In the Spotlight: Advance Purchase Discounts
There are two types of people in the world: those who book advance purchase discounts and those who do not.
I am firmly in the latter camp although there are plenty of arguments for and against. Who am I to impose my neurotic, worrisome tendencies on to you the reader, who have the right to live free-and-easy and book whichever discounted rate plans titillate your sense of whimsy? Say what you will about the brave individuals who don’t slink away in fear at the words “Non-Refundable Cancellation Policy”, but one thing is true: they are a revenue manager’s best friend.
Advance Purchase discount reservations have a few things that make them great:
- Payment is (should be *cough*) collected at the time of booking, which is guaranteed revenue in hand. Sweet, sweet instant gratification.
- Reservation is non-cancellable.
I’ve always thought of advance purchase discounts as the proverbial canary in a coal mine. When looking at your pickup report on a revenue management call, you should always get a few ‘chirps’ (bookings) for major arrival dates, even if they are far a bit far out. If you don’t get any chirps, then it is usually a signal that your pricing strategy is a bit high. And that your canary is dead.
But what is the normal lead time for an advanced purchase discount? And if we are overzealous and picked up a lot of advance purchase rates due to a rate strategy that was too low, what is the chance that we get these rooms back and get a second chance to sell them again?
To answer these questions let’s pull some PMS data and do a miniature case study. I pulled data from 3 different hotels in 3 very different markets to try to shed some light on booking tendencies of our adrenaline junky advance purchase guests.
Here’s a look at what I found over the course of the past 3 years or so at all three hotels; the first chart is a summation of the booking lead-time and Average length of stay by rate plan.
These next two charts illustrate the outcomes of those reservations, CKIN are reservations currently in house at the time of observation, CKOT are rooms that have checked out and have fully actualized, CXL rooms have canceled, and NOSH were no-show rooms.
So, what does this tell us? It appears our advance purchase guests are indeed a bit more deliberate than perhaps I had portrayed them at the beginning of the blog: they book much, much further in advance than our BAR rated guests, and stay for shorter amounts of time. They are booking about 3 weeks in advance, and are booking for just under 2 nights. The BAR/RACK guests are much more lax, booking for longer lengths of stay but more in the immediate booking window, likely due to the confidence that they have in the more forgivable cancellation policy.
Next, we can see that there is roughly a 10.37% occurrence of the advance purchase discount reservation not checking in, compared with a much higher percentage of reservations not actualizing when they are booked at BAR which was 17.24%. The risk of the reservation not being refunded does indeed seem to dictate the likelihood that a guest actually arrives on their designated arrival dates, and stays over their booked dates when booking an advance purchase rate plan.
As a revenue manager, this doesn’t necessarily tell me too much I didn’t already suspect, but it is always great to have hard figures to bring to the table when attention turns to the advance purchase rate on a revenue call. This kind of data can directly influence our Advance Purchase Lead time policy, length of stay restrictions on advance purchase rates, and our overbooking policy. For example, on a revenue call, I would recommend that we not hesitate to add a length of stay restriction of 2+ nights on our advance purchase rates on our traditionally strongest days of the week. I would also recommend that we not have a 3-week advance purchase discount, as that is a booking pattern that the guests are already doing. Also, I would recommend for any night that we have 10+ advance purchase discount rooms and are forecasting above supply that we at least allow an overbooking of 1 room, since historically 1 of those 10 do not actualize.
Be sure to check back in the near future for our next ‘in the spotlight’ victim: the Senior Citizen Discount!
If you missed our last blog, check out our insight and analysis into automated hurdle points!