The Role of The Room Rate

THE ROLE OF
THE ROOM RATE

The Room Rate’s Impact on Guest
Demand
• Room rates communicate a great deal about a hotel.
• Higher than average rates indicate a well-run property.
• So, how to establish an ideal room rates to obtain optimum
revenue?
Dynamic Complimentary
Pricing in Rooms
Competition Discounts Off
Negotiated
Room Rate Corporate Rack Rate
Elasticity Additional Rate
Rates Factors
Room Rate Factors

1. Competition
• Differences in both the physical facilities and the range of services
offered justify higher rates than the competition.
• The condition of the facilities can offset their competitive advantage.
“Clean and neat” sends an important hidden message.
• Differences in service are more difficult to differentiate, but they add
to the room rate as substantially as other components.
2. Room rate elasticity
• Elasticity is defined as the change in demand (rooms sold) resulting
from a change in price (room rates).
• Elasticity of demand for hotel rooms is complex.
• Hotels experience different degrees of elasticity throughout the year
based on the:
a. Season
b. Demand condition
c. Supply volume
3. Dynamic pricing in negotiated corporate rates
• Corporate travel managers often negotiate favorable rates for their
corporate travelers.
• Some of the questions corporate travel managers are asking about
dynamic pricing include:
• Will the dynamic pricing discount include all rooms types in the hotel?
• Will the discount apply across all expenses for the trip, including breakfast,
internet access…?
• Will the rate fluctuate by night for a multi-night stay?
• Will there be a floor or ceiling limiting how low or high the rate can fluctuate?
4. Discounts off Rack Rate
• All hotels have a rack rate against which other pricing structures are
designed.
• A hotel’s rack rate is the quoted, published rate that is theoretically
charged to full paying customers. The rack rate is the full retail rate.
• Proof of discounting is most evident in the average daily rate
computation.
4a. The discounting dilemma
• In markets where discounting is extensive, the only sure winner is the customer
who buys a quality product at a cheaper price.
• After becoming adapted to discounted rates, customers perceive full rates as very
poor value.
• Discounting profitability: both parties are happy—the guest pays less for the
room and the hotel makes a higher profit from having created more room
demand.
• However, rate discounting has a negative side as well, a 10% rate discount will
surely increase occupancy, but it will not necessarily increase revenue.
4b. Examples of discounted rates
• Discounted or special rates come in a variety of shapes and sizes.
• Seasonal rates: Season and off-season rates are quoted by most
resort hotels, with incremental increases and decreases coming as the
season approaches and wanes.
• Weather-related discount: Credits or discounts against the rate are
offered guests for each day it rains or stays unseasonably cool.
• Weekly rates: which are less than seven times the daily rate.
• Corporate rates: by guaranteeing a number of room-nights per year,
the corporation negotiates a better rate, a corporate rate, from the
hotel chain.
• Commercial rates: are the small hotel’s answer to corporate rates,
smaller hotels make arrangements with small commercial clients.
• Government per-diems: Federal, state, and local governments
reimburse traveling employees up to a fixed dollar amount.
• Difficulties may arise when the per-diem guest encounters the desk.
Some chains accept the government rates, but individual properties
may not.
• Employee courtesy rates: most hotel chains extend special rates to their
employees when they travel within the chain.
• Senior citizen rate: people over the age of 50 are the best money
savers. They love to travel, and they’re careful with money.
• Auction travel sites: auctioning is a form of discounting that has gained
popularity with the individual traveler.
• To qualify for deep discounts, travel auction companies often require a
degree of flexibility on the part of the customer (non-prime-time flight
schedules and less popular travel dates are the norm).
5. Complimentary rooms
• Hotel managers should be as reluctant to give away complimentary (comp)
rooms as automobile sales managers are to give away free cars. Comp are
used for business promotion, as charitable giveaways, and as perks.
• Posting the comp: some casino hotels have the comp paid by a paper
transfer to another department. The department manager has
accountability, and the amount of comps appear on that departmental
budget.
6. Additional Rate Factors
• Energy, Resort Fees and Other Non-room Surcharges: swimming pool
towels, in-room coffee, fax machine usage, administrative fee, etc.
• Double Occupancy: double occupancy refers to the use of the room by a
second guest. Traditional rules increased the single-occupancy rate by a
factor whenever the room was double-occupied.
Time is Money
• While the actual date of arrival and departure is the primary
consideration for establishing the guest charge, the number of hours
of occupancy may someday play more of a role in rate determination
than it does today.
• Day Rate Rooms: special rates exist for stays of less than overnight.
These are called part-day rates, day rates, or sometimes use rates.
Day rate guests arrive and depart on the same day.

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THE ROLE OF

THE ROOM RATE

Room Rate Factors

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