News for the Hospitality Executive |
By
David K. Hayes
Ph.D., Allisha A. Miller, Joshua D. Hayes MA, Peggy A. Hayes & Gene M. Monteagudo MS December 14, 2012 Guests arriving without a
reservation represent the least
expensive distribution channel possible for a hotel. Despite that, a
surprising
number of revenue managers (RMs) do not pay enough attention to these
guests.
In fact, the revenue strategy utilized to address these guests is often
counterintuitive. As a result, it is ultimately counterproductive.
Experienced managers know that walk-in
guests arrive with
buyer characteristics that should make selling to them relatively easy.
That is,
they want a room and are physically present on the property. Ask any
front desk
staff member to recount the typical walk-in guest’s conversation and
this is
what they will tell you are the guest’s first question: “Do
you have rooms available?” If the answer is yes, the next question is
invariably: “How much are they?” It is the response to this question that
differentiates the
good from the bad (or even the ugly!) approach to customer-centric
revenue
management. Walk-in guests seek to buy their rooms for use now. As a
result,
some RMs mistakenly instruct their front office staff to quote these
arriving
guests the hotel’s full rack rate. So far so good. If rate resistance
is
encountered, however, the staff is authorized to offer the guest one or
more fade rate (i.e. a lowered rate) alternatives. In some cases, increasingly lower fade rates
are authorized
for use until the sale is ultimately made. The philosophy of such
hotels is one
of, “Don’t let ’em leave” without making the sale! On its face, the rationale for this approach
is perceived to
be simple and logical. If rooms are still available for sale late in
the day
(when walk-in guests typically arrive), such rooms will likely go
unsold that
day. The walk-in guest may represent the hotel’s last chance to sell a
vacant
room before its revenue potential disappears forever. Because that is
true,
continues the rationale, a room sale made at any price above the
hotel’s total cost
per occupied room (CPOR) represents positive revenue and thus it should
be made.
If you really think about it, however, you immediately recognize four
revenue
optimization errors associated with utilizing fade rates: 1. They undermine the
concept that the hotel’s rooms have an express value. It
replaces that concept with one that implies a room’s value is equal to
the
price preferred by the individual walk in guest seeking, of
course, to pay
the least amount possible. David Roberts, revenue management guru at
Marriott
on the website www.marriott.cncbc.com.
(developed for the T.V. show “Hotel: Behind Closed Doors at Marriott”)
refers
to hotels that utilize fade rates as those that are
actually “training
customers not to book in
advance," in the hope of getting a better
deal, and paying a lower rate, at check-in. That's why Marriott doesn’t do it. 2. It requires front office
staff training that is simply unrealistic. Excluding those lodging facilities
consisting of less than
15 rooms, there are approximately 48,000 hotels in the United States.
Of those,
over 40,000 have 150 rooms or less and are located in suburban areas or
small
towns. To assume that hotels of such a size employ hourly staff fully
prepared
to analyze buyer’s rate resistance and then skillfully negotiate price
with
buyers is naïve on the part of the hotel chain RMs who promote
such tactics. It
is also naïve on the part of the RMs who embrace the tactics. In
most smaller (and
many larger) properties, the front office staff will simply avoid
confrontation
by initially quoting the lowest authorized fade rate. 3. It miscalculates
costs. The true cost of selling a room at a too-low
fade rate is
not its CPOR expense total or even damage to net ADR yield. Rather, it
is the
long-term damage to pricing that inevitably results when front office
staff
realizes management does not hold firm to the notion that the room
products
being sold are truly worth their asking price. These staff will retain
that
negative lesson. 4. It seeks to
establish price based only on what is best for the seller. If they are honest, revenue managers will
admit that the use
of the fade rate is not intended to provide the customer greater value.
It is a
strategy that seeks only to optimize short-term revenue for the
property. In
nearly all cases, and in nearly all businesses, if the goal of a sales
strategy
is not designed to provide value to customers and it does not tend to
enhance
long-term revenue optimization, that strategy will be ineffective. The better approach to walk-in room sales is
a different
strategy and one that is builds RevPAR on a long-term basis while being
unmistakably customer centric. Note: This article originally published
today, December 14, 2012 at www.hotel-online.com. Reuse by other media or
news
outlets or organizations is prohibited without permission. Personal use
and
sharing via social media tools is encouraged. All
rights reserved by the authors. This
article is based on information published in Revenue Management for
the
Hospitality Industry by David K. Hayes, Ph.D. and Allisha A.
Miller. © 2011
John Wiley & Sons, Inc. All rights reserved. To purchase this
book or
obtain information about bulk sales, please contact [email protected]
About the Authors: David
Hayes, Allisha Miller and Gene Monteagudo operate Panda
Professionals Hospitality Management and Training (www.pandapros.com).
They offer training (in Spanish and English) on applying the power of customer-centric revenue management to radically increase revenue and expand profits. For information about training and coaching services provided by PandaPros, contact [email protected] Joshua
D. Hayes, (MA: Stanford) is a graduate instructor enrolled in the Ph.D.
program
at the University of California: Davis and is a Panda Professionals
consulting
author in the areas consumer sociographics and data analysis. Peggy
Hayes is Director
of Editorial Services at Panda Professionals. |
Article Contact: Allisha Miller Panda Professionals 1715 Jolly Road Okemos, MI 48864 [email protected] |