Lowering room rate, is this the correct strategy?

In the hotel industry, room accommodation becomes an important part to drive the overall revenue contribution.  Despite other revenue generators, such as, restaurant, catering, laundry, business center, and many other sectors, the revenue resulted from room accommodation gives a significant contribution to the success of the hotel.

Depending on the Star rating of the hotel, number of room inventory in a hotel will vary either lesser than 50 rooms or even as many as 1000 rooms and above.  Of course, this will be based on several aspects which I will discuss in my other writing.

In this writing, I will focus more on elaborating the important of room rate and how we can be flexible.  Several things can become as the determining factors to decide on the room rate to offer, such as, the hotel location, hotel facilities and services offered, room amenities provided, benefits inclusion, market situation, what’s happening in the city, seasonal periods, and many others which can become an interesting discussion topic.

In the competitive market situation, hotel tends to take action by lowering the room rate aiming to gain room revenue.  Will it be the right strategy or not? Understanding the room cost of each room type will definitely be easier for you to decide the selling price point of each room.

Before deciding to lower down the room rate, do consider several factors that I am about to explore here.

The percentage of room revenue increment

Create a simple analysis and calculation on how low you plan to reduce your hotel room rate and how much percentage gained you target in terms of revenue increment.  You can create several scenarios on this in order to obtain the most reasonable and realistic figures and target.

Do take into consideration which types of room and how many rooms you plan to offer the discount.

How the market will react

Do an initial research on how the market will response to the hotel special offer. Lower room rate might attract customer, but what happen if other hotels are doing the same.  So, the research must include recognizing the right time to offer special rate.

Find out the market requirements

Understand the market needs and wants is significantly important as you don’t want to receive an unsuccessful result.  Identify if the market will actually need competitive room rate or prefer to have many benefits to be included or even a combination of all.

Who is your target market?

There is various type of market which in sales and marketing, it is known as market segment or market mix.  Different type of clientele will have different needs and wants. When the hotel plan to lower the room rate, then which market they aim to target.

Does corporate market or government market will immediately grow when the hotel drops the rate? Or is there any other factor to drive the market to stay at the hotel?

Create a thorough plan when developing an attractive offer, so the message can be delivered to the correct target market using the appropriate languages, design, colors and tools as well as the right timing.

Do you need to lower down the rate of all room types?

Let’s think about this for a minute.  When the hotel plan to reduce the room rate, is it for a specific room type only or for all room types? Look into the demand and who you want to attract.  This can assist to identify which room type requires more push to sell.

The hotel competitors’ situation

Don’t forget to check and review on what other hotels are doing.  You need to be one step, two steps or more steps ahead to be able to implement the right strategy to capture the market.

When you plan to create a special offer, be it lowering down the room rate or a special package with added benefits as inclusion, do ensure on the timing.  You surely want the market to buy your hotel rate or package, not from other hotels, isn’t it?

Seasonal offer

Lowering room rate can be the correct strategy as long as you know when it is being implemented.  I would consider having a seasonal offer is a good idea, whereby, there is a limitation in terms of booking periods as well as stay periods.

Check the calendar

This will refer to the yearly calendar of event. Check what event will be held in the city, when is the busy, busiest, quiet, quietest or normal periods, how about holiday season not only national holiday season but also international holiday season.  Hence, does room rate need to be decrease or increase?

Hotel strategies related to room rate can be varied taking into consideration on several factors mentioned earlier.  Do ensure that you have sufficient time for planning, organizing, and execution to be able to get the targeted result.

All the best.