PRICING STRATEGIES FOLLOWED BY HOTELS

With reference to The Oberoi Hotel, New Delhi

Made by:Bipin Bhanushali

PRICING STRATEGIES OF OBEROI HOTELS

Important terms and concepts:-

GOP-PAR- It is the gross operating profit per available room. Since this figure does not take into account the revenue mix of the hotel, therefore it does not provide an accurate evaluation of its performance. This is because the operating profit earned from one room is different from that of another due to the different pricing and facilities on offer, for e.g. standard rooms, deluxe rooms, super-deluxe rooms, etc. But, it demonstrates the efficiency, profitability, effectiveness of the hotel. Rev PAR- Rev PAR= Rooms Revenue/ Rooms Available Rev PAR is revenue per available room, Rooms Revenue is the revenue generated by room s sales Rooms Available is the number of rooms available for sale in the time period

Rack rate is the travel industry term for the published full price of a hotel room, which the customer would pay if he or she walked into the hotel off the street and asked for a room. While lower than the maximum rate that the hotel may be allowed to charge under local laws, it is higher than the rate most travel agents can book for their customers. Sometimes the terms "run of the house" or "walk-up rate" are used to refer to the same highest rate. The term "rack rate" is also used by travel-related service providers, such as car rental companies or travel mobile phone rental companies, to refer to the same highest rate they would charge customers with no pre-bookings.

In the hotel industry there are many factors determine the pricing:y y y y y y y y y y y y y Dynamic Pricing / Time-based pricing Differential Pricing Positioning Strategies GOP-PAR Season Competition Services External factors / uncontrollable Rate Parity Rate Integrity Price Fencing Lead Time Pricing Corporate pricing

Yield management in hotels can only succeed when you can target different types of clients at any time with different prices. We have tried to visualize it below;

If you don't have prices available for the potential clients with a higher budget range you will loose them to other hotels. Or if your prices are too low for what people are willing to pay, you will loose profit margin if they book you. Of course if your prices are too high for travelers with a lower budget you will lose out on bookings.

Dynamic pricing, also known as time-based pricing or third-degree price discrimination, occurs when customers are divided into two or more groups with separate demand curves, and different prices are charged to each group. When done successfully, price discrimination practices like this can increase the profit of a firm by enabling the firm to capture more consumer surplus. However, ethical issues exist with some price discrimination policies, especially thanks to the advent of technology, which gives firms the possibility of charging prices based on consumer history and profiling. Since, on the website we found that the rates quoted were non negotiable, but on further research through personal contacts it was found out that the rates were dynamic and flexible to some special customers and were changed when they insisted. It was also necessary to have complete knowledge of the competitors. Failing which, the hotel officials might end up giving a higher discount than necessary. Every hotel offers certain discount on the Rack rate a fixed discount is calculated for a particular period and in case of The Oberoi it is known as OSR (Oberoi special rate)

Price fencing: Longer the stay bigger the discount. This is done to elongate the stay by giving certain features like extra discount and other facilities like a plan in the form of continental plan or American plan etc. Also, as explained above the rack rate is the maximum allowed rate a hotel can charge for a certain quality of room. The special rate is the discounted rate which is actually paid by the customers. The discount can be given for a no. of reasons ,for instance weekend prices (

anticipating competition), special customers, charging standard room rate from those who asked for a standard room but due to no vacancy they were given the deluxe room. Also the regular guests are offered certain pre-determined discounts. Providing such features would create an illusionary fence . The hotel will be able to register repeat guests and elongate their stay thereby preventing them to go to other hotels.

Rate integrity: QUALITY Low Low PRICE Economy High Penetration

High

Skimming

Premium (Oberoi Hotel)

To keep your price level high and charge premium because what you are offering cannot be offered by others, for example Service, ambience, facilities etc. So hotels like The Oberoi should not lower their rates. But however in reality the rates are lowered due to some external factors outside the control of the hotel management. Like competition, terrorist attacks, recession etc. During 26/11 The Oberoi incurred more than 1500 cancellations in 3 days and there were no new reservations, situation was very bleak, to counter it large discounts were being offered and a standard room costing Rs. 18000 was offered at a price as low as Rs.9000 It should be contemplated that lowering the rates too much degrades the image of the hotel.

Lead time pricing: According to our research, we encountered a trend that in Delhi the maximum sale of rooms takes place between Octobers to January. The discounts are inversely proportional to the sales of rooms. Also, if a customer books a room in advance in September, then he avails a higher discount as compare to what he would have if he booked the same room after October.

The benchmark is decided by the sales department and hence for any particular date if around 45% of the rooms were not booked then huge discounts were offered.

Value Addition: Wireless Internet access in all rooms and public areas, State of the art 24-hour Business Centre, Full service Oberoi Spa, Fitness Centre, 24 hours in room dining, 24 hours personal butler service, 24 hours Concierge, Meetings and Conference facilities, Luxury retail arcade, Outdoor heated swimming pool, Indoor heated lap pool, Beauty parlour, 24 Hours laundry service, Banking, Baby sitting, Valet, Travel desk, Electronic safe deposit box in all rooms, Room for guests with special needs, Extensive Safety and Security arrangements. Some of them are included in the prices but for the others you have to pay for.

Corporate Pricing : Is done considering the total number of guest nights a business is offering. Generally, most of the corporate houses conduct interviews for selection as well as board meetings in 5 star hotels like The Oberoi. This also influences the pricing strategy of The Oberoi hotel. This is more of a B 2 B relationship. The Oberoi has Areva, Coal India, BCCI, Telenor and many more as their regular corporate clients, a special rate with special facilities are on offer, however it would not be appropriate to reveal the original prices.

Many corporate houses have certain departments running in some of these hotels. Oberoi offers these services of giving rooms on lease at a predetermined permanent price. The price is paid on a monthly basis by the company using this facility. Some of the companies are J.P. Morgan & Chrysalis capital.

Travel agent pricing There are travel agents who are reputed and have linkup with The Oberoi hotel. The travel agent is given special discount if he brings business (guests) for a certain number of nights. This discount is his profit/commission. This ensures business coming to The Oberoi in bulk. There by helping The Oberoi to focus on a vital few than trivial many. The Oberoi has an association with almost all the major travel agents of the world. For this association the contract is signed and on the basis of the contract a credit limit is fixed for the travel agent, after the association the travel agent vouchers are accepted by the hotel. Either the discount is offered or a 10% commission is given as per the contract. Rate Parity- The hotel has to take into account what his competitors are offering and at what price, if you are not at par with the market prices and services you are tend to suffer, however

internally speaking the same set of room can be offered at different prices to various guests. Smart work is required on this front. Season (October- February) Rack rate for a standard room -Rs. 18000 Average OSR -Rs. 14000 Discount which can be offered on OSR- Subjective Discount which can be offered by a front office guy without referring the authorities - Maximum of 1012% on OSR. Slack Season (October- February) Rack rate for a standard room -Rs. 14000 Average OSR -Rs. 10000 Discount which can be offered on OSR- Subjective Discount which can be offered by a front office guy without asking the authorities- Maximum of 10-12% on OSR. Travel Agent Discounts: Rooms at the peak season are offered at a rate as low as Rs7000 keeping in mind the overall business the agency has to offer, however, this is also subjective. Corporate pricing is almost the same as travel agent pricing. AS it is also a fixed form of revenue throughout the year.