Price Communication
It is helpful to appreciate that your buyer’s preference can be influenced by the way that you state your prices. If you have two prices, then one is seen as being expensive and the other as cheap. Introduce a price in the middle and that is then seen as inexpensive and will attract more buyers. This is a particularly useful strategy in a wine list or on a menu. If you extend your list with some really expensive wines or dishes then you will ‘drag’ up the average spend, since those items near the middle are not now seen as being so expensive. You will also make fewer sales of the really low-priced items because no one likes being seen as a cheapskate!
Pricing Model
It is tempting to look back to the pre-internet era as some golden age when it was easy to set your various prices for each market segment and then just take the bookings. I don’t remember it quite like that. Often you would set certain rates
18 months in advance and then realise you had made an error, but there was nothing that you could do about it. At least now, with less and less paper, nothing much is fixed for very long.
Now hotel rates are a lot more transparent but I don’t think we are yet at the end of the changes that will take place. Even now, we give fixed rates to companies and then are upset when they look on the internet and find lower rates being given to one-off visitors; and they have the cheek to cancel and rebook at the lower rate!
Of course fixed corporate rates still give some comfort to company financial directors and travel managers who need to know the budgeted travel costs for the coming year. The reality is that the hotel business everywhere is very seasonal, with sometimes vast fluctuations in demand patterns. Averaging out rates over 12 months for these companies will eventually become a thing of the past, and they will be treated to the same seasonal fluctuations as everyone else. That said, it is often a matter of power. If occupancies are high, the hotels make the running with rates and policies. As soon as a new hotel opens and there is too much capacity then there is the usual dogfight for occupancy.
Rate Segments
Some hotels do seem to make life difficult for themselves by having literally hundreds of different rates. I understand that this sort of rate schedule, if managed effectively, can maximise each revenue opportunity as it arises. However most independent hotels need to constrain their wage bill and make everyone as multi-tasked as possible; keeping a simple tariff structure can make a contribution to this.
Local companies often want discounts just for existing. I have never understood how ready hotels are to give away special rates to local companies without any guarantee of business. Where else can you get a discount by saying, ‘I will buy more from you in the future, so can I have a discount now?’ Have you considered giving them a retrospective discount at the end of the year? This way they can prove that they have more business. Sometimes a company gives you all the business they have and they are very committed to you, so why discount the price?
Another consideration is the proximity of the client’s premises and the location of the competition. Evaluate carefully the likelihood of them using anywhere else. Try to avoid giving different companies rates that vary by a few pence. It makes it confusing for everyone.
A rate scheme used to look like this:
- rack rate
- consortia rates
- corporate rates
- conference rates
- group rates
- weekend rates
- special rates.
Each broad category had various subdivisions.
Much has changed in the last few years, accelerated by the transparency of the internet. It is very hard to sustain high fixed rack rates and there is much crossover between rates unless you erect the right ‘hurdles’ (such as full prepayment and no changes without extra cost). A scheme now might look like this:
- sell rate (may fluctuate daily depending upon anticipated demand);
- corporate rate (fixed year round rates for local businesses);
- group rate (varies depending upon season);
- weekend rate (fluctuates based upon season).