It is always expected that during low periods, hotels would always do the easiest strategy they can think of to win customers. For them, the most effective way to not suffer during off peak periods is to offer low rates, and offer even lower rates during distressed times.
They think that by doing this, the demand will pick up. Hotels believe that they can just easily increase their rates when the market goes back up. They are confident that lowering their rates will not have any negative impact on their business and image.
In any type of business, price is the most effective and fastest way of influencing the customers’ perceptions of value. Disappointingly, this unique strength is too often misinterpreted and misused, frequently with undesirable results.
Hotels need to understand that during low and distressed times, reducing price does not typically equal to increased demand. In fact, rates that are too low can decrease your customers’ perception of value and it can project a “cheap image” of your hotel. It will also be hard to increase your rate once the market goes back up as it will be difficult to regain guests’ belief that the hotel is indeed deserving of this new price structure.
Better market segmentation and correct revenue management approach will help you through these bad times. By effectively managing your segments, you can apply discounted rates and profitable rates at the same time. Always remember that market segments respond to different levels of prices.
Also, guests these days consider added values and not just rate alone, so being customer-centric will be a very big advantage. If you understand your guests you can create packages that can help increase their perceptions of value and convince them to stay at your hotel. Instead of lowering your rates, consider adding amenities first.
For example, give breakfast; upgrade to next room category; discount to spa; discount to restaurants; free airport transfers, free laundry. Think of all the low cost things that you have to offer in your hotel that are perceived as high value to your guests. Add these things to your regular rate and offer them during off peak seasons, do not forget to apply rate validity. By doing this, you avoid heavily diluting your average rate and when the market goes back up it will be easier to just take out these items. As you have not decreased your rate or maybe added just a slight discount, once you remove the inclusions, rate resistance will not be too much of an issue.
About the author
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.
