Rates Strategies to Improve your ARR

July 22, 2008

ARR or Average Room Rate is not the rate of a room, it the average rate of all your rooms. And, the Internet plays a key role in deciding your Average Room Rate.

In the past few years, the internet has become an integral part of our lives. This change in lifestyle patterns has brought about many pros and cons. For instance, the internet has made it easy and inexpensive for you to communicate with guests on a regular basis. On the other hand, it has also made extremely easy for travelers to compare package and price of different hotels. They can also compare rates offered by hotels to those on 3rd party sites. So, unless you have an effective rate strategy in place before you allocate rates to your 3rd party intermediaries, you will end up competing for sales with not other hotels but also your own distribution network. This is in no way means that you should eliminate 3rd party intermediaries from your distribution mix. 3rd party intermediaries have their role to play. What this does mean is that you should spend more time developing a rate strategy that will drive travelers to book directly from your hotel’s website.

Now that we know, what ARR is and why having a rate strategy is important, lets discuss how you can develop an effective strategy for your hotel.

The first point to consider while developing your rate strategy is ‘Never set rates based on assumptions’. Ever heard the saying ‘Never Assume because it makes an Ass out of you and me’. Well this saying holds true in this case. You need to find out your competitor’s rates before setting your rates. You can do this using the internet or checking with travel agents. Another factor to remember - always, always display your lowest and best rates are on your own website. This will encourage guests to book from your website rather than competitors or intermediary websites.

The second point to consider while developing your rate strategy is ‘The relationship between rates and ranking’. People looking for accommodation in an area they do not know judge a hotel's rank by its rates. In this case, a higher rate is considered as a sign of better service and higher quality. This will increase your hotel’s brand value in the eyes of the guest. However, you so need to be careful not to over price your room as the guest will compared your rates and amenities offered to those of your competitors.

For example: If the average room rate of a hotel is Rs. 2,500 and your room rate is Rs. 4,000 then guests will compare room amenities and service offered to find out the reason behind the huge price difference. So, unless your hotel offers them something truly unique that they will not get anywhere else they will choose to book with your cheaper counterpart.

Similarly, you should be careful not to under price your room, as it will lower your hotel’s value in the eyes of the guest. You should also apply this logic when offering discounts. Do not offer too many deep discounts during high seasons. Discounts are standard and accepted practice during off-season and even then, you should limit discounts to set periods.

The third point to consider while developing your rate strategy is ‘Take advantage of your 3rd party intermediaries’. Once you have decided your hotel rate structure, you need to allocate rooms and rates to your 3rd party intermediaries. You should publish competitive rates on your 3rd party intermediaries websites to initially attract travelers.

This competitive pricing benefits you in two possible ways – one; travelers book your rooms from your 3rd party intermediary’s website. Two; they learn about your hotel and search for your hotel website in hope of better rates. If the rates on your website are better than the ones offered by the 3rd party site, they will be inclined to book directly from your hotel website. This will reduce the amount of commissions you pay your 3rd party intermediaries. And, in the rare case that the guest prefers to book through the 3rd party intermediary’s website, you still receive a booking.

To summarize, when developing your hotel’s rates you should consider 3 factors- the current business environment, your marketing mix and your competitor’s rates. You also need exude caution when publishing deeply discounted rates on the Internet as they not only affect your hotel’s ranking but also negatively impact your ARR.

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