The Evolution of Hotel Group Pricing

Author: Rainmaker

When I think of my early days as a revenue management consultant, I marvel at the discipline's progress. Whereas it once was often viewed as a dark art, and occasionally with derision by much of the hotel establishment, it has now become a thoroughly accepted practice for maximizing room revenue from B2C transactions. A more complicated set of circumstances arises in B2B pricing situations, such as when booking an association or corporate group, or pricing lease rates for a multifamily housing corporation's apartment portfolio. A formally optimized pricing methodology in those environments has been elusive (although techniques in the multifamily housing case have matured to a significant degree). Fortunately, important and welcome progress has been made to solve the hotel group pricing puzzle.

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Group business is an especially interesting element of hotel business. Historically, lead times are much longer (years in many cases) than is true of non-group business. What's more, large groups, national associations, for example, might consider not just the array of hotels in a city, but the array of cities themselves. Although events like CES will predictably be held in Las Vegas, it is less certain that the massive VFW convention will be held in a particular city.

Another important distinguishing feature is the selling aspect of group. There is a selling component of non-group business, but in many respects key decisions about what can be sold to individual travelers over coming dates have been pre-established by revenue management. Driven by forecasts of customer demand, ideally by expected value, non-group expectations assume some volume of unconstrained demand will convert into constrained demand. In other words, and without meaning to disparage the contribution of reservations agents and electronic tools, a significant element of non-group demand materialization depends on an order taking sort of posture.

With group business, the selling aspect is a good deal more determinant of success. Some sales people convert leads at higher rates than others. A bundle of factors contribute to group sales success, but an important one is turnaround time. Meeting planners are often administrative staff with many other responsibilities; they need good answers fast. For them, securing the right venue and value means enjoying another year of employment; while securing the wrong facility without value can be abruptly career limiting.

Group pricing can be a highly subjective and comparatively time intensive process. Marketing plans establish group sales objectives over coming months and years, and those objectives typically become enshrined in sales and catering systems in terms of MARs - the Minimum Acceptable Rate or "walk away" rate for prospects interested in particular time frames. Once established, MARs have a fairly static quality; updating them in even a quasi-dynamic way is laboriously time intensive, which means it happens only when necessity has become critical. It also means that real world price quotes, given that market dynamism is always more volatile than MARs can respond to, often involves a negotiation internally even before any negotiation with the planner can occur. In other words, it takes time.

Applying the science of optimization to group pricing can dramatically improve turnaround times, but it isn't simple to accomplish reliably. In order to precisely define the parameters that will govern optimization, intensive statistical analysis of group buying (and not buying) history must be performed to identify like patterns of behavior. These patterns tend to be exquisitely property specific and may or may not produce expectations according to traditional group segment (national association, local corporate, SMERF, etc.) nomenclature. When finished, however, the result delivers a platform that can be used to deliver price quotes in seconds - prices that are calculated to maximize the likelihood of winning the business most profitably and in accord with expected market conditions. Properties benefit by increased and more profitable sales conversions, significantly expanded sales time due to sharply truncated turnaround time, and meeting planners benefit by pricing that is calculated to ensure block commitments will be fulfilled.

Scientifically optimized group pricing has been a long time coming. Today it is a reality and one that both hotels and meeting planners can celebrate.

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