The State of the Rate: The Battle to Recover Hotel ADRs

By Mike Kistner President, Chief Executive Officer & Chairman of the Board, Pegasus Solutions | January 23, 2011

Recovery continues in both the corporate and leisure travel markets. While the leisure sector sustains a slow but steady pace, corporate travel has eclipsed the recovery with both strong booking volumes and record-high growth in average daily rates (ADR). However, despite the significant increases in reservations of greater than +24% over 2009 each month since April, according to data reported in The Pegasus View, hotel revenue is still being hampered by weak ADRs, particularly in the leisure sector. What's a hotel to do? Examine and understand the state of their rates, then seize control of their pricing strategy by understanding their market position, their guests and their resources.

Know your worth and the actual price customers are willing to pay

The negative influence of depressed ADRs is easing for many hotels, and has begun to round the bend for others. Whether you are trying to fan flickering hopes of ADR growth or basking in the warm glow of rising rates, the key to altering the state of the rate to more favorable conditions is to harness the power of strategic pricing.

Better pricing isn't simply about offering the lowest ADR your hotel property can afford. Any salesperson worth their salt knows that price points are simply a tool. They can be used to differentiate your product and maximize your value proposition. We need to consider each consumer as an individual, not a target market, and realize that each has an idea of what they're willing to pay.

For example, an online consumer and one walking through your front door are going through very divergent purchasing processes. The same room often could, and typically should, be offered at appropriately different prices. A common misnomer is the idea that you must abandon rate parity to do so. Additionally, this field of thought suggests the goals of ADR growth and driving business to your homepage can't be accomplished while utilizing third-party channels. In truth, rate parity and effective use of the GDS and alternative distribution systems (ADS) channels are vital in achieving these goals.

It's truly a balancing act for a hotel to create revenue in a depressed market with minimized lead times, without compromising ADR-related brand identity. It takes an agile user of competitor intelligence, market analysis and comprehensive reporting to emerge on top.

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Guest Service: A Culture of YES

In a recent global consumers report, 97% of the participants said that customer service is a major factor in their loyalty to a brand, and 76% said they view customer service as the true test of how much a company values them. And since there is no industry more reliant on customer satisfaction than the hotel industry, managers must be unrelenting in their determination to hire, train and empower the very best people, and to create a culture of exceptional customer service within their organization. Of course, this begins with hiring the right people. There are people who are naturally service-oriented; people who are warm, empathetic, enthusiastic, pleasant, thoughtful and optimistic; people who take pride in their ability to solve problems for the hotel guests they are serving. Then, those same employees must be empowered to solve problems using their own judgment, without having to track down a manager to do it. This is how seamless problem solving and conflict resolution are achieved in guest service. This willingness to empower employees is part of creating a Culture of Yes within an organization.  The goal is to create an environment in which everyone is striving to say “Yes”, rather than figuring out ways to say, “No”. It is essential that this attitude be instilled in all frontline, customer-facing, employees. Finally, in order to ensure that the hotel can generate a consistent level of performance across a wide variety of situations, management must also put in place well-defined systems and standards, and then educate their employees about them. Every employee must be aware of and responsible for every standard that applies in their department. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.