A ROOM RATE means the price charged for overnight lodging in a hotel. There are different types of room rates for each category of rooms, from standard to deluxe. Determination of room rates is one of the most difficult jobs. You have to ascertain a kind of rate that will generate profit after considering all types of costs i.e. Operational cost, administrative cost, utilization cost, etc.
Basically, room rates are set by the Front office department and the Marketing & Sales department according to several market-sensitive factors, like – Competition in the market, Pricing sensitivity, and taxation factors.
The rates assigned by the hotel go up and down between the Base rate (the lowest price can be charged) and the Rack rate (the highest price can be charged) by the effect of various marketing conditions.
Why do hotels use different types of room rates?
Hotels use different types of room rates to provide their customers with a wide range of options to choose the most suitable room according to their preferences and budget.
The different rate system also helps hotels to manage occupancy of rooms during different seasons. It ensures a steady stream of guests with maximum revenue potential.
Different rates can include seasonal, peak, corporate, discounted, loyalty, and promotional rates.
Differentiating the rates is no doubt a difficult job to do but it affects the competition market among the hotels. A well-structured rate system can make a hotel ‘no. 1’ choice for the guests.
20 types of room rates plans in the hotel industry.
There are a number of options available for planning room rate types for your hotel. However, there are some key rate plan categories, and each of them are mostly common across all the hotels. Hotel managements can consider implementing a few of the following to create impact on guest’s preferences.
Here you can find 20 such options:
- Base Available Rate (BAR) Plan:
Base Available Rate (BAR) plan is the most common and must needed rate plan to fulfil the demand of rooms for the guests at the lowest budget possible.
This kind of room can be offered to a guest at his/her break-even point. Most of the hotels have at least two base rates to cover high and low seasons.
- Standard rate (RACK):
RACK stands for the standard rate for a hotel room. Basically, online websites and advertisements are used to show these rates. It has no discounts as well as no extra charges on its price. So always think about creating two kinds of RACK rates: with breakfast and without the breakfast option.
- Non-Refundable rate:
When a guest is unable to cancel his/her booking of a hotel room then it comes under the non-refundable plan.
For a manager, non-refundable rooms are must revenue spots for their business. No doubt the pricing of the rooms is much more attractive, that’s why it has a prior position in the hotel system. Non-refundable rooms are generally 5 to 10 percent less expensive than the standard price of the other rooms.
- Last minute rate/ Walk in rate:
The name almost describes it all. When a guest books a hotel from the reception for an urgent staying purpose for a short period of time (suppose: for a night). Then the used plan is known as the last minute rate plan. The pricings of this plan are always decided by the hotelier, though it has a major difference from the standard pricings.
- Length of Stay Rate (LOS):
Guests can take advantage of this rate type when he or she has to stay a long period of time in a particular hotel. As the days increase the rate of discount also increases. Because when a guest stays for a long time, the day-to-day expenses on the maintenance of the room decreases. That’s how the overall cost of maintaining the room is effectively lower.
When the rate type is perfectly applied, guests are willing to stay more days at the hotel and the longer stay inspires a positive review because of hospitality and familiarity.
- Family Rate:
Family rate is a price structure preserved for adults who came with their family members (children, parents, siblings etc.). Rooms coming under the family rate have multiple bed and bathroom facilities. Charges of those extra facilities are included in the price. Hotels having targeting families as their regular guests should have fun children activity facilities in their hotel to attract more families.
- Package Deal:
The Best Available Rate (BAR) in combination with some sort of activities or dining facilities are known as package deals.
These kinds of rates are usually higher than the original BAR rate, but guests can get extra comfort and convenience from it.
- Corporate rate:
If you have a certain popularity in the hotel market then it is very helpful to attract business guests who return regularly or add magnificent value to the hotel. Hotels can consider them as a separate target customer base and hold a special price for them.
- Group Rate:
When a large group of people consider staying at a hotel for a decent amount of time as per their own agendas (such as meeting, conference, wedding ceremony etc.). Hotels can give them a decent discount as their overall cost decreases. Usually, these agreements are not made directly with the guests, but with the travel agencies, companies, or organizers.
- Flexible Rate plan:
Under this plan guests will get the right of free cancellation whenever they want before check in. But this comes in exchange for a more expensive rate of room. This plan gives the guest a mental peace where the near future is unpredictable after the pandemic.
- Government or Student rate plan:
Some of the hotels have a separate customer base like students and government officials. Usually, hotels having a large number of those kinds of guests offer a special discount of 10 to 15% to members of these groups when they present a valid id.
- Membership rate plan:
Hotels sometimes collaborate with travel agencies and organizers and give them a special membership discount to maintain a good supply chain of customers.
- Loyalty rate plan:
Research says that attracting new guests are 16 times more expensive than having old guests back. At this point, a loyalty plan would be a much more economical option for hotels. Keeping touch with old guests, acquainting them with some frequent offers and giving them discounts is the best way to keep them loyal.
- Event Rate plan:
Don’t miss to take advantage of those events and festivals which are famous in your city. Hotels can offer their guests a handsome discount on their hotel bookings to attract the gathering of people.
- Airline Contact rate:
Hotel often offer discount on hotel bookings to the Airline crews. Basically, this kind of deals are made with Airlines to increase their volume of business.
- Travel writer rate:
It is the special rate for the travel blog or book writers who usually write their experiences. To appreciate those kind of works hotels are used to give some sort of discount to the travel writers.
- Complementary rate
Complementary rate is a kind of rate that is not displayed anywhere online, but only in the management system of the hotel. The rate’s pricing is at 0 when any guest is being offered for a free lodging by your hotel.
- Promotional rate
Use this rate type to maximize the flow of travelers in your hotel during Low seasons. Promotional rate attracts tourists most. For example, a 2 nights’ rate can be charged for 3 nights stay or, breakfast can be offered for free without dropping the rates.
- Half day rate:
This type of rate relates to airport hotels and business guests. It’s be like the guest can book a room for half day, or want to stay for the delay of his next flight or want to have a quiet working place with a good environment. If there is a system to rent only twice in one day (one in the morning, and then an overnight stay), then it is a benefit to the owner of the property.
- Early booking rate
Early booking rate means booking of rooms in advance by the guest. If the booker makes an early booking in advance (from 30 days upto 6 months earlier) , then the hotel owner can reserve the guest’s booking on advance and the booker will get it as reward. Sometimes, with early bird booking, discount in room rates is allowed.
No doubt, there may be other room rate types you can use but this is an excellent list to start with. Our advice is to offer, at least, the standard rate, a non-refundable and a package deal. This way, you have a good variety of prices available and it allows the bookers to compare and choose the most suitable option for them.
Hotel room rate type best practices:
It’s very challenging to build up knowledge about different types of room rates and put them into action. Some practices of this are as follows —
- Do not visualize the actual room price publicly in package rates.
- Keep eyes on the market price and the competitors’ action regularly, and cleverly determine your rate.
- Observe how BAR (Base Available Rate) proceeds room rate in the market while producing higher rate plans.
- Try to increase occupancy at reasonable price than increasing margin of profit at higher price.
- Make sure your website and reservation system can be operated through mobile.
- You should display only four or five star package rate plans at once on your website.
Pricing Strategies to consider for Different Types Of Room Rates In Hotel
There are many pricing strategies that can be taken by the hotels. One particular strategy is not appropriate for all hotels. So, it’s better to use a combination of strategies on the basis of current marketing techniques, revenue objectives and target guests. Followings are some Pricing strategies can be considered by a hotel:-
- Open Pricing: Hotels can set room rates at different levels by using this strategy for higher profit. Open pricing strategy is suitable for independent or private hotels as they are flexible with any rates. In other words, open pricing helps fixing rates of channels, different room types and dates that aren’t dependent on each other.
- Value-added Pricing: The more experience you can give, the more you can earn — this is what value-added pricing refers to. If maximum experience or market value can be offered, then it will maximize your chances to set rates at a high price. For example, if you offer quality toiletries to the guests, then you can charge more price as room rate.
- Price per Segment: Offer the same product with different prices according to the type of customer. You can offer family rates or corporate prices. By this strategy, either occupancy will increase in your hotel or higher revenue can be earned with lower lodging.
- Discount Pricing: This type of strategy is used in low seasons when occupancy remains low. In this situation, hotels can drop the base rates to uplift occupancy level by using this strategy. In this Condition, the loss a hotel bears by giving such discount, the hotel must compensate that loss during high seasons when rates increase as well as by offering quality services to the tourists.
- Penetration Pricing: If you are new in market, then it would be a good strategy of pricing your room rates. Just Keep low prices for every room category than others in the market to gain market value quickly. Begin referrals by verbal words.