Last year hotels have sold against a lower room rate then 2008. The selling rate for hotels was about 16% lower than previous year according to Hotels.com.
The current pricing strategy for many hotels is based on offering discounts, free nights, etc. These are efforts which will hurt your ADR and Revpar. According to a latest article in Reuters, Mariott has seen a dramatic decrease of the rate (about 19%) in the luxury collection. It has been mentioned that the luxury segment will not get back on their feet in the short term as market conditions have changed. In 2009 they have closed about 5,000 rooms, which is a normal fact. This year they will close over 6,000 rooms.
So what is the right strategy to follow for pricing your products? For this we have to go back a few years to find out how the business was selling at that time. Price differentiation is another technique and nothing to do with discounting but by adding value. To compete with your direct competitor we have added value to our product. Free transfers, free meals, spa vouchers, all to add value to your product. You get more for the USD of Thai Bath then when you spend it with the competitor. Added value will help you to keep your existing rate. In a normal market condition with inflation and a positive track record, hotels add 5- 10% to their room rate each year. A drop of 15%- 25%, due to discounting, in your rates, means you have to take another 3 years to recover from this. While if you add value in this year but keep the room rates, you can change your conditions the next year and keep a steady room rate.
Pricing and the internet
Still many hotels have not been able to utilize their website. The website is confusing and not focused on selling but on information. The prices are fixed and aren’t changed with the current situation in the market. Offers which you can get from 3rd party websites are not available on their own website. The implementation of Facebook and twitter has been made, but Tripadvisor has been forgotten.
The internet is a very important partner for your sales. As it is a dynamic medium you can update and alter at any given time. Because search engines enable customers to find information easy, your own website will be visited more once you are visible on third party websites.
The pricing strategy for this market is not really looked after by the management, and business is lost because of this. Intelligent pricing, based on supply and demand, value added offers and rate parity in all markets are key elements to lift your business.
To let your website work, investment is needed. As all future business derived from your website is commission free, there is money on the table if you not free budget for internet marketing activities. Carefully analyze your current market share and set your target for the next year, Take 3% from your current revenue retrieved from your direct internet business and invest this in improvements, optimizing your booking engine, pictures and a webmaster service. You will see that the incremental investment will pay off itself within the same year.