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As RevPAR Growth Levels Off, Revenue Strategies Must Level Up

As RevPAR Growth Levels Off, Revenue Strategies Must Level Up

Monthly RevPAR has grown year-over-year for 88 straight months, so that must mean every hotel in America has been nailing marketing, distribution, and revenue management for seven-plus years, right? Of course not. Most hoteliers realize the truth that, while RevPAR is still positive and likely will stay that way through the end of 2018, monthly growth is decelerating and will plod along with increases in mid-single-digit percentages at best.

The leveling off of RevPAR growth hasn’t been for lack of occupancy. This past May, the U.S. hotel industry sold nearly 108 million room nights and recorded the highest occupancy level for that month in history, according to STR. However, the research firm is also projecting hotel supply growth to outpace demand, which will cause occupancies to flatten and eventually decline in the near term. That scenario leaves average daily rate as hotels’ only lever for continued RevPAR growth.

Do you know which pricing and distribution strategies you can call on to hold rate, let alone drive it higher, when your markets’ occupancies start to stall out? Many properties don’t. We might see that many revenue departments have been “swimming naked,” as Warren Buffet likes to say, when the tide finally goes out. STR’s monthly report for May found that the industry’s ADR growth of 2 percent was the second lowest rate for that metric in 2017. But recent occupancy increases typically would not lead to such a severe slowdown in ADR growth. What’s going on?

This may be an early warning sign that most hotel companies need more discipline around their pricing strategies. It’s also the clearest indicator yet that the common practice of best available rate (BAR) pricing with length of stay restrictions has far outlived its usefulness. When your hotel’s strategy is handcuffed to BAR, it can’t execute pricing or distribution tactics with the potential to increase rate and market share, like advanced pricing by room type, by booking channel, or in a loyalty program that stands out from the commoditized, points-based offerings we see everywhere.

Those strategies listed above are only a few of the possibilities available to hoteliers today, provided they shake off the antiquated practice of BAR pricing. More importantly, the strategies of the future will only be more sophisticated, so hospitality companies need to refine their pricing with more flexibility—starting now—in order to seize new opportunities.

Hoteliers may be reluctant or unable to back away from BAR, which is understandable—it’s uncomplicated, and “it’s the way we’ve always done it.” The industry has underinvested in revenue management talent capable of implementing dramatic new strategies. And most hotels don’t have a technology stack built for more open, flexible pricing and distribution. But those excuses aren’t good enough reasons to conform with the slow-motion decline in the industry’s pricing power.

There are a few good ways to get started moving beyond an outdated BAR strategy. If already yielding rates higher for your highest-demand days, you should also explore what else you can do beyond manipulating the price for your base room type. Set the differential of one in-demand room type higher than another—for instance, transient guests with families would pay more for the double-queen room on weekends and business travelers would pay more for the deluxe king room during the week. Or start flexing the discounts off the retail rate instead of using static modifiers all the time.

Experiment with marketing strategies to tout your best room rates, which are fenced and reserved for consumers who book directly on your website or call center, rather than an online travel agency. Loyalty club members could get even more competitive offers, as long as they log in to your direct channels to book direct. That requires more heavy lifting with the tracking of customer spending and segmentation, but it’s worth it.

Whatever first step your hotel takes, it is important to start moving forward. Continuing to go with the flow as the tide goes out will leave your hotel out at sea.

 

About the Author
Patrick Bosworth is CEO and a co-founder of Duetto, a hotel revenue strategy technology company based in San Francisco.

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