So you think you understand Rate Flexing?


You might be surprised to hear that as an Online Technology Company, if we were to be asked what is the most important factor in selling rooms online, we would give a very low tech answer; Rate Flexing;....... Simply moving the room rates up and down to suit the demand thereby increasing the occupancy.

We are constantly surprised at how many properties struggle with this area. They think they are rate flexing, but in fact they are not truly matching prices to demand, and consequently they are losing out. The reason that hotels are behind the curve with rate flexing is likely to be because it is a relatively new phenomenon, really only taking firm hold in the last 3 years. 10 years ago if you changed your rates it could be 6 months before customers received your new brochure and found your new rates. Nowadays with the advent of Online Travel Agents and Channel Managers a newly uploaded rate can be visible to the buying public in 5 minutes. A customer can now compare 500 hotels in a city in 30 seconds, quickly sorting by price to find the property that suits their pocket. If you are 5€ too expensive you will lose the sale, if you are 5€ too cheap you will lose about 4€ of revenue (you may have only needed to be a euro cheaper than your competition or even the same price). Some of our city based hotels are reporting that even a price difference of 1€ can make a difference in whether they fill their property or not.

So we have a devised a simple exercise to test your rate flexing skills. Look at the Demand Management Graphs below and list what you think are the likely problems. (answers at the bottom of this page...soon). You only need to know that the red line is the average room price and the blue line is demand (qty of searches for a room on a given day), you do not really need to know the raw statistics or the actual rates, just look at the trends.

Property A
Hotel Demand Management














Property B
Revenue Management














Property C
Hotel Rate Management














Property D
Hotel Rate Flexing














Answers
Property A - In spite of the demand being 4 times higher on some days, the rates are static, not being flexed at all.
Property B -  In this case the propety is being very timid with rate flexing, only varying the rates slightly even though the demand is experiencing large swings.Also this property has not yet set up their rates for 2013.
Property C - This property IS flexing their rates, but curiously they do not seem to be matching the demand.
Property D - This property has its rates very closely matched to demand over the next 3 months. The 3 or 4 large increases that can be seen in rates in 2013 are likely to reflect dates that the property is expecting large demand, even though it is not showing up yet, ie Concerts, Festivals, Holidays etc