"I want my Advance Purchase Rate to be set up with 7 Lead Days as this is how my competitors are doing it."
This is what I would hear from some of the hotels I used to handle. All their rates were always based on how their competitors were doing it and never did they analyze their production.
I believe that Advance Purchase Rate setups should be based on how your guests are buying your Best Available Rate (or BAR), since it is a discount off of this rate in the first place. And by having a better understanding of your production reports you can find out how the market is behaving towards the BAR.
One of my hotels was so excited in creating this rate plan that they overlooked the major factor that they needed to consider. They were proud and happy to inform me that they have followed my recommendation on creating an Advance Purchase Rate. They were happy with the results as it was performing well. I was also happy myself, but I wanted to be sure if my happiness was well deserved.
I checked the hotel's production report and my findings disappointed me. Advance Purchase Rate was indeed producing well for them, but BAR was decreasing. On the report I saw that people were buying BAR around 14 days in advance. When I checked the Advance Purchase Rate setup, I was upset to find out that they have set it up to only 7 days. This means that the Advance Purchase Rate that they have created was stealing the production of the BAR. They were also cutting their overall revenue since they were discounting these guests who were already paying on BAR. When I asked the hotel they informed me that it was set up this way because their competitors were selling it that way.
The major factor that a hotel needs to consider when creating this rate plan is to know how people currently buy BAR in the market.
If people buy BAR 14 days in advance and for 2 nights, it would be effective to create an Advance Purchase Rate with either a higher "Lead Days" restriction from 21 days or a higher "Length of Stay" restriction from 3 nights. From here on, the hotel can opt to have incremental discounting. For example, "Advance Purchase Rate with 21 Lead Days and 3 nights for 15% off", "Advance Purchase Rate with 30 Lead Days and 4 nights for 20% off".
You can keep changing the setup depending on your BAR and of course the season. As long as one of the restrictions is higher than how your BAR is being bought, either the "lead days" or the "length of stay". You can even close the Advance Purchase Rate during peak season so you can maximize the yield you can get. You can even increase the discount during off peak or depressed seasons.
By setting up your Advance Purchase Rate above how your BAR is being bought, you can avoid stealing your actual BAR production and avoid cutting your revenue.
And of course it goes without saying that you should properly promote this rate on your website.
Rochelle Castillejos is the Managing Director & Founder Hotel Revenue Plus. She has over 15 years of industry experience in the fields of Sales and Marketing, Revenue Management, RFPs (Request for Proposals), IBEs (Internet Booking Engines), CRSs (Central Reservations Systems), PMSs (Property Management Systems), RMSs (Revenue Management Systems), OTAs (Online Travel Agencies), and GDSs (Global Distribution System). She oversaw around 55 hotels in the regions of Americas, Europe, Mediterranean, Asia Pacific and Middle East throughout her career.
