RateShepherd Blog

The Danger of Set & Forget Hotel Rate Management

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This recent hotel management article: Real World Tips for Driving Rate and Revenue highlights the trend in the hospitality industry towards the OTA relationship and how to drive revenue. The industry has seen tremendous growth with the transient customer and a preference towards last minute booking. Hoteliers are seeing the booking window shrink and it has become critical to closely monitor rates within the 72 hours window.

In the Las Vegas market most hoteliers change at least 10 rates per day over their 90 day forecast. That means, each day they are evaluating a change in yield for at least 10 stay dates in the future. However, many of the strongest competitors in the market make changes to all 90 days in the forecast on a daily basis. To further prove the point, many hoteliers make multiple changes per day to the rates 1, 2 and 3 days in the future.
Recently RateShepherd began tracking same day changes in the market to see how the transient customer is affecting yielding. We chose to look at two competitors with similar target demographics and price points, Hooters and Las Vegas Hotel. Hooters has had a tendency to lower their rates for the short term booking window, while LVH has tended to yield up as high as 40% for same day bookings.

Fortunately for the Las Vegas market rates changes have been trending up, suggesting that hotels are yielding up as the booking window shrinks. This is great news in response to the transient customers’ preference towards short booking windows and last minute decisions. Venetian seemed to play the game the tightest where only 19% of their changes resulted in a lower rate and 81% of their changes resulted in a higher rate. MGM properties followed with similar trends.

All of this information points towards a paradigm shift for hoteliers. In the past, occupancy ruled the roost. This is no longer the case. The new customer is driven by flexibility and short term bookings. Without a thorough understanding of the price changes in the market, hoteliers will lose revenue because their rates will not be competitive. The days of “set and forget” are over.

If you’re interested in how you can track your competitors using RateShepherd and our unique RapidWatch product check out our free trial.

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Best Available Rates (OTAs versus Hotel Booking Site)

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Hotels have seen a steady increase of web bookings over the last ten years and it is safe to say that most hotels see between 25% and 50% of all bookings via the internet. As an ever growing medium for revenue, OTAs (online travel agencies) and home booking sites are a critical part of any hotelier’s revenue management strategy. However, hotels tend use these two channels in very different ways. We sought to find out how the different strategies were put to use.

We selected 106 hotels and 1,814 rates to find patterns in the way hotels use their Home Booking Site versus OTAs. We found that 82% of the time hotels kept the best available rate equal across all sites while the other 18% of the time OTAs were either at a premium or a discounted rate. About 1% of the time the difference was due to being sold out of the product (please note that this is different from the rate type not being offered as in the case with promotions or advance purchase incentives).

OTAs vs Home Booking Website
Total %
Rates 1,813 100%
Equal 1,481 82%
Not Equal 332 18%

We see three basic strategies employed:

  • OTAs and Home Booking Sites are normally Equal
  • OTAs are normally a Discounted rate
  • OTAs are normally a Premium rate

To further dissect the way in which hoteliers use the two channels we analyzed the number of times that OTAs were at a discounted or premium rate.

OTA Premium vs Discount
Rates % Avg Difference
OTA Premium 123 37% $16.41
OTA Discount 184 55.4% $(10.51)
Inventory Sold Out 25 7.5%

Some sites normally had equivalent rates between the two channels, however in some instances limited time promotions were run on Expedia or the Home Booking Site that created a price difference.

Limited Time Promotions
Rates % Promo Rates %
OTA Premium 123 37% 14 4%
OTA Discount 184 55.4% 8 2%

Best Rate Guarantees are very common among the major brands and we consistently found that hotels with a Best Rate Guarantee kept the two channels equal across their minimum rates. However, when the Home Booking Site was higher than the OTA, 21% of the time the hotel had a Best Rate Guarantee on their website.

With this in mind it is interesting that OTA rates are at a premium 37% of the time. This would seem to be a way in which to offset the 18% to 80% cost associated with booking through an OTA, but could make a hotel less competitive in the heavily marketed online channels and lead to less volume. On the other hand, we were very surprised to see the OTA at a discounted rate almost 56% of the time. With OTAs available to the majority of travelers via phone, tablet or laptop, guests are likely aware of the lowest available rate across multiple websites even as they are waiting in the lobby. With the added overhead associated with OTAs it seems very odd that hoteliers would train loyal guests to book their rooms through OTAs in this manner.

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How Often do Hotels Change Rates?

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Hotel Rates are constantly on the move. We sought to analyze just how active rates are by looking at how many rates changed in a 90 day forecast over an 18 day period of time. Each change is associated with a distinct date and room type so that we can show exactly how often hotels change their pricing.

We selected 124 hotels from 7 different cities and looked at the following characteristics:

  • Hotel ADR
  • Total Rate Changes
  • Total Rate Increases
  • Total Rate Decreases
  • Average Rate Changes Per Day

As seen in the table below the average hotel changes about 1/3 of their rates every day.

Rate Changes to 90 day Hotel Forecast during 18 Day Window
ADR Total Changes Rate Increases Rate Decreases Changes per Day
AVERAGE $157.61 507 240 267 28
MEDIAN $131.60 131 59 49 7
MIN $39.79 0 0 0 0
MAX $635.33 5506 2739 2767 306
Hotels w/ No Changes 15 27 21

Six out of seven cities had at least one hotel without any rate changes during the range of our analysis, with fifteen hotels never increasing or decreasing their rates. Reno was the only city where every hotel made changes during our analysis period.

The most active mover was the Regency Hotel in Miami which changed nearly all of their rates within the 90 day forecast on a daily basis with an average of 306 rate changes per day and an ADR of $124.

Gold Spike, Las Vegas had the lowest ADR at $39.78, but still changed around 10 rates per day.

Las Vegas and Miami had the largest average change of rates per day, with an average of 49 and 45 changes respectively. However, Miami also had 5 hotels with no rate changes and a 6th hotel with only 6 rate changes. Las Vegas only had one hotel with no rate changes during the period, Flamingo Las Vegas.

Hotel brands varied greatly in each market likely due to different owners and operators. However, hospitality operators did show consistency in their changes. MGM Resorts changed frequently with Circus Circus and Monte Carlo’s average change rates per day at 198 and 168 respectively. Conversely, Kimpton Hotels seemed to have little if any changes to their rates in the hotels we surveyed.

Our analysis has shown that every market consistently changes rates within a 90 day forecast window. We have also seen that there are a number of laggards in each market that do not respond to competitive pricing changes.

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