Group business fills an important role in many hotels, helping to increase revenues during shoulder seasons and economic downturns, and creating compression that allows hotels to fill rooms with higher-rated transient business. One of the most crucial deciding factors for group business comes down to price. Pricing for groups is a complex process requiring deep analysis and attention to detail. Yet many hotels continue to set group rates manually – using an unnecessarily low break-even point, or minimum acceptable rate (MAR).
The Trouble With MAR
MAR is a predetermined floor rate – often discounted off the best available rate (BAR) – that your sales team uses when negotiating group room bids. Despite the impact that group business has on your bottom line, group rates continue to be managed in a less analytical way that relies on MAR. This approach has multiple drawbacks that negatively impact on your ability to optimize group business.
Lack of Agility
Because MAR is so time-intensive to set, hotels are unable to adapt to real-time shifts in market conditions, demand, or forecasted capacity. Hotels are also unable to factor in important components such as time of year, win/loss rates, and the impact of different lead times on price points for particular groups.
When using MAR, hotel sales teams are trapped in a legacy sales process that shoves group pricing into the backseat in favor of a focus on occupancy rates. And cumbersome manual methods lead to ineffective negotiations that causes rates to spiral in a race to the bottom. Hotels also lose out a potential income from meeting space, catering, and ancillary spend.
Thanks to the rise of electronic request for proposals (RFPs), sales managers now have less time available to respond to each RFP. On top of this, there are times when it’s necessary to go below the MAR to capture a much-needed piece of group business. The result it a process so fraught with bottlenecks that hotels cannot respond quickly enough, losing out on valuable business as a result.
Automated Group Pricing Optimization Holds the Key
Fortunately, the rise of automated group revenue management solutions provide hoteliers with a scientific approach that efficiently converts more leads and optimizes the profitability of group business.
By analyzing historical data, science-based technology allows hotel owners to micro-segment their group business – calculating price sensitivity and win rates. Solutions also consider factors such as day of week, length of stay, group size, and season to help configure optimal group business pricing strategies, and determine which groups will be most profitable. You’re empowered to optimize group revenue on a case-by-case basis, striking a balance between rate and booking probability.
In contrast to using MAR where you’re aiming for the lowest possible price, an automated group pricing solution measures potential room pricing against the likelihood of converting the group bid. This allows you to better forecast transient displacement costs, and derive win/loss rates at various price points based around specific group attributes. An advanced group pricing solution also factors in ways to optimize property function space and catering spend for maximum profitability.
An analysis of hotel properties comparing year-over-year performance metrics proved that using a group price optimization solution delivered better results than MAR, with clear improvements in several metrics, including:
- Average “won” rates increased by 8.8 percent, median “won” rates increased 8.4 percent, and high (90th percentile) rates increased 6.7 percent.
- Control properties realized a -8.7 percent decrease in group average daily rates (ADRs), while properties using optimization only saw group ADR decrease by 0.2 percent.
- And surprisingly, despite the use of more aggressive rates, properties using group price optimization even saw a slight increase in conversions.
Technology holds the key. Instead of relying on MAR strategies, hoteliers using a sophisticated group pricing solution are seeing, on average, an 11 percent increase in conversions and an 8 percent increase in group room revenue. An automated group price optimization approach empowers your sales team to make faster, more intelligent pricing decisions for group business.
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