How to Increase Rate Growth Despite A Softening Market


NB: This is an article from nSight for Travel

There’s concern in the hospitality industry that 2016 will be a transition year. A year that turns the corner from what has been one of the best runs for the industry with record-setting occupancy levels, ADRs and RevPAR growth.

So what can you do to protect yourself in case the market turns?

The author of a recent article in Hotel News Now, Industry Outlook: A crash or soft landing? frames the opportunity well. The author explains how there are many factors coming into play that are causing the industry and its analysts to be a bit nervous. Influences range from the impact of Airbnb and the weakening of China’s US travel economy, to the decline of the oil & gas industry and underperformance of hotel rate growth.

All of these factors are big macro influencers that can’t really be affected by individual hoteliers or the overall industry, except one — Rate Growth.

The Secret to Rate Growth is Dynamic Pricing

Hoteliers have more control than they think when it comes to influencing Rate Growth and ultimately RevPAR. The best way to get Rate Growth, even when the market is in flux or appears to be softening, is through Dynamic Pricing.

The definition of “Dynamic Pricing” is evolving with the increasing sophistication of revenue management solutions and the data that powers them. Traditionally, dynamic pricing would refer to time-based pricing that matches the consumer demand for the hotel product. In the extreme, dynamic pricing would adjusted to meet real-time or up to the minute demand. Until now, that demand has been based on future bookings that hotels can see from their website, call center or PMS/CRS systems. The limitations of this consumer demand perspective – and, therefore, the limitations on rate decisions and profits – were inherent within the hotel’s methodology.

Today, Dynamic Pricing can go beyond the confines of traditional revenue management and hotel analytics to view forward-looking, unconstrained demand by following these best practices:

1.   Understand Future Demand

Insight into forward-looking consumer demand helps hoteliers know if they should hold, raise or lower rate for future arrival dates. It’s consumer driven pricing strategy that allows hoteliers to increase profitability based on the following advantages:

  • Improved forecasting: unconstrained demand data shows consumer shopping peaks and valleys for future arrival dates, based on specific hotel and comp set rates.
  • Optimize ADR: an integrated view of future rate and demand tells hoteliers when to hold, raise or lower rates based on consumer behavior.
  • Increased certainty: actual demand available for future patterns is important because it gives a level of certainty in uncertain situations.

2.   Look Beyond Your Website

Your only offers part of the picture. Looking beyond your website to third-party travel sites (where 80+% of consumers shop) expands your bookings potential to consumers you have not yet engaged. It provides a layer of competitive and consumer insight that allows hotels to optimize rate based on a more complete view of the market.

3.   Leverage Rate Opportunity in Transient Bookings

Hotels can influence future consumer behavior in the transient segment, including both leisure and unmanaged business travel. You can’t expect a mid-larger group business to make decisions within 30/60/90 day need periods. However, transient travelers can be influenced by rate, packages and value-added amenities during these time frames, enabling you to boost rate and accelerate rate growth for the right buying situations.

A Real Life Example

Here is a situation taken from the Demand Forecast Calendar of an nSight hotel client. The calendar allows hotels to see an intergrated view of future rate, demand and bookings for the hotel compared to the competition.

On March 18th – the date is yellow, indicating lower than typical rate and higher than fair share of bookings and search for that day. And the date is bookended by green days or high rate/high booking days.

Actions for the hotel’s revenue management and marketing include:

  • Opportunity to raise rate due to higher than fair share consumer demand and booking for that day
  • Ability to offer package with free breakfast and/or room upgrade that increases room rate and adds high margin amenities

  • Marketing focused on the demographics that support higher rate strategies, such as the Bucket Listers and Dream Trippers, in email marketing, website packages and PPC/display ads.

In a potentially softening environment, hotels have to make decisions in new ways. No more relying on trends based on historic data, but making future rate decisions based on forward-looking demand that comes from beyond your comfort zone.

Now, many aspects of Rate Growth can be in the hotel’s control – if the hotelier chooses to take it.

Read more articles from nSight for Travel