Anyone who works in the hotel sector has at the very least heard of Revenue Management. Revenue Management means modifying prices and sales strategies based on demand, so as to increase earnings, ideally in every period of the year. With a good strategy, it is in fact possible to increase both the occupancy in a hotel structure and the average revenue for each room. To implement a successful Revenue Management strategy, it is necessary to start with the basic rate fences concept.
Rate fences: what are they?
A multi-price approach lies at the heart of Revenue Management, which enables you to attract customers with more spending power, as well as those who are seeking a more economical solution. In fact, there’s nothing more disastrous for a hotel than pricing all of its rooms at the same identical tariff: it is instead far better to offer a more extensive range of prices, in order to attract a larger number of customers. Subsequently, you would offer a low tariff for a more basic room, a medium tariff for a standard room and a high tariff for a deluxe room. We are talking about rate fences, i.e. the subdivision of customers and prices into distinct categories – an operation that justifies and steers the application of different tariffs.
How to build a successful Revenue Management strategy? Using the rate fences concept, it is possible to explain how to articulate an effective Revenue Management strategy.
Firstly, it is necessary to identify the position of the hotel, by comparing your offer with that of your direct competitors.
– By setting higher average prices than your competitors, for example, you will be targeting customers with more spending power.
– To initially find your space in the market, it may instead be beneficial – in some cases – to set lower tariffs, so as to ‘steal’ customers from your competitors.
– Those who wish to get their hands on a wide range of customers should instead offer both a lower rate and a higher rate with respect to that offered by their competitors.
After identifying your differentiated rates, it is now time to decide on which of the four main sales strategies you wish to adopt:
– top-down approach, by first offering the highest tariff before applying progressive discounts;
– bottom-up approach, by offering a low rate before suggesting optional extras so as to increase the price;
– total approach, providing the customer with all the possible tariffs, allowing the individual to choose the most suitable solution;
– aggressive approach, adopting a more unconventional sales strategy that always focuses on offering the lowest tariff.
Exploiting the upselling technique during the reservation process
Those who deal in Revenue Management must not overlook the final seconds of the purchasing process. In the very moment that a new customer reserves a room or checks in, an effect described as the so-called Prospect Theory enters into play: it won’t be difficult to convince a customer who is already prepared to finalize a sale, and therefore part with their money, to pay for a small extra. This concept is based on the practice of upselling, which entails offering the customer several upgrades when they are effectively making payment: a larger room, a better view, access to the spa, undercover parking, and so forth.
Nonetheless, there are many factors that influence fluctuations in rates, such as reviews provided by other guests, your competitors’ prices, the occupancy of the destination in a determined period, events and school holidays, as well as weather forecasts.
To do this, it is fundamental to be able to rely on a Revenue Management software that is capable of supporting hospitality professionals by analyzing the situation in real time and processing the acquired information, so as to always suggest the most profitable rates, thereby guaranteeing the hotel performance and return on the investment.