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With some strength returning to the travel sector, hoteliers are looking to claw back profitability after the challenges of 2020 and 2021. Many are now wondering how well received a price increase will be within a fragile marketplace.
First, let’s have a look at the effect of Covid on hotel room rates.
The most recent data from Hotel Data New Zealand (HDNZ), a division of TIA, has revealed just how significant the impact of Covid has been. Nationally, average occupancy rates dropped from around 80 percent to just below 50 percent in 2020.
Tourism hotspot Queenstown felt the impact hard, with an 82 percent decrease in occupancy rates translating to the average room rate falling from $207 to $96. Across New Zealand, properties were forced to adjust rates to reflect the dip in demand. The combined drop in occupancy and room rates saw the average revenue per room fall by 40 percent.
But it’s not all bad news. Strong domestic travel from Kiwis getting out to see the country is helping. And while the Trans-Tasman bubble is shaky, it has still driven some upward movement in occupancy rates.
In such uncertain times, a ‘softly softly’ tactic is often the best course of action. New Zealand’s hotels, motels, lodges, and B&Bs have appeared to be collectively holding their breath, absorbing costs without increasing prices.
However, there must be a time when businesses look to increase their rates. A pragmatic approach to room rates and revenue growth is required, as is a clear plan to navigate this path. We take a look at some simple strategies to implement alongside an increase in room rates.
Warren Buffet famously said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
In the accommodation sector there is a huge amount of equity in brand reputation – and these days much of this reputation exists in the online space. Most properties know too well how easily the hard work can be undone by one bad review or poorly received social media post. It’s why it’s so important to manage the guest experience right from the start – which means assessing what they are thinking even before they book.
Here a sense of cheapness will often colour perceptions. Guests arriving at a room they know has been discounted will more likely see good products as average, and average products as poor. How do you escape this trap? For the quick answer, see point 4 below…
Third-party review sites may appear to be something that is out of your control. However, by investing resources in this part of your marketing you can help influence the conversation. Increasingly accommodation providers see the value in managing reviews and feedback on social media and investing in resources to carry out these tasks.
In fact, this area of marketing is so significant it is possible to track the value of online reputation directly to growth in revenue. Put simply, better reviews will result in better conversion rates and enable price increases to be accepted by the market. The best way to influence your online reviews is to deliver an excellent customer experience, encourage your guests to leave reviews, and respond quickly and competently to reviews or comments posted on social media platforms.
Great performance on a site like TripAdvisor will mean guests are happy to pay more for the experience – as opposed to a poor online reputation where guests are less likely to spend (even if room rates are discounted). And this leads us to our next point. Is discounting a good idea, or is it a smarter move to put prices up?
There are always times when tactical discounting makes sense. When demand is low and supply is high, discounting can be a highly targeted and effective way to boost occupancy rates for the short term. Industry-wide, over a longer period of time, such an approach can risk a race to the bottom. Before you embark on a price change of any kind it’s worth checking if the numbers add up.
The strategy undertaken by most properties when it comes to setting room rates is a good forecasting tool that gives the ability to predict demand and adjust prices accordingly. As availability drops and demand increases, it gives you the flexibility to raise rates. Most travellers are educated in this style of pricing and, as such, book early.
The decision to increase room rates should consider a wide range of factors, everything from what your competitors are doing to the time of year, the events on and the types of rooms available.
And it also requires understanding your ideal customer. If putting your price up means losing some customers, well… perhaps they weren’t the right customers to begin with? Strategic pricing will reveal the sweet spot for room rates where the ideal customer is happy to pay the rate.
If the plan is to lift room rates you need to have confidence that customers will see value in what you are offering. While the online experience matters a whole lot don’t forget to follow it all the way through into the in-house experience. What happens when a guest steps foot into their room has a huge impact!
The good news? It doesn’t take much to convey value. Whether it’s adding a sense of style or the element of relaxation, accommodation operators know that hotel bedding, linen, and accessories go a long way.
The luxury of a 1000gsm high loft mattress topper can elevate a night’s rest from the average to the amazing. Generous supplies of pillows, extra blankets, and throws also add ongoing value for a relatively small one-off investment.
There are plenty of other small ways in which you can communicate both ‘value’ and ‘worth’ to the guest.
It’s never a good move to put all your eggs in one basket in any situation. Selling hotel rooms is no exception. You need to have a lot of ideas. So, when something isn’t working, you can quickly shift tack.
Different selling methods will apply to different markets and demographics – you certainly wouldn’t sell to a family in the same way as you would sell to a couple. The good news is that there are sales ideas to cover all bases. Take a look at this list to kick-start your thinking:
Trying something new is always worthwhile. If it doesn’t work, you haven’t lost much and it just might be what you need to provide a boost to your hotel sales.
Pricing is a difficult area, and in this strange new world, it is particularly challenging. Yes, it may take a fresh way of thinking to remain profitable these days – but it is achievable.
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