By Jil Larson, July 22, 2010

Recently overheard from a Director of Sales:  “We need to drop our rate that week because we have no group base and we’re past the booking window.”

Translation:  We need to drop the transient rate, the one already identified as being the optimal price point for demand conditions that week, to compensate for a lack of group base. 

A host of questions spring to mind.  If the transient rate currently in place is the one we believe will generate optimal transient revenues from the projected transient demand, and it should be, why would we want to lower the rate to make it not optimal?  Misery loves company, but just because group has tanked that week, we’re supposed to take transient down with it?

This person may also believe hotels need to increase their transient rates on nights when they do have a group base, regardless of whether or not they are projecting to sell out or what conditions are in the marketplace.  This line of thinking is not unusual, just annoying.  I’ve heard the same comment in many markets from many different people over the past 10+ years. 

Here are three selling strategies to take to the bank.  Literally.

Conditions:  A large event is taking place in the market that will fill several properties (external compression).  This is the one that justifies a transient price increase.  Even if your hotel isn’t projecting to sell out, it can often maximize revenues by raising rates if the other properties in the market have done so due to their high demand.

Condition:  Your hotel is projecting to sell out because it has a group base, but demand for the market overall is not unusually busy (internal compression).  Don’t trip up and raise your transient rates, no matter how sorely tempted you may be.  If you believe charging a higher transient rate will generate higher transient revenues, why aren’t you always charging that rate?  Your transient pricing should be separate from the size of your group base, because the transient buyer does not know or care what your group base is.  That buyer is not willing to pay more or less as your group base goes up and down.  Stick with your usual price point and weed out the excess demand using other means like stay restrictions on peak nights and closing discounts.  Closing discounted rates can get you the higher ADR you dream of on these busy dates.  Raising your transient rate, and possibly overpricing, can actually get you a lower ADR from a poor mix of business, not to mention prevent you from achieving that projected sell out.

Condition:  The hotel is not projecting to sell out and there is nothing unusual occurring in the marketplace:  This one is where seasoned hoteliers still get tripped up.  It doesn’t matter if the hotel has a group base or not, the transient price point should be the one estimated to generate the maximum transient revenues.  If you believe the transient rate needs to be dropped on dates when you have no group base, what you really believe is that the transient rate needs to be dropped, period.  You are suggesting you will gain more transient revenues with a lower rate.  You want to do that on all dates, not just the ones that don’t have a group base.

Too often hotels unintentionally suppress their room revenues by tying their transient pricing strategy to the size of their group base.  Size doesn’t matter.  Put yourselves in the shoes of the individual traveler and you will quickly realize this.  Your hotel rooms provide the exact same value at 50% occupancy than they provide at 90% occupancy.  And that’s assuming travelers even know your occupancy, which of course they do not.  If your property has this bad habit, it’s time for a new strategy.

P.S.  In follow up to the comment made by that Director of Sales, it turns out the hotel actually wasn’t past its group booking window and picked up a few small groups.  The transient price point wasn’t dropped, and the hotel sold out every night of that week.  All weeks should do so poorly.

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Jil Larson is a twenty-five year veteran of the hotel industry with revenue management leadership experience within the Starwood, Marriott, Intercontinental, and Fairmont organizations as well as that of several independent hotels.