Booking Patterns Change: Hoteliers Must Develop Pricing Strategies

Thursday, 02.07.2009
Crisis. The booking patterns for MICE groups and independent travellers have changed significantly due to the financial crisis, Great Hotels Organisation (GHO) reports, and hoteliers need to react to this by adapting their pricing strategies accordingly. It should come as no surprise that over the past year, the hotel industry has entered a phase of […]

Crisis. The booking patterns for MICE groups and independent travellers have changed significantly due to the financial crisis, Great Hotels Organisation (GHO) reports, and hoteliers need to react to this by adapting their pricing strategies accordingly. It should come as no surprise that over the past year, the hotel industry has entered a phase of slowdown because of the dwindling economy and booking lead times for MICE and global distribution systems (GDS) have shown a sharp decrease.

GHO, the London-based hotel sales and marketing company, offering a dedicated MICE sales desk for its member hotels and GDS representation through its own chain code, reports on the changing trends in the MICE and GDS/ADS markets.

Booking lead times are down in the meetings and events industry with an average decrease of 21% in May 2009 compared to May 2008. Meeting planners are also attempting to cut costs by decreasing their travel times, meeting length and size of meetings. As budgets are slashed, the UK (in particular London) and France (in particular Paris) have become more popular MICE destinations as the resort destinations such as The Algarve in Portugal and Marbella in Spain, which were favourites last year, are losing out to city centre hotels. The average length of meetings has also decreased by 50% with the average stay in 2009 at 1.5 nights and the number of delegates attending meetings dropping by 66% with the typical group size now down to 50 delegates.

Booking lead times on GHO’s GDS chain code, GW, have also decreased. The average daily rate (ADR), length of stay and number of ADS bookings also follow a similar trend.

· The number of travellers making a booking 60 or more days in advance through the GDS has decreased by 41% and the number of travellers making a booking a week in advance has increased by 38% year to date in comparison with 2008.

· The ADR in city centre destinations has fallen by 12% and in resort destinations by 10%.

· The average length of stay has also fallen, although not as steeply, with the average stay in city centre destinations down by nearly 6% and resort destinations by 3% to an average of 3.15 and 2.05 nights respectively. This more gradual decline in hand with the steeper ADR decrease suggests that travellers are opting for a cheaper room category rather than dramatically decreasing the length of stay.

· The number of ADS bookings in 2009 has decreased by 16.5% in comparison to the same period last year and the revenue generated from these bookings has decreased by 23%.

So what can hoteliers do in order to maximise their revenues and profits during a time of global economic crisis? The answer is simple; hoteliers need to adjust their pricing strategies and costs according to the economic climate. 

“Successful revenue management requires accurate forecasting based on historical data. But this year does not look like the past few years when hotels were enjoying high ADR’s and high occupancy,” says Yunna Takeuchi, director of E-distribution at GHO. 

“Therefore it’s so important that this year, revenue managers are flexible with their pricing strategies but smart enough not to drop prices too much. The booking trends clearly show people are insecure about their finances and thus reluctant to pre-pay bookings in advance.  So it’s important for hoteliers to adapt their pricing strategies in accordance to guest booking patterns. Flexibility is key; flexible cancellation policies to encourage advance bookings, flexibility in length of stay restrictions, flexible release dates on allocated inventory and the flexibility to offer last minute deals are all strategies that should be considered”.

“The current economic situation is pushing hotels to change their sales activities in order to reach new markets that they usually would not have thought to target”, says Borja Martinez Junquera, rooms division manager at Insotel Fenicia Prestige in Ibiza, Spain. “This year we started to sell a new lower price range of rooms in order to attract clients who are more price sensitive. We believe that quality and excellence in service is key to our sales strategy. Price is not the only aspect to drive bookings but we want to offer value for money to all our clients.”

Implement a clear and flexible pricing policy: A clear pricing policy is essential and one should be implemented that takes into account the changing market trends. Decisions on distressed inventory need to be delayed and more last-minute deals and added-value packages and promotions should be available as opposed to previously popular early-booking discounts. Monitor the activity of competitors; don’t decrease rates so much that a price war begins. 

Differentiate rates: A variety of differentiated and targeted rates should be offered. For example a “child stays free” rate may not be of any interest to one customer, but may be the main reason for booking of another. In addition, ensure that rates are used in the right time frame; an early booking discount should not be available to book the day before arrival. A straightforward rate decrease across the board may alter the perceived value of the hotel brand and may also mean a sharp increase in the number of room-nights to be sold in order to maintain the same level of profit. This can also make it difficult to hard to bring the rates back up as the economy becomes stronger.

Upselling: Cross-sell existing facilities through upselling. Create upsell opportunities to keep guests and revenue in the hotel. Consider using Sabre’s Hotel UpSell functionality that automatically offers travel agents booking through the GDS automatic room and amenity upgrades. This is beneficial to hoteliers as their revenue is increased through the sale of additional products.

Upsell through your online booking engine – providing an interactive and personalised online booking engine which enables guests to customise their stay and buy extras such as spa treatments and romantic dinners can also increase revenue.

Strengthen your loyalty scheme: During a recession, loyalty programmes need to be reassessed and adjusted in order to meet changing demands and maximise the loyalty of existing customers as they look for the best deals. The rules of rewards and redemption should be clear and precise. Customer profiles also offer valuable information that is useful in developing personalised packaging or bundling to loyal guests. This can also be used to encourage upselling.

During the economic downturn, the success of a hotel is determined by effective crisis management and the ability to adopt short-term pricing strategies and improvements. However, it must not be forgotten that there will be a recovery eventually and hotels need to emerge from a recession with their reputation intact. Some hotels may even see themselves in a stronger position having secured new clients found through a change in pricing strategy.