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Tiered Group Rates - A win-win for hotels and event planners?

Tiered Group Rates - A win-win for hotels and event planners?

It's the dilemma impacting many organizations in the meetings industry. The planner wants to offer more rooms at an attractive rate for attendees. The hotel wants to wait to see if business and leisure travelers will represent better business.

“Everyone’s trying to drive rate,” Heidi Voorhees, MBA, CAE, Senior Vice President, Housing, Experient, says. “No matter where you turn in the hotel industry, the conversation is all about ADR growth.”

Hotels have plenty of reasons to turn bigger profits, too. A combination of higher transient demand and limited supply growth make the current environment very much a seller’s market. This presents some potential challenges on the planner’s side of the negotiation table.

“A lot of groups are under-blocked,” Voorhees says. “Still, even as group demand increases, it’s been challenging to secure more rooms.”

A Real Solution For Rooms And Rates

The good news? There is a strategy that can satisfy both sides: rate yielding.

“Rate yielding is a tried and true technique,” Voorhees says. “Airlines have been using this model to sell tickets for years.”

In addition to airlines, online travel agents like Priceline and Expedia use the same type of approach to maximize profits and sell more rooms. For group rate yielding, the two parties work together to secure an introductory rate for a pre-determined allotment of rooms. As the registration period continues, the hotel can evaluate their transient demand to determine when to provide more rooms for the group and where to set their rates. The state of the market and historical registration activity help dictate how to set new hotel costs.

“Successful rate yielding relies on understanding the show cycle,” Voorhees says. “You have to take into consideration the typical booking patterns to know how many times and when to adjust the rate.”

However, those rate adjustments should not be an arbitrary amount. As a planner sorts through the details of a hotel contract, yielding must be a big part of the discussion.

“It’s important to start with a low introductory rate, but it’s equally important to negotiate the end game,” Voorhees says. “The client has to know the maximum rate they’re willing to accept. Make sure the language in the contract supports that range.”

Voorhees and Experient have already seen rate yielding’s impact. By using rate yielding at CONEXPO-CON/AGG in Las Vegas, the blocks at 13 MGM properties grew by 15 percent over contracted value at lower-than-market rates.

Appeal To Attendee Buying Behaviors

In addition to keeping planners and hoteliers happy, this strategy can keep smiles on the faces of the most important people: the attendees.

“When you think about the perception of travelers who book through OTAs, they’re used to seeing incremental increases in prices online as they approach their travel dates,” Rick Benoit, Manager, Housing Services, Experient, says. “That’s why a tiered process is especially important in this strategy. Rather than a $200 room immediately becoming a $500 room, you can taper and layer the rooms into the block.”

“Those smaller cost adjustments are an easier pill for attendees to swallow,” Benoit adds.

A Strategy To Fuel Success In The Future

With limited new hotel construction and a forecast for more business travel, rate yielding is a term that will start to pop up in more conversations around the industry.

“It’s on the cutting edge,” Benoit says. “It’s going to be a very effective strategy to use in the next few years when rates are really high.”

Voorhees and Benoit both highlight that rate yielding may not be the right move for every meeting, but it can certainly pay dividends for many groups in desperate need of more rooms. 

Insta Event Management is considering variable pricing as a feature to it's group revenue management functionality and wants your feedback. What do you think? Would you like this feature for your hotel? Let us know your comments below.

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