Post by Michelle Davis. Director of Revenue Management, Hospitality Ventures Management Group
When surfing Internet consumer travel sites or trade resources, it’s easy to find Best Available Rate (BAR) essentially has replaced the RACK rate as the standard first quote by the hotel industry.
Rack rate is typically listed as the highest (often inflated) rate for a hotel room; something no consumer would want to pay. However using BAR, as the best available rate, creates a “friendlier” booking environment in which consumers have confidence that the rate they’re quoted will be the lowest.
At HVMG, we have found that both rate strategies can help maximize revenues if they’re employed in the appropriate way at the right time; something many hoteliers unfortunately neglect to do. Timing truly is everything when it comes to rate strategies. For example:
Using a Rack strategy is not about selling Rack rate, it’s about selling discounts. A Rack strategy gives consumers the perception they got a great buy.
In a RACK Strategy you may have rates set up as Rack $250, along with:
- 20% AAA discount
- 30% Advance Purchase discount
- 40% Group discount
- OTA channels would have many specials.
The problem with OTA channels is that many brands require parity and it has become more difficult to offer specials with just OTA channels. This is one of the pitfalls with using a Rack strategy.
Different from a Rack strategy, a BAR selling strategy is about selling more BAR price points and less discounting.
In a BAR strategy you may have rates set up as BAR $200, along with:
- 10% AAA discount
- 15% Advance Purchase discount
- 20% Group discount
- OTA channels would mirror the BAR price.
The challenge is many hotels have BAR pricing with a Rack discounting strategy. This mistake results in a loss of ADR without enough gain in occupancy to offset the loss.
One of my mentors explained it to me this way: if he was going into a store to buy a DVR and someone at the door gave him a coupon for 10% off a DVR, he would use it. The point being that he was going to the store to buy the DVR anyway, so the end result is the store just lost 10% revenue. When you set BAR price points with Rack discounting, that is exactly what you’re doing—giving up more than you need to.
I believe that smart hoteliers should use both BAR and Rack rate strategies based on the booking windows of the hotel.
For most urban/suburban hotel markets, the hotel’s peak booking window is less than 30 days out; for many, it is less than 7 days (for resorts, the strategy would be slightly different). Outside the booking window, set your hotel on a Rack pricing. This will help protect your hotel as the industry’s recovery continues. As you bid for accounts next year and offer group discounts, it will look as if the hotel is offering a great deal, perhaps enough to sway an account to book at your hotel.
I have seen a hotel lose an account because management did not give as much of a discount as a competitor. Ironically, the competitor’s rate offering was $10 higher than the hotel, but the subject hotel’s rate was only 15% less than the unrestricted rate compared to the competitor’s 30% discount.
BAR pricing is most useful within your primary booking window. BAR, when set correctly, will re-mix your hotel’s production and yield higher revenues.
Whenever you’re inclined to increase the discount percentage to improve occupancy, I suggest you look at the BAR pricing. If you have to offer larger discounts and promotions to capture more business, you might be over-priced on the top.
The key with these strategies is to test and measure. Keep tweaking the selling strategy slightly until you hit your optimal results, and remember:
Rack Strategy outside 30 days:
- Rewards those booking early with greater discounts.
- Enables your sales team to get better group rates and rewards the groups with perceived higher discounts.
- Can help place you in the right position as demand is returning in your market.
BAR Strategy inside 30 days:
- This is the prime time to set yourself up to maximize your RevPAR.
- Use restrictions to remix your business.
Don’t forget to change your discounts.