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Playing the Rate Game Positioning -- Positioning -- Positioning!
Carol Verret / October 2002 |
| If the three important factors in
real estate are location, location, location, the big three in playing
the rate game are positioning, positioning, positioning!
The last edition of this newsletter aroused vigorous debate via email, at a seminar that I presented for the Wisconsin Innkeepers Association annual meeting and at a corporate seminar that I recently conducted. Let me say it one more time, I am not advocating a wholesale reduction of the rate structure of any hotel. What I am advocating is the positioning of the rate structure vis- a- vis product and rate category and the discounting of rates to fill opportunity periods in the form of special promotional rates for certain time periods. Selective discounting has to be well targeted by market segment or specific client profiles that can address those opportunity periods. This principle works equally well for corporate based hotels as well as resorts. Let's look at some specific examples. A corporate hotel is running in the mid sixty-percentile midweek. This is significantly lower than in previous years and their midweek prime occupancy period is running one day shorter than in the past. They now are running 60-65% Tuesday and Wednesday nights while Mondays and Thursdays have fallen to approximately 50%. For simplicity's sake, let's say that this is a 100-room hotel, which means that on any given night, they have between 35 and 50 rooms to sell. There is a highway construction project in the area and their competition for that business is a limited service property across the street. In this situation (an actual one) the General Manager was smart enough to realize that an additional 15 rooms for five nights a week was worth lowering his rate to $46 ONLY for this specific group. He included a coupon for a $4 discount on a full hot breakfast, something that he does for all of his government accounts (a segment that has increased by 15% due to this) and successfully landed the business even though his competitor was offering a rate $2 cheaper. Say what you will about lowering rates but this hotel is running ahead of last year in revenue, market share penetration and REVPAR in a market where all of these indices are declining among the competitive set. Let's look at another example, a resort situation. This property is newly renovated and presents well. However, the statistics indicate that their Occupancy and REVPAR has been declining in inverse proportion to their rate. In addition, an aggressive competitor is 'dogging' their rate, that is, the competitor is entering into the reservation system a promotional rate that is $10 to $30 less based on opportunity periods. Once the GM realized this, he met and in some periods reduced his promotional rate to be slightly lower than theirs. He is only offering so many rooms at this rate so he can build his occupancy and rate structure. This is called yield management, an art that has been lost of late. When this GM analyzed his actual fill nights in high season, he realized that there was some opportunity there as well, i.e., he was not as full as he thought at mid-week during high season. The hotel is now actively targeting a lower rated market segment; skiers at colleges and universities within drive distance, who have the potential to use the resort during this period. The rate is very discounted rate and they are promoting it directly to the institutions student unions and through student newspapers. Creative thinking out of the box! I challenge you to do the following:
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