Pearson New International Edition International pcl tp indd 1

REVENUE MANAGEMENT
296

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Assume that a hotel has established its rack rate at $125 and now anticipates
a sellout date. The revenue manager will not sell any rooms for that date at a
discounted rate. The goal is to achieve an ADR for the high-demand date that is
as close as possible to $125. The hotel will, of course, honor previously established
negotiated or contract rates; however, the transient and group room rates offered
will reflect the date’s anticipated strong demand and the hotel’s resulting no-discount
(from rack rate) selling strategy. In fact, when demand is predicted to be excep-
tionally strong, revenue managers may even establish a special event rate for all the
hotel’s unsold rooms.
Whereas hotels can achieve success in driving the ADR up during times of high
demand, reducing the ADR does not typically result in increased benefits to a hotel.
Certainly hotels will have difficulty selling rooms if rates are too high relative to their
perceived value. A significant lowering of rates, however, generally does not attract
many more guests; a reduction of room rates by a single hotel when demand for
rooms is slight is unlikely to significantly increase demand. The concept of reducing
rate to drive demand is based on the assumption that room rate is a guest’s most
important consideration when selecting a hotel. This is not necessarily true. Price is
important, but location, brand quality, brand loyalty, service, and frequent-guest
programs all may be more important factors when guests select a hotel, and these
factors are not affected by rate reductions.
The tendency to attempt to influence a hotel’s overall occupancy rate by varying
published room rates (and, therefore, ADR), is a tactic experienced revenue managers
resist. Although revenue managers cannot significantly increase demand by reducing
room rates, this does not mean rate discounts should never be offered. In all of the
following situations, room discounting may be an effective managerial strategy and
should be seriously considered:
•
When the guest’s anticipated length of stay is long enough to offset a loss in room
rate. A corporate guest requesting a reservation for a seven-night stay may
be offered a rate lower than another corporate guest requesting only a one-
night stay.
•
When the dates requested by the guest include one or more days for which the hotel
anticipates minimal demand. In a hotel with minimal demand for rooms on
Sunday night, a guest arriving on a Sunday night for a two-night stay may be
offered a lower rate than a guest arriving on Tuesday (a high-demand day) for
a two-night stay.
•
When the number of room nights to be purchased is large. A guest who wants
to reserve 50 rooms for a three-night stay (150 room nights) may receive a
lower rate than a guest who wants to reserve one room for a three-night
stay.
•
When the number of unique stays per year is high. A guest who wants to reserve
50 rooms every other month for 12 months (six stays) may be offered a lower
rate than a guest seeking to reserve 50 rooms for a one-time stay.
•
When the total revenue to be achieved by the hotel is high. A guest who wants to
reserve 100 rooms for three days and who will purchase three meals daily for
the rooms’ 100 occupants may be offered a lower rate than a guest seeking
to reserve 100 rooms for the same three days without food and beverage
purchases.