Tip 6: A Decent Rate Structure
Your price is the value of your commodity. Like many commodities, it may fluctuate based on supply and demand. There are many tools to better estimate this which we’ll cover in more detail later in the series. In the meantime though you still need to have some semblance of structure to your pricing so that you can sell enough of it through the right channels.
Each rate plan or pricing structure does depend on your particular property, its market positioning and also your own personal view. There are plenty of ideas on this so just ask around.
The Casa position though is formed by our simplistic view concerning demand. That is, the more demand you have, the higher your rates. So to get more demand you need to have more clients. More clients means you need more rates.
Having a single rate plan can mean that you restrict the amount of clients because some channels only work with certain pricing structures. If your price is only publicly available then your audience will only come through public channels. If you don’t offer corporate rates then you won’t gain much corporate business. Leisure contracts need leisure rates.
Why should a high volume buyer of hotel accommodation pay the same as someone who may never use you again? It’s the same with packaged tour rates. If you don’t have nett rates available then the agent won’t make a margin. No margin means they won’t make money from selling you. If you’re the only hotel left in the destination then you may pick-up bits and pieces on a public rate but not much more.
Simply put, having a rate structure that speaks to a wider audience through a bigger distribution network and multiple potential client types equals more demand.
‘Ah’ we hear time and time again, ‘our prices are reduced because of the market conditions and we can’t reduce them anymore’. Or we hear ‘with commissions and cost of sale being applied it’s too cheap already’.
Look at what you want to achieve in terms of nett ADR and try to segment your pricing based on this. Naturally if you want to achieve £200 then for every room you sell at £180 you must also sell one at £220.
That’s not to say that there aren’t businesses that sell only at £200 for every room where the price really is the price. We have worked with properties that regularly achieve this.
However, these properties tend to spend a huge amount of money on reputational marketing and PR. That’s their strategy and it works for them.
For the rest of us, to achieve your ideal ADR wherever possible you should try and work your pricing upwards, not downwards. This is based on adding the cost of sale to a base price rather than having a price and ending up with much less after all cost of sales are taken off.
In practical terms this means looking at all of the available channels, their products and all of the costs that you incur both in terms of discounts and commission. Start with a price that you want to achieve then look at where it is likely to come from. Your lowest rate should calculated by excluding commission, minus potential fees or reductions. Once this is done, you will know what your selling price is because you will be building up to it.
Knowing this means that you will not need to turn down opportunities that can help with any low periods. You simply turn on or turn off based on your pick-up and pace.
Selling half of your rooms at £200 is the same income-wise as all of them at £100. However with a higher occupancy you have more clients to sell dinners and drinks to. Usually the reason for not selling cheap is because we don’t want to undermine our price integrity. We’ve all heard the same thing but what exactly does it mean? If you can sell half of your rooms at £200 then there is a demand for that price so why not sell all of them at £200?
If we could we would! but this is where a multi-layered rate structure can make the difference. Why not sell half at £100 and half at £200 so you achieve the best of both worlds.
Know which channel is going to produce bookings at the highest price and which need more flexible pricing. Know who the end user is. Sell your products through sources that compliment each other and not those that have overlapping client bases.
A bedroom, meeting room, seat in the restaurant or space on the massage table is a perishable commodity. If you don’t sell it, it goes to waste, no different than a piece of fruit in the supermarket.
To help you tweak your pricing, there is whole host of data available from many sources professing to give you market insights.
Understand that when you look at market data, really you’re looking at what everyone is/should be achieving all things being equal. That means to beat the market you need to look at doing more than your peer group and taking business that is in addition to your fair share. Think in terms of trying to control some of your demand rather than relying on the destination to provide all of it.
Ad hoc groups, walk-ins, corporate agreements, targeted flash sales are some of the ways you can add to the general demand you receive because of your destination. Understand that the wedding party is only coming to you. That corporate group that decided to stay with you, is yours alone to accommodate.
But each of these sectors need differing rates. Your sales team need something to go to market with, flash sales are obliged to sell at a discount. These prices should be planned in advance and structured into your rate plan.
Use opaque channels properly and sell these rooms either packaged up so the price is unknown to the end user or sold to a closed user group. So your £100 tariff is not publicly available. Leave your £200 for your public channels. That way your public offering remains relatively consistent. Price integrity assured.
Nowadays you have so many ways to sell your rooms. Focus on opening and closing your opaque channels to slow down your pick-up whilst simultaneously raising your prices or restricting room types.
Of course despite what we say about opening a wide distribution and controlling your demand, you still need to keep one eye on your competitive set. However if you can sell products they can’t through channels they don’t work with then it’s you everyone will be looking at with envy, not the other way round.
If you want us to put together a structure for you, just let us know. Before Casa start working with clients we always evaluate how they sell, to whom and at what price. Often simple tweaks to the rate structure can make a big difference to sales. Plus it reduces the risk of having parity issues.