this exact tactic day-of?

As a revenue manager I can’t count the number of times an email like this has popped up in my mailbox:
hotel-revenue-management-serivce

Depending on the relationship you have with the property sometimes you have the ability to talk them down from this ever so precipitous ledge.  Many times you don’t.  So what happens when you oblige a frenetic owner, GM, or someone on the front-line who has whipped themselves up into a slash-happy frenzy?  The unfortunate truth is that you will never know both sides of the equation.  Often times when rate is slashed day-of, the next morning the Revenue Manager and the GM/DOS/Owner will be eager to pore over the handful of reservations that were booked after the rate change to attribute some sort of causation or correlation to them.

The argument is (always) as follows:

Revenue Manager: [posturing confidently] These were reservations that would have paid the original rate…We left money on the table!
Slash-Enthusiast:  We wouldn’t have picked up a single room at the old rate! We only picked these up as a result of lowering rate!

Without a crystal ball we will never know the true answer, but the ultimate end goal is simply to eliminate the urge to slash rate day-of in the first place.


 

The most common and dramatic instance is of course the “Can’t Miss City Wide Event” that the entire market anticipates will bring hundreds of thousands of visitors to the market, and then ends up bringing in fewer attendees than a civil war veteran’s yarn and twine enthusiast convention.  Below is a graph to help visualize what a market full of rate-slashers looks like during one of these events:

hotel-revenue-manager-for-hire

 

Unfortunately many of us have trained our guests to wait until the last possible minute- until they hear the Pavlovian bell-ring of a price reduction- to come rushing in and book our properties (hopefully with less slobbering and barking than the initial experiment).

Below are a few steps that I have employed in the past to combat this scenario, and I hope that they can help you and your team stay sane when the big event pops up on the city-wide calendar:


Regression Analysis

Sounds fancy doesn’t it?  Really it’s about the simplest analysis that you can perform to see if big event = big revenue.

For instance, a big NFL game is slated to bring in 100,000 out of town guests to the area.  Checking past attendance (which can be found via a simple google search) you know that the average game day attendance is 85,000 people.  On an average NFL Sunday you very nearly sell out (let’s say 95% occupancy); on a comparable weekend in the same month with no big game you only regularly run an Occupancy of 65%. In a 100 room hotel this is a difference of 30 rooms that are likely attributable (all other things equal) to your big NFL game.

A word of caution: I know somewhere a statistician is already sharpening his pencil to write me a nasty letter so I will advise you to use regression analysis with some deference , more observations = better data and you must always remember that correlation does not = causation.  However if we can pull 5 years of attendance data from a venue and 5 years of corresponding hotel occupancy data we can begin to safely say that a weekend with x event typically boosts our occupancy by y amount of rooms.


Ease into your higher rate levels

Always test the waters before jumping in: is there an event 6 months out that you think will be big?  Be aggressive with prices, but also be realistic.  Do you have a hunch that you can sell rooms at $300 but don’t have any past data to gauge?  Why not start at $250 and very closely monitor each and every reservation that is made.  Picked up 3 rooms at a 5% qualified discount of BAR?  Then there may not be much resistance to that rate, drive rate to $275 and repeat.

If you don’t pick up any rooms over several weeks, perhaps you are priced too high and can ease off of the rate accordingly.

Always use this strategy in tandem with a good reliable rate shop tool that will give you up to date, lowest shoppable rates (and restrictions if possible).


Determine your Sales Group Strategy

Another majorly important point is to bring sales into the fold.  Obviously they have an incentive to sell what they can when they can at the highest rate like any hotelier, but there are often times when discounted group business displaces higher rated transient business and never should’ve been taken at all (tread lightly all ye who wish to actually utter that sentence to a DOS).

On high demand nights think of group business vs. transient business as stocks and bonds in an investment portfolio.  Guaranteed group rooms are usually lower rated, but having that business on the books is often the safest route to guaranteed revenue, so they offer a safer but lower rated ‘return’.  Our higher ‘return’ guest (our stock investment in this instance) would of course be the transient guest.  This market segment gives a better ADR premium, but it is harder to determine what their production will be- are we guaranteed a sellout from transient guests? Are we will willing to risk no bonds in our investment portfolio?

Review your event calendar to begin to get an idea of what event dates will require some group mix to reach a perfect sell-out, which will need a group ceiling to maximize revenue, and which dates won’t need group at all.

Hopefully these tips will help you escape the cycle of boom and bust pricing that plagues many hotels and markets.


 

-Daniel Foreman, Revenue Manager at Kriya RevGEN

 

 

Comments are closed.