Pearson New International Edition International pcl tp indd 1

MODERN FRONT OFFICE ISSUES AND TACTICS
How Low Can You Go?
One of the FOM’s major responsibilities has been to work with the sales and marketing
department to monitor group cutoff dates. In most cases, a group contract written by the
sales department and signed by the guest would stipulate the number of rooms to be held
for the group, the price of the rooms, and the length of time the rooms were to be held. After
the cutoff date, the unsold group rooms would be placed back into the hotel’s rooms inven-
tory to be sold at a rate deemed appropriate by the hotel’s revenue management team.
Often, the rate was highly reduced because the date for which the rooms were available
was so near. Increasingly, however, clients who are responsible for negotiating their group’s
room rates are demanding (and getting) more control over the price at which the hotel can
sell that remaining inventory.
Their rationale is based on a simple and fairly noncontroversial premise that meeting
attendees should get a better room rate than the average, individual traveler who stays at
the hotel during the same time period. These sophisticated negotiators cite the basic
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economic proposition that states as volume rises, prices should fall. In theory, a group
buying 500 rooms should get a better rate than an individual buying a single room. But as
hotels have increased their use of Internet discounters to sell their remaining “last minute”
room inventories, meeting attendees can often secure a lower rate than the contracted
group rate.
In response, and to ensure that they truly get the “lowest” rate, some meeting planners
insert a clause into their group contracts that states no lower rates shall be offered to other
groups or to individuals, whether directly or through any third party, for any days of their
event unless that rate is made available to all of their attendees. As a result, they get a low-
est rate guarantee that can easily be monitored simply by reviewing the hotel’s Internet
pricing strategy.
Some in the hotel industry do not agree with the notion that groups should always
receive the lowest rate at the hotel. They cite the factors that influence the group’s nego-
tiated room rate, including date security, complimentary meeting space, reduced food
and beverage charges, and significant use of convention service personnel, as well as
other customized items a meeting planner might need to make a meeting successful.
These same hoteliers also think that after a group’s cutoff date has passed, the hotel
should be free to price its rooms at any level it feels is best for its long-term business
strategy.
Regardless of which side you take, it is clear that the future holds challenges for hotels
and their group clients as they openly debate the question of how low can you go.
Allisha currently has 50 rooms available to sell on August 1 but no rooms
available on August 2 or 3. If all the rooms in the group’s remaining block were
picked up, the hotel would be in a sellout situation on August 2 and 3. If, how-
ever, soccer association members do not pick up their remaining rooms on those
days, the hotel will have rooms available. For August 1, Allisha has sold 100
rooms to transient guests and 50 rooms to individuals in the group block. There
are 100 rooms remaining to be sold in the group block. Therefore, 250 rooms are
sold or committed and 50 rooms remain to be sold on that date. In this situation,
should Allisha accept a new transient reservation request for the three nights of
August 1–3?
The answer relates to the cutoff date negotiated with the group as part of its con-
tract with the hotel. In this situation, Allisha’s dilemma would be resolved if the
group had been assigned a 60-day cutoff. In other words, both parties had agreed
that rooms would be held in the block until 60 days prior to the group’s arrival (on
August 1), that is, until June 1. After June 1, the remaining rooms would be released
to the hotel’s general rooms inventory. The impact of the cutoff date in this case is
immense, because when the soccer group’s cutoff date is enforced, Allisha will have
75 additional rooms to sell for August 3. As a result, her rooms availability forecast for
that date will immediately change from its current 0 percent to 25 percent (75 avail-
able rooms ÷ 300 rooms = 25 percent).
FOMs who are forecasting group room demand must pay close attention to
group history, pickup patterns, and cutoff dates when much of the hotel’s business is
group related. In large hotels, there can be hundreds of active group contracts.
Fortunately, a PMS-generated group cutoff date report that details upcoming cutoff
dates is a standard feature, and FOMs should review it daily.