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Revenue Management Glossary

Rate fences

Definition

Rate fences are the various rules and restrictions that hoteilers use to implement different prices for the room types, by segmenting customers (based on a variety of factors) and maximize revenue opportunities. There are three different types of rate fences:

1. Physical Rate Fences: Room type, location within the hotel/view and amenities
2. Non-Physical Rate Fences: Booking conditions (advance purchase, length of stay and cancellation policy), time of booking (seasonality and day of the week) and payment conditions (refundable or non-refundable)
3. Customer Characteristics: Membership status, demographic information (senior and youth rates) and corporate rates

How to use it

There are many benefits for hoteliers in using rate fences:

-Improved revenue optimization, which will result in better overall financial performance
-Helps to increase occupancy in times of low demand by offering discounts to cost-conscious guests
-Maximize competitiveness by offering different room types at different prices to appeal to a wider audience of potential guests

Formula

How to implement rate fences:

1. Decide which market segments you would like to appeal to using your new rate fences.
2. Establish the rules and restrictions that would best drive business with each market segment, and implement them across all of your distribution channels.
3. Monitor the performance of each rate type on an ongoing basis to ensure that it is being effective at driving business with the desired market segment.
4. Educate your staff about the new rate fences and ensure that they are able to effectively communicate the policies to potential guests, as needed.

Related Terms

Seasonal rates, Revenue Management, Pricing strategy, Group rates, Negotiated - Transient Sub-segment, Occupancy, ADR, RevPAR, Qualified - Transient Sub-segment
“Every guest is motivated to book by different factors and, by using rate fences, you can create offerings/rates that appeal to more guest segments, ensuring your property maximizes profitability, no matter the level of demand in the destination.”

Hendrik Niehues

Hendrik Niehues