Worst Practices In Revenue Management – Part Two
July 28, 2016 10:21am
By Jean Francois Mourier
The hotel industry is very competitive and it’s crucial that hoteliers stand out and attract the attention of consumers online. Because it’s easy for revenue managers to get caught up in outdated, ineffective methods, we’ve decided to finish our list with some of the most important worst practices. As a reminder, Part One offered the following worst practices:
Worst Practice #1 - Assume Your Customers Know About & Only Evaluate Pricing Within Your Compset
Worst Practice #2 - Use Stagnant Rates
Worst Practice #3 – Don’t Replenish your Inventory Online
Worst Practice #4 – Make Your Already Complicated Job, Even More Complicated
Worst Practice #5 - Be Very Afraid of Technology
So without further ado, here are the final six most destructive practices in revenue management:
Worst Practice #6 – Misleading Star Ratings
In an attempt to garner attention on OTAs, may hoteliers will mislead potential guests on their actual star rating. While it is true that consumers may be willing to pay a higher room rate for a property with a higher star rating, this practice can actually have hugely damaging effects on your overall profitability. For example, if you’re positioning yourself as a five-star property but only offer four-star amenities, consumers will be disappointed, which will lead to negative TripAdvisor reviews. As you know, your TripAdvisor rating can actually have a serious impact on what consumers will pay for your rooms.
Not only is inflating your star rating a bad practice, deflating it is just as destructive as it will only hurt your revenues in the long run. If you’re offering services that will impress guests, chances are they will be willing to pay more for your rooms.
Being honest is the best approach to setting your star rating on the OTAs. You will earn the most revenue possible for each booking if your customers are satisfied and if you’re being compensated for the services you’re offering.
Worst Practice #7 - Lowering Your Rates as the Arrival Date Approaches
As last-minute bookings apps and websites are becoming more popular, this strategy can lead to millions of dollars in lost revenue. The best strategy is yielding; in other words, fluctuating your price according to the market, demand, competition, etc. And the best way to properly yield is to use a RMS that can update rates according to changes in market factors in real-time, 24/7.
Worst Practice #8 - Inflating Your Rates As Occupancy Increases
Though many hoteliers believe that they can generate the most revenue by raising their prices as occupancy increases, this can have a negative effect on your profitability. You may assume that if you already have a high occupancy, the demand is particularly high; however, unless the market data confirms inflated demand, your occupancy will suffer by increasing rates.
Worst Practice #9 - Overwhelming Customers With Options
Room types and upgrades should be offered to guests as they are booking their stay, but it is important not to offer too many options. If guests feel confused and overwhelmed, they will are more likely to abandon the booking. In general, hotels should only offer three to four options for room types or upgrades.
Worst Practice #10 - Using Outdated Pricing Strategies
It is a common practice in revenue management to offer discounted rates in $10 increments; however, this practice is not effective as it means that you may be giving away too much revenue unnecessarily.
For example, if most hotels within a destination are charging $149/night for their rooms, applying the $10 discount rule would mean listing your rooms at $139. Though you will most likely get the booking, you will lose $10 of revenue per room that you sell. Instead, price your room at $144. You’ll only give away $5 of revenue per room and you will still get the customer’s business.
Finally, we’ve saved the best (or in this case, the worst practice) for last…
Worst Practice #11 – Setting Higher Rates on Your Website Than on the OTAs
Many hoteliers will offer lower rates on the OTAs (compared to their direct rates) assuming that this will earn them more bookings, and therefore, more revenue overall. Though OTAs draw more traffic, they do charge properties commission on every booking so it will be more beneficial (from a financial standpoint) to push traffic to your own website instead. Because of rate parity, you can’t offer a lower rate through the direct channel, so offer the same rate through the OTAs and on your direct channel. Also, consider offering your consumers other (non-price) incentives to encourage them to book direct, such as a free room upgrade, free breakfast, free parking, etc.
Also, if a consumer calls your property to ask if you can match an OTA rate, enable your
reservations team to do so. It is a win/win; you will be securing the booking AND won’t be paying a commission on the booking.
Well, there you have it. These are the worst practices in revenue management. So will you update your pricing strategy to avoid making these mistakes? I really hope so!
Tags: jean francois mourier,
Jean Francois Mourier is CEO and Founder of REVPAR GURU, a company that provides hotels around the world with an alternative revenue management software system designed to deliver maximum bookings and profits. You can reach Jean Francois by calling 1.786.478.3500.
Contact: Jean Francois Mourier
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