By: Neil Salerno,  August 3, 2010

I've read several articles lately which discuss rate building post recession. At least one of those articles, provided suggestions which are completely opposite of acceptable revenue management principles. So, before you blindly follow some of those suggestions, consider committing to revenue management. My sense is that there is still considerable confusion, among independent hotels and some sales advisors, about the actual implementation of RM. 

For hoteliers, who reduced their rates during the recession, revenue management should play a significant role in their rate recovery. These hotels are in for a real struggle in their effort to recapture profitable rates. This effort will be greatly enhanced if they adopt basic rate development principles and use revenue management.

Revenue management is based upon the general doctrine of supply and demand. Applied to our industry; available rates should increase, as room demand increases. I believe that this concept is misunderstood by some people; it refers only to rates which are made available for sale and should not be confused with actually "raising" rates. Setting rates should be a matter of setting a range of rates, high to low. As demand increases, lower rates are closed for sale. 

Setting Rates Is An Art�Not Science

With revenue management, we are using past history, reservations on-hand, local area demand generators, and anticipated new reservation pick-up to calculate room demand for specific dates in the future. It is this analysis process which helps us to determine the proper range of rates to be set.  

But, rates should never be set in a vacuum; they should only be set after considering the market factors above and after you determine your hotel's ranking in the marketplace. Please note that the quality of your hotel's facilities and services should only be considered in relationship to your competition set. You'll be quickly disappointed if your  rates are much too high or too low for your hotel's position in the marketplace. 

Don't be left behind in this process. People, who don't know your hotel, will judge its value by your rates; rates that are too low or too high, as compared to your competition, will have a negative impact on sales. If travelers selected hotels by rate alone, the hotel with the lowest rates would be full all the time and we know that's not happening.

Your hotel's recovery will depend upon your ability to re-brand your hotel in the marketplace. A great tool, to begin this process, is a detailed SWOT competition analysis. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. This tool will help you to define your hotel's ranking as compared to your competition set. 

This SWOT analysis is not simply a "brick and mortar" comparison. Some factors to consider are, management and sales ability, services offered, location, TripAdvisor comments, etc.

Determine Your Competition Set

Determining your hotel's competition can be a tricky proposition. It is best to do this by market segment. Some hotels may be very competitive for transient business, but are not competitive for leisure business and so on. 

One market segment, which is often neglected, is online travel. This requires some time and dedication. Analyze what your competition is offering as far as location, facilities, services, and amenities and, just as important, how they present them online. Does your website compete with your selected online competition? 

I can't think of a better tool to help analyze your competition set than the STR Report by Smith Travel Research. If you are fortunate enough to have a report for your area, it's a great tool since the numbers are "real". There is no better way to determine progress than to compare it against your competition and not simply your budget.

Be Thorough

I'm sure you got the idea that setting and managing rates and inventory is a big job, but, done properly, you can do nothing better to prepare your hotel for post recession business.