Groups in hotels: discount or surcharge?
Hoteliers regularly find themselves working with tour operators, or answering quote requests from sports clubs and other organisations, and have to decide what rate to apply to a group. The most immediate approach seems to be offering a substantial discount, on the grounds that these guests contribute a great deal to the hotel’s occupancy. In this article, though, we will see how in certain circumstances it can be strategically worthwhile to quote a group a higher rate than a standard booking, depending on specific variables and factors.
Low season
The first scenario to look at occurs in low season, when a group asks for two or more consecutive nights and takes up a significant share of the whole property. In these cases we assume you have set a minimum rate for those nights — the base price at which you intend to sell the rooms — below which you are not prepared to go, not least because you do not expect to reach 100% occupancy.
The recommendation in these circumstances is to quote the group a rate equal to, or slightly below, the one you have set. If you do decide to apply a discount, it is best not to exceed 5–10% against the rate showing on the OTAs. Where the group is asking for a single night, it is usually better to decline the booking, unless the period is practically empty; in that case it is essential to protect yourself by putting the necessary measures in place, such as OTA limits and minimum stay.
High season
In periods where occupancy is already high, it is advisable to accept groups staying at least two or three nights, so as not to compromise occupancy on the adjacent days. If the group guarantees enough nights, the reasoning about price becomes more involved.
Assuming an effective dynamic pricing strategy is in place, you have already set a minimum price for those dates, due to rise as bookings come in. In these circumstances, rather than applying a discount or holding at the minimum price, the right move is to quote a higher rate.
To work out the price to offer, it is essential to look at historical RevPAR (average revenue per room across the entire inventory) and to bear in mind that in periods with occupancy between 80% and 100%, the objective is to grow RevPAR by raising ADR (the average rate of the rooms actually sold). Accordingly, the group is quoted a rate matching the previous year’s RevPAR, while the remaining rooms can be sold at higher prices. Alternatively, if the group takes the entire property, you can apply a rate above last year’s RevPAR, thereby hitting the RevPAR target set for the current year.
Conclusion
In short, the main objective for any hotelier remains maximising RevPAR, in high season and low season alike. By adopting a dynamic pricing strategy and weighing the associated costs carefully, every group booking can be turned into an opportunity for profitable growth. Adapting your pricing to the specific characteristics of the property and the location, and combining approaches such as group quotes, guaranteed buy-out contracts — where the block is paid for whether or not it fills — and allotments, lets you balance revenue and cost sustainably. With careful planning and some flexibility, any hotelier can improve their competitive position and hit the targets they have set.