Hotel Rate Strategy

AirBNB Shakes Up the Hotel Industry

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AirBNB has gained traction in the hotel industry for the last couple of years. In June of 2015, the popular alternative lodging platform has closed a $1.5 billion funding round with a valuation of $25.5 billion. It was one of the largest private capital funding rounds ever and galvanized its place as a “unicorn” in the startup world. What makes AirBNB unique in the hospitality industry is that it helps people rent out their homes or spare rooms for short stays. This year alone, the company is expected to earn at least $900 million in revenue. By the year 2020, the amount is estimated to increase to more than $10 billion.

At those amounts, hotels are trying to look for ways on how to deal with the lodging paradigm shift. AirBNB already supplies more inventory than all of the worlds largest hotel brands. InterContinental, Marriott, and Hilton maintain under 700,000 rooms each.

While AirBNB does have a lot of rooms to offer, the company doesn’t own them, and most of the listings are not available all throughout the year. And when it comes to actual bookings, AirBNB still has a lot of ground to cover. At present, their bookings are at 37 million room-nights a year, which is only 20 percent of IHG’s numbers. However, experts agree that AirBNB’s booking rates are expected to grow in the next couple of years. They are on track to outpace hotels in the near future.

While it is unlikely that AirBNB will manage to take over the hotel industry completely, the hotels should take the shift seriously. The company is going to offer more additional lodging rooms each year, and as the supply increases demand is likely to shift more slowly and room rates are likely to go down. Hotel general managers must use proper hotel revenue management to ensure that their bottom line is not affected by the influx of available rooms.

Another way hotels are coping with the growth of AirBNB is to keep their standards of cleanliness and service high. Most hotels were developed based on a price point, and they work hard to maintain that price point over time with the use of a comprehensive hotel rate strategy. Hoteliers agree that it is important to create a great value proposition in order to maintain the status quo.

With the right hotel yield management and hotel rate analysis, hotels will remain competitive even if AirBNB manages to attract more homeowners to offer their spare rooms for short stays. One advantage that hotels have over room rentals is that the former provide a holistic guest experience that is topped with great amenities and service. While AirBNB has attracted people looking for authentic local experience, there are still travelers who look for the services and comfort provided by hotels.

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Hotels Need Dynamic Rate Strategies Supported by Technology

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In order to succeed in the hospitality industry, it is a must to implement a revenue management strategy. General Managers should treat hotel rooms as perishable products since their number is limited. Factors such as pricing, amenities, and customer satisfaction are considered in order to come up with the right prices and at the same time balance with the actual demand. The hotel can maximize its assets by executing a dynamic versus static rate strategy.

Hotel revenue management has been around for decades but it was during the rise of the Internet when the process became more complex and at the same time provided hotels with tools to help them measure pricing and customer satisfaction in an objective and affordable manner. The development of Review Portals and Online Travel Agencies helped with the advancement of rate analysis technology as well by aggregating market information that is publicly accessible.

A good revenue manager will use this information to predict consumer demand in order to optimize their room inventory, which in turn maximizes their revenue growth. Hoteliers are able to become more proactive and not reactive. They are able to use the data available to them to adjust their products by distributing them to the right customer at the right price and time.  It means not booking a room today at a low price in order to sell it the next day at a much higher price or selling the room at a low price today if the demand is not that high in the next couple of days. Each day in the forecast can represent an opportunity or a setback if rates are dynamically managed appropriately.

This yield management concept actually came from the sales model of the airline industry in the 1990s. One of the first major hospitality companies that implemented the concept into their hotel rate strategy was Marriot International. They were able to earn large profits through it, which lead other major players to implement revenue management as well.   Fast forward to today and accessibility of both technology and data has allowed more than just the big players to implement dynamic rate strategies.  As with any other improvement in an industry, this wide spread adoption has created a landscape where hotels must be even more innovative to separate themselves from the competition.

In the past, data could only be evaluated manually, which was time consuming and error prone. But through time, hotel revenue management systems were designed that can automatically evaluate factors and aggregative competitive pricing data. And in the past decade alone, demand patterns have become more erratic, as consumers become more educated shoppers depending more on reviews and other internet based content to make their decisions. These new competitive landscapes coupled with the erratic demand fluctuations make the use of technology essential.  If you are still manually collecting competitive price information and relying on instinct or historic demand patterns, then you are simply not optimizing hotel revenue.

As markets change, the approach to hotel revenue managers must adapt to the changes. At present, hotel revenue management is a complex process requiring hotel general managers to use sophisticated tools to understand customer satisfaction, competitors’ prices, and other factors.   These sophisticated tools unfortunately often have large price tags making them inaccessible by single property owners, boutique hotels, VRBO, AirBNB etc.   This obviously gives big brands and multi-property companies a competitive advantage.

At RateShepherd, our mission is to provide automated rate shopping, analysis, and alerts to property owners at an affordable price.  We are leveling the playing field by providing our sophisticated technology to property owners and operators of all sizes for dollars a day.

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Hotel Revenue Management is a Fickle Beast Tamed Only With Technology

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If your hotel has been struggling to maintain a steady stream of revenue, it may be because your prices are not optimized to perform well against your competitors. Could it be that simple? There are many factors that affect successful hotel pricing – the location of the hotel, the type and size of the hotel, target clientele, market demand, and, of course, how many and what type of competitors are nearby……to name a few!

The first step to lucrative pricing is to understand the supply and demand of hotel rooms in your area. Certain times of the year and events create more demand than others, such as holiday weekends, conventions, festivals, etc. During these times of the year, customers will likely struggle to find a hotel due to high demand, and are more likely to pay higher prices in order to guarantee that they have a place to stay. By raising prices the proper amount during these peak times, you can significantly increase revenue. Obviously this requires that hoteliers be constantly aware of what’s going on in their ever-changing market to properly yield their rooms. The minute you look away demand changes and you could be missing out.

There will also be slower times of the year, when it is hard to fill all available rooms. This is a good time to hold promotions or lower prices on certain rooms, in order to attract more customers. Depending on your facilities and amenities it is also an excellent time to create demand for your hotel or amenities by hosting events such as weddings, conferences, etc. Do you have a conference room at your hotel? Businesses are constantly looking for additional space to have meetings and this need is usually year around. Be sure to reach out to all the businesses in your local area to ensure they are aware of the space you have available. Hard work and creativity during low demand times can really pay off assuming it doesn’t distract you from your high demand “bread and butter” strategies that must be executed simultaneously.

Next, make sure that you are aware of your guests’ needs, and why they might be choosing to stay at your hotel. Business travelers or travelers who tend to book last minute are probably more likely to pay a higher price than a family of four who plans their vacation six months in advance. Most hotels experience 15% of their sales within a 72 hour booking window. At the same time hotels may sell out on New Year’s Eve six months in advance. Trends in why and when people book should be reflected in your pricing strategy over the forecast and prices will likely change, if managed effectively, as dates approach. It’s time to roll up the sleeves and juggle…

Finally, it’s extremely important to know your competition. Make a list of competing hotels in the surrounding area, and periodically track their pricing and bookings if you can. Be sure to consider factors such as services and amenities offered as well as location when comparing prices. You may find that you compete more with a hotel that is thirty miles away than with one that is across the street because you offer similar services attracting similar clientele. Tracking competitor pricing also allows you to tap into the collective knowledge of your competitors. Competitors may be aware of an event that you are not and if they have all raised their prices when you have not, it is likely an opportunity to adjust. Let’s assume you have 5 legit competitors each having two room types competing against your two room types over a 365 day forecast. That is 5,475 competitive ever-changing rates to be constantly aware of so that you can perfectly adjust your 730 rates. Sigh….

Hotel revenue management is becoming an increasingly complicated task. Factors such as the ones mentioned here are too numerous to count and constantly changing so losing track means losing revenue. Hotel revenue management is a fickle beast that can only be tamed with technology. Using technology to help you find those revenue needles in the haystack is not just a “nice to have” but a must. RateShepherd’s rate shopping, analysis, and alerts can help you tame the beast without breaking the bank.

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3 Ways to Increase Room Revenue in 2015

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Hotels have seen ADR steadily increase since 2009. With stronger occupancy and new product positioning, hotels can always look for ways to increase revenue. Here are 3 ways that are worth a visit:

  1. Price Position Your Room Types
     Using property or room features can create perceived value to guests. View, floor, room size or other added amenities can allow guests to enhance their booking and differentiate the hotel from its competition. By having a range of prices it also allows guests to determine what kind of buyer they want to be at your property. Social psychology research has shown that the majority of buyers want to pick something in a middle price range because they don’t want to seem too cheap or too chic. They want something that fits just right.
  2.  Priority Check-in Upsell
    Having a priority lane for loyal guests has been a successful loyalty builder for years. More recently airlines have begun enhancing ticket prices by selling individual access to priority boarding. Large hotels can do the same thing. A fee of $5 or $10 acts as insurance to a traveler who may have a tight schedule. In addition, this may be a service used to enhance the upsell of a suite, or other premium room type while the guest is shopping.
  3. Maintain Rate Parity Across Guest Facing Channels
    Guests are able to book a room while they are standing in the lobby of the hotel. In less than 10 minutes a guest can compare your room rates on multiple OTAs and your own booking engine. They will go with the cheapest rate. If they choose to book at the desk as a walk-in and the rate is more than what they found online, it will create a negative guest interaction and could result in lost business. clients are able to track the price position of competitors and watch the market moves in real time. This unparalleled view into room types, promotions and price changes helps hotels of all sizes compete better and increase revenue. Try it FREE today.
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Hotel Yield Management Strategy: Monitoring New Room Type Offerings

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Hotel management has gotten more creative over the years and started to offer all kinds of room types. What was once a 1 King, Non-Smoking room is now an Ultra Deluxe King, Forest View (Non-Smoking). Hotels have even started to offer complex promotions within their room types. Free drinks, appetizers, show tickets or even free nights enter the picture regularly for potential guests to meander through.

Oftentimes, revenue management will take into account the average daily rate for each competitor and compare the rates to their own. This worked well in a simpler world where most hotels had three or four primary room types. A simpler time, with simpler yield management techniques. However, with hotels offering ten or even twenty different room types, ADR has become a more difficult number to understand, especially when evaluating your competition. It can be even more difficult when factoring in things like resort fees, which may be waived on certain room types that further skew the comparison.

All of this movement is difficult to track without great hotel technology to help. RateShepherd notifies its customers of any room types that have newly entered the market within the last seven days. It will even let customers know if it has not seen the room type in awhile, just in case the competitor is bringing back an old promotion that had been put to sleep.

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Hotel Yield Management Strategy: Market Monitoring & Suggested Rate Changes

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Hotel revenue managers can always use a little help when adjusting rates. Manual rate shopping can help provide a view of the competition. However, without hotel software to help, hotel management could be missing a revenue opportunity. Oftentimes a rate shopper can provide data, but that does not give much insight into what the overall market is doing. This presents a unique challenge, because one or two competitors may have fallen asleep at the wheel. If those are the only hotels in your rate shopping routine, it can put your revenue to sleep too.

Rates are constantly on the move across entire cities/markets due to events, holidays or just good weather can even turn a mediocre weekend into a sell out in 24 hours. Without a good understanding of the direction the market is moving, you will lose out on hotel revenue. This issue is compounded when you take into consideration that these market changes could be happening 90 days out in the booking window. So how do you keep track of daily market activity throughout your forecast in order to still be competitive?

It was these problems that lead the Rate Shepherd team to develop our Suggested Rate Changes report. This report gives hotel management extra support to analyze the direction their competitors are moving their rates. Yield management becomes easier because when hotel rates are too low or too high, our report will identify the room type and rate that are out of line with the market. It will even suggest what your market rate should be to put you in alignment with your competitor’s position. Hotel management can then make an intelligent decision on how high or low they want to go given this information.

When one of our major brand customers in Vegas used our Suggested Rates Report for the first time, they quickly realized that they had forgot to raise their rates for one room on New Years Eve. Our tool quickly pin pointed this error and suggested a $100 dollar increase based on the market position. They took this suggestion and still sold out the room. Given that our product costs less than $100 per month, they quickly paid for year’s worth of our monthly fees with only one rate change. This is the type of value we strive to bring to our customers every day.

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Hotel Yield Management Strategy: Price Monitoring within a 72 hour booking window

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50% of hotel revenue is booked within 72 hours of the stay date. That is why hotel management has often had full time employees act as a rate shopper to monitor the competition. Manual processes can lead to error and with hundreds of rate changes happening within 24 hours of the stay date, it is impossible to keep up with. Smart hotel management professionals enlist the help of software to solve this challenge. However, the price of this technology also leaves it out of reach for the smaller hotels.

Yield management is as much an art as a science. Without the latest hotel technology it is not possible to keep hotel revenue maximized, but many pieces of hotel software are complex and expensive. They can take days or even months to setup and configure. Oftentimes the software spends more time telling hotels about opportunities that have already been missed rather than telling them what they can do next. It is these industry issues that demand a technology solution that provides you proactive information at an affordable price.

Rate Shepherd is an automated rate shopper that takes the hassle out of manual rate shopping and helps hotel managers find their options in just a few minutes. Our latest feature RapidWatch is a critical tool for hotel management to have. RapidWatch gives hoteliers the ability to actively watch competitors during the current day’s booking window. It monitors key competitors real-time so that you don’t have to. When it sees them make a change it will notify hotel management via email so that they have the pricing information needed to make an intelligent decision. Better yet, it is affordable.

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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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