Why on earth are we dropping rates?

Why on earth are we dropping rates so close to arrival date?

This week our wonderful friends at Mews shared statistics which I thought were really interesting: and that is the average rate sold in Europe based on lead time:

1-3 days in advance = 89 Euro ADR

4-10 days in advance = 101 Euro ADR

11-50 days in advance = 114 Euro ADR

50+ days in advance = 127 Euro ADR

As the owner of a Revenue Manager software solution, this really should be an opportunity for me to evangelise about how these terrible revenue practices could be eliminated by using technology and plugging our own solution. However, as a working Revenue Manager, I feel that this would be a disservice to the fundamentals of Revenue Management - and that is, always asking 'why' and being prepared to scratch beneath the figures to understand why these trends might happen.

Most Revenue Managers would be used to pulling these figures and presenting them to the GM and perhaps getting ready for 40 lashes!!! But whilst on the surface this looks like the Revenue Manager is doing a terrible job and dumping rates with a 'race to the bottom' strategy, what are the real considerations you need to make. Let's take a look at why this would happen in a real-life scenario:

1. Whilst these figures are great to bench-mark against, they do not take into consideration Day of Week. We all know that busy dates eg Saturdays (if you are a leisure hotel), normally fill up first and often at a much higher rate as the Revenue Manager is yielding properly.
2. If your property is within an area that is often affected by external events, then of course these dates will be booked further in advance and again at a higher rate.
3. If you are a wedding venue, you may have dates booked up to 2 years in advance and again at a protected rate.
4. You may be affected by Tour Operators with longer lead times (and remember that not all Tour Op's get the lowest-of-the-low rates)
5. What about allocations? Thankfully fewer and fewer hotels are agreeing to allocation requirements from OTA's (Expedia was guilty of this more than most). OTA's could have insisted on an allocation of 10 rooms with a 72-hour release and many hotels agreed to this - at the detriment to their own direct business. Imagine being full on all other channels, including your own, but allowing Expedia to hold all the cards when it came to your last 10 rooms! Now if those 10 rooms didn't materialise, you may be forced to discount to fill.
6. Consider the Achilles heel of every hotelier - cancellations from OTA's. Booking.com has recently announced that on average, 50% of all their bookings cancel. This cancellation window is getting smaller and smaller (again because we hoteliers agree to crazy cancellation terms) and of course this impacts our ability to re-sell these rooms at the last minute, which in turn can lead to panic discounting.
7. For many hotels, bookings made closer to the day of arrival have a higher probability percentage of cancelling, so of course this ebb and flow of bookings, close to DOA will impact our rate strategy.
8. Is this also impacted by unrealistic budget setting by the 'powers that be?'. If the budget is unrealistic and a Revenue Manager hasn't either challenged the figures or monitored pick-up well enough, then reducing rates may seem like the only option when the panic sets in.
9. Do these averages take segmentation into consideration? Perhaps contracted corporates with agreed discounted rates book with a short booking window?
10. And in the same token, do these averages take market influences into consideration? Is your market changing? Are their buying behaviours changing?

So as you can see, I believe that these industry averages are a great barometer and should be an indication of what we should all be measuring in our businesses. And yes this is a plug now for the advantages of using technology to help you monitor. But the real take-away for me, is that Revenue Management is a spectacular job! Great Revenue Managers take data and then itch and scratch away at it, until they unravel the truth...

My advice, as always, is to measure only 'relevant data'. Allow your Revenue Manager to present figures and to be able to back them up with real life explanations of what exactly is happening in your business. And for goodness sake, give them the time and the tools to do this - as the devil is in the detail...

And for all things revenue, just ask@rightrevenue.wpengine.com

(industry averages gratefully provided by Matthijs Welle, Chief Executive Officer (CEO) at Mews Systems Hospitality Technology)