Avoiding Rate Price Wars and Keeping the Rack Rate High
By Johan Creytens Owner & General Manager, Hotel Heritage, a Relais & Chateaux Property | March 06, 2011
One of the challenges general managers and hotel owners face, during a global economic crisis is to keep their property afloat. Competing with local area hotels for last minute guests is a major issue in the downturn. Success in attracting these last minute guests will affect your revenue. This competition can result in price wars, which often flare between competing hotels. This will affect how hoteliers set rates in 2011.
Competing hotels offering last minute specials, or heavy discounts, can raise the intensity of price wars. Knowing how to meet this challenge is important for survival during the fiscal crisis. Becoming aware of a price war affecting your hotel and identifying the right tools to counter it will prove helpful in the short and long term.
Industry experts warn not to drop rates and to increase them whenever possible. While the complex process of developing the right rates for each room type differs within each hotel, it is generally easier for boutique independent hotels to adjust (and fight) price wars due to their flexibility.
In today's environment, the traveler has the upper hand in determining the room rate. Experts tell us that 2011 is the year of "value". Hoteliers are working hard to be creative and accommodate that philosophy as the economy has caused hotels to frequently out price one another. Meanwhile, travelers seek value and the lowest possible rate when booking a hotel - even a luxury hotel. Often, travelers book last minute, hoping to take advantage of lowest rates in the area. What does all this mean to hoteliers doing what they can to keep their hotels alive through the global downturn?
Below are some thoughts on what to consider during a price war with competing properties:
- Establish and really understand your competitive advantage.
Focus on the strengths of your hotel. What is it that makes your property different from your competition? Is it the history, amenities, restaurant, and service? Determine what your core strengths are. Then find ways to build them into your marketing communications.
- Understand your market and how your guests find you.
While loyalty programs work to some extent, you have to know where your guests come from. Pay attention to your web traffic reports, evaluate keyword hits, look at your guest history and determine the top channels of your market. The more you understand who wants to stay at your hotel, the better your chances of offering exactly what they want in a guest experience
- Build amenities into the rack rate.
Instead of a 20% discount, or a third night free, offer a complimentary breakfast. At the Hotel Heritage, we are well known for our scrumptious Champagne breakfast. It is a highlight for many of our guests. Ordinarily, there is an extra fee for the breakfast, but when we offer it as part of their package, many of our guests are aware of the value.
- Try to personalize the amenities, if you can.
This may be easier for smaller hotels, but not impossible for large luxury chains as well. For instance, if a past guest calls who likes your spa, offer a complimentary spa treatment while keeping your rate high. Personalization goes a long way to holding your rates.
- Keep building value in the guest experience.
It is important to showcase value, and sometimes that includes the destination itself. In Bruges, we offer all of our guests a special discount card that can be used to receive special deals around the city. At our hotel, we also offer a complimentary two-hour walking tour and a map to all of our guests. There value in keeping your guests happy and excited with all that your area has to offer.
- Use marketing and PR.
While these efforts may not have a direct effect on the rack rate, outreach is absolutely essential to spread your message. It is important to invest in communications, especialy in the era of social media.
- Interact with your guests – and potential guests.
Facebook and Twitter are great tools to share information, promote giveaways and collect feedback. You can post continuously, and it's crucial to maintain an online presence.
- Monitor social media.
In the world of growing social networks, it's key to monitor Facebook, Twitter and even Foursquare and Gowalla. Offers spread fast on social media. It is necessary for your staff to watch for last minute specials from your competitors, such as slashed rates, additional offerings, etc. Social networks will continue to grow. So it is important that you and your staff monitor them, especially in a price war.
The most important concept and challenge in luxury hospitality is to anticipate your guest's needs. It is important to consider this when booking reservations, events, or anything that can bring in new business and boost occupancy rates. It is necessary to do your homework, see what you can anticipate during peak periods, study revenues from the past years and to learn to do things better in 2011.
- Become the expert, or hire out
As a hotelier, you know your own strengths. When fighting price wars, you must be objective and truly understand the dynamics of revenue management and how to set rates appropriately. If you are not comfortable enough to do this, hire the right person to do it for you. Price wars are challenging, especially during bleak economic times. How you handle rates makes a tremendous impact on your hotel's revenue, and its survival.
It will be interesting in 2011 to see how price wars will develop from country to country and within hotel types. Continue to be faithful to your brand, and commit to enhancing it. It will make a difference this year. While the rack rate determines what your guest is willing to pay, you will determine the experience it will provide.
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