The art of Pricing
Pricing strategies during low demand periods are about of the most usual requirements I receive. Usually followed up with the question on how low I consider the rate should be in order to attract any business.
In my opinion there is a general
misconception on the power of increasing demand by lowering rates. It actually takes
demand for these kinds of pricing strategies to have its full effect. Without
demand, you risk of “simply” decreasing your room rate without the benefit of
the effect of retrieving more occupancy. It is not easy to withstand the
temptation of a quick fix when competitors in the market settle for aggressive
pricing strategies, but it is good to take into account potential damage coming
from pricing strategies.
As always, it is vital to first
calculate the total demand in your market before making a decision on rate
strategies and to analyze the full positive or
negative effect in order to form a long term winning strategy towards your
Low Demand Strategies
Our rate strategy is increasingly
transparent and our guests understand that it can be valuable to shop around
for deals even after the reservation has been made. This means that hotels are
faced with last minute cancellations and changes when the guest finds a better
last-minute rate. This can have a short term positive effect, as you might be
able to “steal” some of your competitor’s guests. The risk lies in the fact
that you might face last minute changes on your existing reservations. Not to
mention guest complaints when they find that the exact room they booked earlier
now is for sale at a cheaper rate. Furthermore, as we previously stated; we
need to be able to forecast the total demand on a specific period in order to
determine our rate strategies and for us to make a good forecast, we need to
have reservations. How are you ever going to teach your customers to book as
early as possible? Especially when you punish the early bookers by offering
cheaper rates to those that book last minute.
It is not easy to withstand the temptation when competitors in the market settle for last minute campaigns. This can be avoided by offering Early Book Rates instead. This way you will be able to maintain a high integrity level towards your customers and avoid last minute drop outs.
High Demand Strategies
important, if not more important, as the focus on Low Demand Periods, is the
focus on High Demand Days. This is the time when properties have the
opportunity to really increase their result. This can be obtained through a combination
of the optimal marketing mix and public rate strategies. Usually we see that
the price sensitivity decreases when arrival date is coming closer. This counts
for first point of booking. Guests that already have booked and continue to
search for last minute deals still are considered to have a long lead time. The
trick is to be able to offer availability when the less price sensitive guests start
to book. For High Demand Days, your focus lies on Displacement Calculations. This
means that you analyze the reservations you were not able to take because you
already were fully booked. If the ADR of these reservations is higher than the
ADR you have on the books, there is potential to increase your result.
Shoulder Night Strategies
Shoulder Nights are the nights where
demand is reasonably high. With the right strategies in place, you have the
chance to achieve 100% occupancy and focus on these nights can give you a good
revenue growth. Also here, focus on Displacement is vital. Many properties find
that their displaced reservations depend on the fact that high demand days, in
conjunction to these Shoulder Nights, were fully booked at an earlier stage.
Here rate strategies can be all about positioning correctly, set the right
restrictions throughout the whole period and aim for 100% occupancy without
losing sight on getting the right rate during these nights.
Four things to consider!
- Strategy! Think before you start. Determine the pricepoints you are going to use for which daytypes and for which roomtypes; Distressed, Low, Medium, Shoulder and High Demand.
- Forecast! This actually is the base to correct pricing. The core reason behind any last minute drops in rates actually is a bad forecast. When you expect low or medium demand; do not start out with your highest rates, choose the pricepoint you determined for this type of day.
- Competitors! Take care to maintain the correct positioning against your competitors but be careful when it comes to last minute drops. If you make sure you have a base of reservations, you might not feel the need for last minute panic strategies.
- Analyze! Make sure that your strategies have had the right effect and find out if you could have improved even more. This is the best way to make sure you find the best long term strategies and will beat your competitors most days of the year.
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