November 30, 2022

Hotel Strategic Pricing in a Turbulent Market

The hospitality market has actually made it through and grown through varying degrees of financial boom and decline over the past thirty years– from strong performance throughout the 1990s and mid-2000s and constant improvement over the previous eight years (2020 aside) to quick drops triggered by the Gulf War, 9/11, and plunging ADR rates throughout and after the 2008 financial crash.

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in an STR report with a high decrease in Occupancy Index (MPI) and increased ADR Index (ARI), your competitors dropping their space rates, and someone higher up the ladder informing you, “our rates are too high, we require to drop our price,” the choice seems apparent. We lower the rates.

Obviously, confronted with rapidly reducing occupancy rates, our gut reaction (fear) takes over and we set aside lessons learned through strategy and perseverance. Aspect

Unlike these historical events, the COVID-19 pandemic has impacted the entire world concurrently, leading to adverse effects throughout the travel market, within every space and market worldwide, for a continuous and continual duration.

” Panic is highly contagious, specifically in situations when nothing is understood and everything is in flux.”– Stephen King

Today, we take a more strategic approach to the practice of Revenue Management, more so than throughout the early 1990s and the post-9/ 11 period. When COVID-19 initially started to have an influence on travel in early 2020, industry experts in numerous short articles and “best practice” webinars cautioned, “DO NOT lower rates.”

Retail Rates & & the STR Report

A hotels entire Rate Strategy is based on its retail rates. It is critical to comprehend that the STR outcomes are a representation of a much larger photo beyond simply how retail rates is set; they are a depiction of the hotels overall mix of service health.

Shifts in a rivals mix of service can also affect the results of your hotels STR Report.

Examine the breakdown of segments for your hotel and your competitive set. Which sections are experiencing a decline in occupancy: Transient? Group? Agreement? Is your competitive sets growth in these sections triggering your MPI to decrease? A hotel might lose 10 points in Occupancy Index (MPI), decide to reduce its retail cost, and discover the decrease was in fact due to Group service lost from the previous year, or that the competitive set saw an increase only in Group service. In these circumstances, a rash decision to modify rates will result in a loss of rate and profits opportunities.

Frequently hotels make decisions to adjust retail pricing based on STR outcomes without comprehending the effect past decisions had on MPI. And naturally, the exact same scenarios also apply to a hotels competitive set.

What does retail pricing involve STR results? Everything.

Or a strategy was carried out to minimize the quantity of lower-rated nontransparent business for the hotel, which would also have an effect on occupancy and ADR efficiency. The decrease in MPI had nothing to do with retail pricing.

Should You Lower Prices?

Throughout any recession, there are declines in every column and row of the STR report, and the need to drive occupancy is a lot more important, especially considering the requirement for capital, however prior to you choose to lower retail pricing, ask yourself 2 questions.

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A hotels entire Rate Strategy is based on its retail prices. It is crucial to understand that the STR results are a representation of a much larger picture beyond just how retail rates is set; they are a depiction of the hotels general mix of organization health. A hotel may lose 10 points in Occupancy Index (MPI), choose to decrease its retail price, and find the decline was actually due to Group company lost from the previous year, or that the competitive set saw a boost only in Group organization. In these scenarios, a rash choice to modify prices will result in a loss of rate and profits chances.

Or a strategy was executed to lower the amount of lower-rated opaque business for the hotel, which would also have an impact on tenancy and ADR performance.

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