[VIDEO] Mathlete Mondays- Increasing ADR Without Raising Rate

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In this week’s episode, I’m going to share three strategies that will allow you to increase revenues without raising your rates.

Number One- Improve your direct marketing efforts.

Hotel outbound marketing programs often look a bit like this. We realize that the week between Christmas and New Year’s is pacing more slowly than usual, and we’re not sure our expected booking levels will allow us to reach our goals. We rush to put together an extended stay Christmas package and quickly fire off an email marketing campaign to a segment of our database containing past guests within a 300-mile radius, assuming that the offer might be attractive to those within driving distance.

Of the email blast recipients-

  • A few are already staying at our hotel over these dates,
  • Many only stay with us when traveling for work and have no interest in leisure travel,
  • And most have already booked alternative travel plans because they haven’t heard from us in 9 months.
  • The remainder? They don’t even celebrate Christmas.

Now the challenge with this approach, is that we’ve marketed according to our needs, rather than considering the needs and desires of our customer base. While they may have enjoyed prior experiences with us, we’ve annoyed them by sending them an offer that has no relevance to their travel preferences. As a result, we can hardly be surprised when they click “unsubscribe” and continue on with their day.

An improved outbound approach starts with understanding your customers’ booking behaviors and travel preferences rather than simply focusing on geographic and demographic information. In order to do so, sorting and filtering your database for your marketing campaigns should become a process whereby you determine the smallest viable audience that will produce your intended result. Think scalpel, not shotgun.

For example- when running a summer sale you should first look to those that have booked similar offer types in the past before continuing to filter by their typical booking lead time, and channel.

While this will result in a smaller list, you can expect to see your open, click-through, and conversion rates increase, helping you shift to a more profitable mix. Additionally, it’s been shown that customers are willing to pay a higher price to engage with companies that understand and adapt to their needs.

Let’s move on to number two, improving your room type efficiency.

As hoteliers, we love to find a way to generate new room categories. At nearly every transition I’ve been a part of, we’ve spent an inordinate of time discussing the physical room product and the best way to segment it in order to capitalize on every view, every amenity, and every extra square foot.

You’d think that with all of the effort that goes into determining, describing, and promoting our room types we’d be able to command a serious premium for our upgraded room types. However, at most of the hotels I’ve worked with the base room types are aggressively overbooked, resulting in guests receiving a complimentary upgrade to premium room types.

In order to calculate your room type efficiency, compare the actual ADR differences between each room type to your pricing differentials. Better yet, if you have a business intelligence system that allows you to see the difference between room types sold and room types occupied, you can do a more in-depth analysis. If you see that guests are receiving complimentary upgrades more often than they are purchasing your premium room types, it may be time to take a look at your pricing tiers between room categories.

Conduct some A/B tests to see if you can increase your sales rate for your high-end room categories by reducing the premium between your them and your base level rooms. Additionally, you may be able to entice guests to upgrade their reservation through pre-arrival marketing campaigns, technology such as Nor1, or by leveraging your front desk agents to sell arriving guests on an upgraded experience at check-in. I’ve seen some really creative upsell competitions that spur competition amongst the hotel’s employees and reward them for each successful upsell.

A few other ways to increase your room efficiency include having your reservations team quote multiple room types when selling, offering multiple rate tiers for corporate negotiated accounts, and more prominently featuring room type upgrade paths during the booking process.

Now, strategy number three may be a bit controversial, but what if I told you that you that in some cases, you can actually raise your ADR by lowering your BAR rate?

Hello, are you still there? For those of you still with me, the key to this strategy lies in measuring your rate efficiency, which can be calculated by dividing your ADR for all segments by your ADR for the Retail segment. In the past, I’ve seen many properties that consistently position their public rates as the highest in their set, only to realize that they got their a** kicked when reviewing their weekly STR report.

If you consistently see a disparity between your public rates and actualized ADR, it may be that lowering your rates and closing out lower rated channels (cough, cough, opaque) will help you to raise your ADR floor. Let’s compare and contrast two theoretical 100 room hotels. For simplicity’s sake, let’s say they both sell out entirely with transient business.

Hotel A books 25 rooms at a Best Available Rate of $250, 30 rooms at a Discount rate of $200, 15 rooms at a corporate rate of $187.50, and 30 rooms at an opaque rate of $125- this assumes 50% off AFTER factoring in the commission, which is likely generous. I’ve seen take home rates as low as 30% of the Best Available Rate.

Hotel A sells out at a rate of $188, resulting in a rate efficiency of 75% and revenues of $18,812.

Hotel B, on the other hand, notices that their rate efficiency has hovered around 70% the last few weeks and decides to experiment with a more aggressive public rate posture. They reduce their best available rate by $30 while closing out their opaque rates. As a result, more guests book their BAR and discount rate plans, leading to higher ADR and revenue production. By generating nearly $400 in additional revenue per night Hotel B is able to generate an additional $140K over the course of year, which all falls to the bottom line.

I’ll admit this strategy is a little bold, and your GM and owners may be skeptical that lowering your rates will improve performance. It’s important to focus on A/B testing and tracking the results of this strategy over like dates and lead times in order to assess that it’s provided the intended impact. It’s also important to keep an eye on how the competition responds to any changes in your public rate posture to ensure you don’t trigger a price war. This strategy tends to work best when deployed selectively over limited dates and booking windows.

Closing

Now these are just a few ways you can raise you ADR without increasing your BAR rate. I’m sure can think of a dozen more, so please feel free to drop us a line or leave a comment with your favorite way to raise ADR without increasing your rates.

At Focal, were keyed into helping our hotel partners improve their revenue optimization efforts by obtaining actionable insights more quickly. If you have any questions, or are interested in discussing this subject further, please feel free to reach out to me directly at mike@focalrevenue.com or via telephone at 970.471.6722.

Thank you for joining me, and until next time—good luck outrunning the competition!

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