The importance of rate plans

Pricing is very important. What rate are you going to offer to which guest at which moment. You can make this as complex or refined as you want, but setting the foundation is of huge importance.

You want some basic building blocks guiding this. That’s where rate plans come in - we think about it as creating a rate plan structure. Different rates serve different needs, for both the customer and the property. If you serve your customers in the right way you’ll attract more people to your accommodation and ultimately grow your business.

Offering different rates also provides a point of comparison for the guest. If a room is listed at US$100 a night, the customer doesn’t really know if this is a good price and so they’ll try to figure it out against what else is on offer. If you don’t give them anything to compare to they will look at your competitors’ rates to work out if it’s a good deal. The moment you provide options, flexible vs non-refundable for example, you are creating choice and a point of comparison. We’ve seen this play out in experiments: if we remove the non-refundable rate bookings go down, if we remove the flexible rate bookings go down - it’s the combination of the two that works best.

The building blocks

When building your rate plan, there are lots of parameters to consider but there are a number of areas we recommend exploring. Firstly, you might consider a flexible rate, where customers can cancel if they need to. Why? We know that guests like to have this flexibility and they book it more often. There are also specific groups of customers that are unlikely to book anything else, such as business travellers who really need that freedom.

When you walk past the supermarket, big posters emblazoned with deals and discounts aim to entice you inside - this is your lead-in price. Offering alternative rates can help encourage consideration while meeting different customer needs. So, alongside a flexible rate you might offer a non-refundable rate. These are generally your lowest price point, but come with the advantage of guaranteed bookings and no last-minute cancellations. For the customer it’s also appealing, particularly to those who are price sensitive and don’t need flexibility. These tend to be leisure guests who know their travel plans well in advance.

On top of this, there’s a booking window element that may also impact the rate you want to offer. If someone books really early you might like to give them a discount - an early booker rate. This helps with advance bookings and again can reduce cancellations. In general, you want to avoid dropping prices the closer you get to the stay date - in doing this there is a danger that your flexible-rate rooms will get cancelled. Consequently, an early booker rate should generally be lower than a last minute rate.

For smaller properties the need is different as you’ve less rooms to fill. When you don’t have a large inventory to fall back on you want to avoid last minute cancellations - running the risk of an empty property, so from that perspective only offering a fully flexible rate can be tricky. There are three potential approaches here:

• If you are confident there is enough demand and you’ll sell out, consider a non-refundable rate
• If there’s less demand and higher supply in your locality, then you might choose a semi-flexible rate which, for example, offers cancellation up to two weeks in advance. That way guests who book really far out but are not 100% sure still have the option to cancel but you’re also left with time to relist the room
• If you’d prefer a slightly more sophisticated structure, consider a semi-flexible rate that becomes non-refundable (for example) 14 days in advance, which you could complement with a non-refundable rate that closes 14 days in advance - this is traditionally slightly cheaper than the semi-flexible rate so then you’re offering some form of discount and choice.

As a minimum set, it always makes sense to have a flexible, a non-refundable and an early booker rate. What’s key is how you combine these to attract the optimal number of customers and provide prospective guests with options suited to their needs. Then you can really optimise the revenue for the property.