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Viewpoint: Managing room rates isn't easy

27 November 2009 by
Viewpoint: Managing room rates isn't easy

Jeffrey Crockett, operations director, Fawsley Hall and The Park Resort and Master Innholder, has a hunch that room prices will increase in 2010, but the Government needs to clarify its plans for cutbacks and taxes so hoteliers can forecast more accurately.

The big questions currently in the mind of every hotelier are: will room rates gradually return to normal in 2010 and how do you plan a room rate strategy amid so much fiscal and economic uncertainty? Although every economist has a different view, my hunch is that things will slowly improve throughout next year.

Discounting in 2010 is inevitable but Cornell's Centre for Hospitality Research shows that lowering rates will not generate sufficient increases in occupancy to make up the lost revenue. Hotels maintaining rates 10% above their competitors will have a superior rooms yield.

Contrarily, whatever your star rating, flexing rates is good for the consumer and generally good for business but a systemic, permanent decline in room rates isn't. So what to do?

The primary function of all hotel managers is to sell the right bedroom at the right price to the right person at the right time, but active revenue management is mainly the domain of the big boys.

Sadly, the fixed capacity of our room inventory and wildly fluctuating demand makes the management of room prices challenging, but with the latest property management systems, software like Rate Tiger and measurement tools such as The Bench, everyone can play the same game now.

I read recently that we should separate the "discounters" from the "high end value seekers". Making discount offers to the high end value seekers will drive your room rates down and high end value offers to the discounters is a waste of time, money and effort.

Value seekers are very sophisticated. Even when they can afford to pay any price, we must make them feel they are getting something extra.

Hopefully I am not addicted to my 2009 habits. I will close out promotions sooner, chase down markets that are less rate sensitive, question the raison d'être of having a rack tariff, try out some affinity marketing or voucher codes and seek ways of getting better rates and secondary spends from unqualified online bookers.

But you know what? Despite all my analysis and rationale, my room rate strategy in 2010 is still based on a hunch. Governments must recognise the need for immediacy, honesty and transparency when planning public sector cutbacks and tax rises in 2010 and beyond. A hunch, in business, is simply not good enough.

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