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Hotel Rate Plans: How to Win Bookings and Influence Travelers
For hotels, the days of charging the same room rates to all guests have long since passed. Today, hoteliers recognize that they can generate more revenue by being more targeted in their pricing – by offering different rates to different segments of guests.
With the right rate plans in place, hotels can more effectively manage pricing, occupancy, and overall revenue. This applies to all types of independent lodging businesses, from boutique hotels and guesthouses to hostels and serviced apartments.
What Are Hotel Rate Plans?
A hotel rate plan is a set of rates designed to target a certain segment of travelers. In addition to special pricing, rate plans also include special conditions such as a limited booking window, flexible cancellation policy, or minimum length of stay.
Why Are Rate Plans Important?
By offering a variety of rate plans, hotels can attract a broad spectrum of traveler types. Some rate plans may be open to everyone, while others may be restricted to certain travelers or booking channels.
To protect restricted plans, hotels place “fences” around them. These are conditions travelers must meet in order to qualify for the rate. For example:
- To be eligible for a corporate rate, a guest must be an employee of a company with a negotiated rate agreement with the property.
- To be eligible for a loyalty rate, a guest must be a member of the hotel’s loyalty program.
- To be eligible for a group rate, a guest must be traveling as part of a group holding a block of rooms as part of a negotiated group agreement.
Influencing Traveler Behavior
In addition to aligning offers with guest behavior and preferences, some rate plans are designed to incentivize or reward desired traveler behavior with discounts and concessions. For example, booking further ahead, staying longer or more frequently, or paying in advance. Travelers can choose the option that best fits their needs.
As an example, a traveler whose trip is definite may opt for an advanced purchase rate in order to receive a discount, whereas a traveler whose plans are still tentative may decide to pay a higher rate in order to have the flexibility to cancel without penalty. By offering both options, the hotel is more likely to capture both bookings.
How Do Rate Plans Work?
Once a rate plan is established, the hotel enters the details into the property management system (PMS), where it is assigned a rate code. The plan will include a set of tiered rates for each room type. Depending on how busy it is, the hotel may open or close the rate plan and adjust rates up and down – a process called dynamic pricing.
Rate plans are distributed via the hotel’s channel manager to designated booking channels, such as the hotel website, online travel agencies (OTAs), and the GDS. On these channels, travelers can view available rate plans and make bookings in real-time.
How Do Hotels Choose Rate Plans?
To determine which rate plans to offer, a hotel starts by identifying its key target markets. Target markets are grouped into segments based on shared behavior and characteristics.
Rather than try to appeal to all travelers, the hotel determines the segments that represent the best fit for the property and creates rate plans to appeal to them. For example, corporate travelers or guests who book directly.
What Are the Main Types of Hotel Rate Plans?
Some rate plans simply offer a discount off of standard room rates, whereas others include special services such as free breakfast or last-room availability. Below are the most common rate plans offered by hotels.
- Rack rates. These are the maximum price the hotel will charge for each room type. Hotels seldom charge rack rates unless demand is extremely high. Rather, they use them as a benchmark to price other rate plans and show value to travelers.
- Best available rate (BAR). Also called the flex rate, this rate is typically available to all travelers. Bookings are subject to the hotel’s standard cancellation policy, such as 24 hours prior to arrival.
- Advanced purchase. These rates offer a discount off of BAR, typically 10 to 20%, in return for the guest paying in advance. Rates are non-refundable, providing guaranteed revenue for the hotel.
- Promotions. These rates are intended to stimulate demand during quieter times or “need” dates. For example, a discount for advanced bookings, last-minute travel, extended stays, or bookings during low season, weekdays, holidays, or events.
- Negotiated. These are special rates and other perks offered to companies in return for a contractual commitment to booking a certain number of room nights per year. Companies may include corporate clients, travel consortia, and flight crews.
Additional Rate Plans
Other popular rate plans offered by hotels include:
- Semi-flexible. A smaller discount off of BAR and a more flexible cancellation policy than advanced purchase, such as 30 days prior to arrival.
- Direct rates. A discount off of BAR to encourage guests to reserve directly rather than through an OTA or other third-party channel, saving the hotel fees and commissions.
- Wholesale. Rates offered to wholesalers and bed banks as part of a net rate agreement. Rates are marked up by the wholesaler and sold through travel agents, tour operators, and OTAs rather than directly to travelers.
- Packages. These plans bundle accommodation with services such as breakfast, parking, amenities, or activities to encourage guests to spend more money on property. Popular packages include bed & breakfast, romance, spa, and golf.
- Loyalty. Discounted rates offered to members of the hotel’s loyalty program to reward them for loyalty and entice them to stay frequently and book directly. Benefits may also include a free upgrade, amenity, early check-in, or late check-out.
- Group. Special rates for groups that reserve a block of rooms with the hotel over a certain set of dates, normally with a minimum of six to ten rooms on the peak night.
10 Tips for Managing and Promoting Rate Plans
Once a hotel has established its rate plans, the sales, marketing, and revenue teams can engage in activities to attract bookings and maximize the value of each rate plan to the property. Here are a few ideas to consider.
1. Target volume business. Research companies, associations, travel agencies, and meeting planners that frequently book rooms in your area and offer them a discount in return for committing to a minimum number of room nights per year.
2. Shop competitor rates. Check out the websites of competitors to see what rate plans they offer. Should your property offer similar options?
3. Manage rates dynamically. Rather than offer fixed rates, offer a percentage discount off of BAR so that pricing moves up or down with changes in demand.
4. Price groups individually. Instead of setting group rates annually, negotiate pricing for each group individually based on estimated spend, room demand, and revenue displacement.
5. Price by percentages. Price increments between room types by percentages rather than fixed amounts so that rates flex up or down proportionately with demand.
6. Influence travel decisions. Use discounts and special booking conditions to encourage travelers to book further ahead (or last minute), reserve on quiet nights of the week, and pay in advance.
7. Target long-stay guests. Extended stays boost occupancy over a longer period and are more profitable than shorter stays. Offer graduated discounts for stays of three nights, seven nights, 30 nights, or more.
8. Restrict promotions to need dates. Keep in mind that OTA promotions come with a price in the form of higher commissions or deeper discounts. When demand is strong, close out discounted rate plans and increase BAR.
9. Limit rate plans. The more rate plans a hotel offers, the more confusing it can be for guests and team members. Restrict rate plans to those that generate the most revenue.
10. Offer breakfast as an add-on. Rather than limit breakfast to packages, offer it as an add-on to all rate plans to boost on-property spend. Many booking engines now provide this capability.
How Can an Automated Pricing Solution Help?
With an automated pricing solution, hotels can dynamically price all rate plans simultaneously. The solution flexes one rate plan, such as the best available rate, and all other rate plans can be tied to that rate, flexing up and down with changes in demand.
Automated pricing takes the anxiety and guesswork out of daily rate management. In addition to earning more revenue, hoteliers save hours of time every week, freeing up more time to take care of guests and support the team.
How to Find Out More
To learn more about hotel revenue management, room pricing, and how to drive more bookings, check out the other free guides in RoomPriceGenie’s Content Library.
About RoomPriceGenie
RoomPriceGenie is the easiest way to ensure that your rooms are priced right, every night. Purpose-built for the independent hotelier, RoomPriceGenie is fast to implement, intuitive to use and simple to understand. In an uncertain world, it’s revenue that you can count on. To find out more about automated pricing, start your free trial today.
