Goldilocks Rate- How to Find It

Most of us know the story of Goldilocks and the three bears. Remember, once upon a time there were Three Bears, who lived together in a house of their own, in the woods. Well, we can not take the time to tell the entire story here, but do want to refresh your memory that Goldilocks tasted the porridge of the Huge Bear, and that was too hot. And then she tasted the porridge of the Middle-sized Bear, and that was too cold. And then she went to the porridge of the Little Bear, and tasted that. And that was neither too hot nor too cold, but just right. Are your room rates too high or too low?; in other words too cold or too hot? Well, our goal with this first article is to motivate you to re-examine your reasoning when establishing your rooms pricing strategies.

Let's examine what appears to drive a hotel's rooms pricing strategies today. If we ask hoteliers, "How did you arrive at your current room rates?", we receive the following or similar answers:

  • "Our competition increased their rate by 5% so we did also."
  • "Our costs increased by 3% so we needed to increase our rates."
  • "We feel we need to be $5, $10, or $20 etc., less than ABC Hotel and they raised their rates."
  • "We need to pay for the renovation."
  • "The hotel proforma said."
  • "My boss said."

Another answer might be "demand determines our rates". If this is your answer, think about this question. What demand are you referring too? The demand that exists in your total market place or the demand for your particular hotel? The market place demand is created in part by the overall health of the economy, the health of your local economy and what demand generators exist in your local market. The demand for your hotel will be determined by the attributes of your particular hotel and the appeal they have for a particular market segment traveler. If this is not true, then why does one hotel out-perform another in REVPAR? The answer in part is attributes. Attributes create the demand for a hotel, which in turn drives the pricing. Pricing can create demand for a hotel but that will be the subject for a future article.

When we examine the above answers we can only feel there must be a better methodology which can be applied to establish a more scientific rate strategy. If we ask ourselves why a guest selects one hotel over another one, the answers must in part be attributes. Other words that might be used to describe attributes are features, traits, or characteristics. So let's identify some attributes of a hotel. The first one that may come to the mind of many of us would be location, and of course there is the old saying that "location, location, and location" are the three most important factors to consider when developing a hotel. Some other attributes that a guest might consider are: frequent traveler program, size and quality of guestroom, transportation, free parking, health facilities, free breakfast and/or cocktails, free hi speed Internet access (wireless or not), business center, free local telephone calls, service levels, availability of food and beverage and the quality of the sales effort. Isn't it true that if a hotel is yielding to less than the most advantageous room rates in its rooms categories, it can never achieve optimal Revenue Management? Considering attributes when creating a pricing strategy is the most scientific and best method to achieve Optimum Revenue Management.

So have we been successful in motivating you to re-examine your reasoning when it comes to your rooms pricing strategy? If you are still not convinced that attributes should play a role in establishing rates, consider this: Why did Goldilocks select the porridge of the Little Bear? Remember that it was neither too hot nor too cold, but just right. It seems like she selected the porridge based on an attribute. Your clients do the same, so to establish rates that are not too cold or too hot, compare the attributes of your hotel to your competition and find your Goldilocks rate.