The One Thing Hotel Revenue Managers are Missing with Suites
“Good news sir, you’ve just been given a complimentary upgrade to our Premier Suite.”
That phrase, which gets uttered by front desk agents around the country, rings to the delight of any traveler. For a hotel revenue manager though, it’s the mark of another poor revenue strategy resulting in a vacant suite getting filled by an upgraded guest instead of a high-value customer paying a healthy daily rate for the suite.
Suites at hotels around the country are under-occupied and the reason isn’t what you might think.
The first instinct hotel revenue managers might have when pondering this issue is to think that fewer travelers have the financial means to pay for a luxury suite and as a result there are fewer bookings.
The reality is that suites have historically been priced incorrectly from the onset.
It’s not the revenue manager’s fault. Most can easily figure out where their pricing should be for their standard rooms on a given date. They do this in many different ways which might include:
- Historical hotel pricing data
- Competitive set pricing comparisons
- Real-time booking Average Daily Rates (ADRs)
While the three methods above work great for standard rooms, they fall short for suites and here’s why:
Suites get purchased less frequently than standard rooms.
This means that there is less historical data to go by and also less real-time data as to which rates are working versus which rates are too high/too low. And for comp set pricing, it’s not uncommon to look at competitors to gauge the price competitiveness of the base room type and then mark up the hotel’s own suites from there. With nothing to go by, suites are incorrectly priced for the market and often times they’re priced higher than they should be creating a vicious cycle where they don’t get booked and there is less data for correct pricing.
You might be thinking, well aren’t suites a lot nicer than standard rooms? The answer is yes, and the turnover costs are higher for suites, especially at luxury hotels, but if you look at the numbers, the jump in cost is typically far lower than the jump in ADR that travelers see. Looking at the costs and ADRs in Las Vegas this past August, we see the stark difference.
Some hoteliers might be thinking that in some cases it’s better to leave the suite vacant than to bring in a lower value guest. The reality however is that if you brought in a guest that is paying $400–500 instead of $700–800, the difference in their on-property spend and desirability would be marginal and these guests would be just as valuable to the hotel.
No one here is saying that revenue managers at high-end, luxury hotels should start discounting their most coveted assets — they should simply reconsider the premium over standard rooms that these suites are commanding. Taking another look at suite pricing will put more heads in beds and increase RevPAR which should be every hotelier’s goal in the end.