The longer-term ramifications of rate reductions to boost business in times of lower demand are far reaching. Not only does this impact brand perception but it also impacts product value perceptions and future pricing scopes when the market is in recovery. The overuse of incentives to attract guests can reduce the revenue coming into a venue and turn away higher-paying customers who are attracted to a hotel for its reputation or prestige.
Given the seasonal operating environment many properties face, how should a hotel’s revenue, sales and marketing teams work together to maximise revenue through any low season? Below we identify three possible approaches; a basic, better and best practice way to approach periods of lower demand.
The basic approach:
At a basic level, preparing for a hotel’s low season would involve analysing booking patterns over previous years for the same period to identify trends and incorporating them to the property’s demand forecast for the upcoming low season. Once any patterns amongst booking segments have been identified, incentivised hotel promotions would be designed and distributed to try and attract guests to the property. As mentioned previously though, this approach may impact overall value perceptions and is not ideal longer-term for hotels looking to capture higher-quality revenue.
The better approach:
A better way to maximise revenue through a hotel’s low season is to move beyond applying blanket discounts, or incentives, to attract bookings. Rather, hotels should identify specific market segments that are falling behind forecast and design market segment specific promotions to address any short-fall. Monitoring and adjusting the promotion channel, spend and incentive are also critical to the success of any low season offer, and hotels should look to adjust any underperforming campaigns accordingly.
When faced with softer booking periods, hotels need to be smarter about how they price themselves and what incentives they are using, or giving away, to attract business. Overuse of general incentives to attract guests can reduce the revenue coming into a property in the long run.
This isn’t to say that incentive offers aren’t important to attracting guests in periods of lower demand. They are, but they need to be tailored and mindful of each booking segment’s motivations. Hoteliers should be asking themselves questions like: “Why should I provide an upgrade to the executive or concierge floor, is this customer less price sensitive and will book the premium room type no matter what because they are travelling on business?”
The best practice approach:
The best way for a hotel to address low season weaker demand is to ensure they have a good understanding of their historical performance both same time last year and more recently. Once they have that they can easily compare and validate their current demand forecast against those benchmarks to better understand the exact position they are in and what they need to produce to achieve their business goals. Revenue managers should also align with a hotel’s marketing department to develop and adjust promotions in relation to the available channel, resources and marketing budget. If you truly want to steal the limited demand available in the market; a marketing plan to put the offer in front of the guest is just as important as the curated offer itself.
When it comes to incentives, specificity is key. What motivates one group of potential guests to book can be completely different to the next. Hotels need to design specific promotions for each channel or geographical region, taking booking lead time into account. For example, a hotel might consider enacting a GDS promotion to attract corporate individual travellers, or a digital marketing campaign to attract direct booking to the brand website and the components of those offers should vary based on the audience’s needs. For any low season promotion a hotel runs, revenue targets should be established and benchmarked against. Hotels should continue to monitor booking pace and occupancy forecast, adjusting the promotion and marketing allocations while they are still in play to ensure maximum success.
When any low season promotions have run their course, hotels must conduct an intensive evaluation process of each campaign to assess the ROI of marketing spend. A record of all promotion schemes and production should also be kept to assist with next year’s low period activities.
Periods of low demand also present hoteliers with the opportunity to fence cautiously. By creating new products that increase business during low seasons, hotels can drive demand from a new sector. The advantage of offering a range of fenced products is that market segments that find these offerings meaningful will begin gravitating toward purchasing new products. This produces previously untapped business – and the possibility of further untapped business. Fencing successfully will enhance revenues and capture existing demand based on the occupancy levels and business patterns.
Outside of activities aimed at attracting bookings, in times of lower demand, hotels should also focus their attention on ways to better manage their costs. When applied to its fullest potential, revenue management technology can also positively impact efficiency and improve operational performance across an entire property, even in quieter operating periods. Advanced forecasting models or systems provide powerful insights into business demand, which assists with project planning and staffing. For example, if a hotel can accurately anticipate lower levels of guest occupancy, it can ensure that the property is not overstaffed and carrying unnecessary wage costs in this lower revenue phase. This same principle can be translated throughout the hotel’s entire operation for better overall maintenance, staffing and inventory levels. The optimised wage costs translate into financial savings and directly benefits the hotel’s bottom line.
If a sustained period of low demand impacts a specific geographic market, hotels can face not only issues from discounting rival properties desperate for guests; but also pressure from contracted distribution partners (such as wholesalers) after better deals on their contracts. For example, a wholesaler might ask for more access to a hotel’s inventory, push for increased value adds, decrease materialisation commitments or allotment release periods. Under such a scenario, hotels should consider awarding additional incentives by room type rather than at the hotel level. It is not just the price on the contract, but the terms of the contract, that are also important. Hotels should ensure that their distributor contracts allow for re-evaluation of the price and contract terms at regular intervals throughout the contract term based on usage, as well as materialisation.
Incentivise smarter, attract better business
Hotels approaching a low season, or experiencing softer booking conditions, need to be smarter about how they price themselves, what incentives they are using, and what they are giving away to attract business. Overuse of incentives to attract guests can actually reduce the revenue coming into a particular venue and attract poorly rated business to a property. It is those hotels that monitor previous years’ booking patterns, build accurate demand forecasts and develop specific campaigns for specific audiences that are best positioned to succeed in a time of low demand.
With more than 1.6 million rooms priced daily on its advanced systems, IDeaS Revenue Solutions leads the industry with the latest revenue management software and advisory services. Powered by SAS® and with nearly three decades of experience, IDeaS proudly supports over 10,000 clients in 124 countries and is relentless about providing hoteliers with insightful ways to manage the data behind hotel pricing.
IDeaS empowers clients to build and maintain revenue management cultures—from single entities to world-renowned estates—by focusing on a simple promise: Driving Better Revenue.
IDeaS has the knowledge, expertise and maturity to build upon proven revenue management principles with next-generation analytics for more user-friendly, insightful and profitable revenue opportunities—not just for rooms, but across the entire hotel enterprise.
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