Room tariff in Hotels

a presentation to explain the term room tariff, the basis of charging tariff, factors that make the rate go up or down. Also, the importance of tariff in success of a hotel in financial terms. Revenue management introduction.

1. Room Tariff

2. Contents Room Tariff- Definition, Importance Room Rate Designation- Variety of Rates Meal Plans- Room Rate plus Food Package Room Tariff card- Definition, Design, Importance Room Tariff Fixation: Cost-based pricing. Market-based pricing.

3. What is Tariff? A tax or duty to be paid on a particular class of imports or exports . (Noun) Fix the price of (something) according to a tariff . (Verb) In this chapter we are going to study the second type of tariff.

4. What is hotel room tariff? A tariff is a list of prices. Room tariffs are lower in hotels outside the city (suburban hotels). Prices are shown on the tariff board in the hotel reception. This is the tariff for the hotel rooms.

5. ROOM TARIFF Room rate,which is daily rate charged for the usage of hotel rooms and services, is among a traveller’s basic criteria for choosing a particular hotel for stay. Price is one of the major element involved in the marketing and positioning of a product or service.

6. Room Tariff The room tariff of a hotel must generate sufficient revenue for the hotel to give the hotel owner a fair return on their investment. If tariff is kept low, it may not cover all the expenses. If it is kept high, customers may not like it. The rate of a hotel room is decided by several factors.

7. Factors Affecting Room Tariff

8. Cost The total expenditure done in providing services and products to the consumer of the hotel services is the cost of service. The total cost includes fixed cost, material cost and labour cost The higher the investment that has been made in a hotel property, the higher would be the room rent.

9. Return-on-Investment (ROI) Return on investment is the ratio between the net profit and cost of investment, resulting from an investment of some resource. A high ROI means the investment's gains (profit) compare favourably to its cost.  Wikipedia If I invest ₹ 100 in a bank, and earn an interest of ₹ 10 (@10% p.a.), my ROI= 100/10= 10 A successful business should give a higher ROI than traditional investment methods.

10. Level of services The level of services offered by a hotel determines the room rent to a large extent. A hotel offering best of services like spa, gymnasium, banquet halls, specialty restaurants,etc.will charge a higher room rent in comparison to other hotels, offering limited services. Level of service is directly related with labour cost. Five star hotels will need more staff to give personalized services and will have to spend more on salaries & wages.

11. Competition Competition between similar hotels in the market also plays an important role in determining the rack rate of the hotel. Law of Demand & Supply (Economics) says that increase in demand increases price & increase in supply results in fall in price. The higher the competition, the lower will be the room rate. Similar hotels should have competitive rates or they will fail to attract customers.

12. Target market The target market also governs the rack rate of a hotel room. Hotels, while selecting their room rates, find out the disposable income of their target segment. (Disposable income= Monthly income-Household expenses-Savings) Thus a budget or limited-service hotel quotes lower prices to attract guests with less disposable income and an up-market hotel quotes higher prices for high spending guests.

13. Target Market

14. Location The location of the hotel also plays an important role in deciding the room tariff. Hotels in a city centre or business centre, near places of tourist interest, or on scenic locales would have a higher tariff. Cost of buying land in such places is very high. The location and view of the room also determines the room rate. E.g. penthouse, lanai etc.

15. Hotel End-of-Day Point An accounting procedure undertaken at the end of the day to ensure that all business transactions from the current day have been correctly processed . Hotel sells space (room) & time (24 hours). Different hotels follow different standards for measuring time value of 1 day.

16. Measuring 1 Unit\Day Of Room Sale

17. Fixed Check-in/Check-out Time Most of the hotels follow the fixed check-in/check-out system for establishing the end of the day. In this system, a particular time is fixed to mark the end of the day. Generally, it is 12noon. This means that a day begins in the hotel at 12 noon every day, regardless of the actual check-in time of the guest. The day ends next day at 12 mid-day. The major advantage of this system of charging the room rent is that the same room can be sold more than once in a day.

18. Twenty-four hour basis In this system of charging room rent, there is no fixed check-in/check-out time. A room is assigned to a guest for twenty-four hours from the time of her arrival. This system is generally followed in transit hotels and hotels that are located in the vicinity of railway stations, where guests normally stay for few hours. In this system, the hotel does not allow relaxation of time after the completion of twenty-four hours of stay. In fixed time system, hotel may relax time up to 2 hours.

19. Night basis This system of charging the room rent is a modification of the twenty-four hour system. Here, the room rent is charged on the basis of the number of nights spent in the hotel room. If a guest does not stay at night, a half day rent is charged from him. This system, once popular in Resorts, is now outdated and not used much.

20. RACK RATE SEASONAL RATE ROOM RATES DESIGNATIONS GROUP RATE WEEK DAY/WEEKEND RATE TRAVEL AGENT RATE AIRLINES/CREW RATE EDUCATIONAL RATE INTRODUCTORY RATE CRIB RATE CORPORATE RATE ADVANCE PURCHASE RATE DAY/HALF DAY RATE TOUR GROUP WHOLESALE RATE VOLUME GUARANTEE RATE GOVERNMENT RATE MEMBERSHIP RATE COMPLIMENTARY RATE PACKAGE RATE MEAL PACKAGE MARRIAGE PACKAGE MEETING PACKAGE HOLIDAY PACKAGE

21. Understanding Rate Design

22. Rack Rate The rack rate is the full, published room rate and does not contain any discounts. The rack rate also does not include any taxes or surcharges. It is generally posted on the wall or door of the hotel room itself, as the maximum amount the hotel may charge for the room. Rack rate is also called standard rate, legal rate &

23. Discounted Rate A reduced rate, offered to agents\companies giving large amount of bookings, regularly. A discount is also offered during off-season, to attract business.

24. Promotional rate Special rates, less than the standard rate, offered to special groups and at special events. This is an effort to make hotel popular in new markets.

25. Package Rates A technique used during off-season to combine more than one product in one package and sell at lower price. This technique is also used during peak season to bundle less-popular products with fast selling products. Packaging is the idea of reducing profit margins per item, to generate higher sales volume, and hence, more actual profits.

26. Complimentary Compliment 1. a polite expression of praise or admiration . Hotels give free stay and food etc. to VIP & CIP clients, Celebrities and their in-house Executives. It helps in better public relations. Charging internal employees is of no use. But, hotels maintain accurate record of the money spent in complimentary services and also check its effect on profitability. Free Service

27. Corporate Rate This is a promotional rate to attract the corporate market segment. Corporates are big business houses like Tata, Reliance, Aditya Birla group etc. Their marketing, sales and purchase departments regularly send executive to all parts of India & World. They stay in quality hotels. The corporate rate is generally 10 to 20 percent lower than the rack rate.

28. Seasonal rate During peak season, hotels do not offer any discount ;rather they may charge a higher room rate, known as the seasonal rate. To attract guests during low-demand periods, hotels offer a discounted rate known as the off-season rate. Shoulder period is when the demand is coming down from peak or going up to the peak. The rates are medium.

29. Advance Purchase Rate Though popular in the airlines industry, the advance purchase rate is a relatively new concept in the hospitality industry. Hotel gives heavy discounts on room rates when room bookings are done much in advance. The advance booking of rooms guarantees a certain amount of revenue at a given time and thus helps the management in planning a revenue management strategy. When rooms are booked up to a point, say 40-50%, discount can be reduced or removed.

30. Week Day/ Weekend Rate The demand for rooms in a hotel may be more on certain days in a week. Business hotels will be full during week days & Leisure hotels will see more bookings on weekends. Hotels analyse their demand levels over a period of time and fix a higher rate during high demand periods and a lower room rate during low demand periods.

31. Day and half day rate The day rate, charged from guests not staying in the night at a hotel, is lower than the rack rate. For instance, if a guest checks in at 10 a.m. and checks out the same evening at around 5 p.m.,he may be charged the day rate. Day rate is just a bit more than the exact half of the normal rate.

32. Group Rate Hotels  that frequently accept bookings from  groups  can offer reservations at a specially negotiated rate. This is called a  Group  Rate. ... It is quite rare that a  hotel will accept a  group  booking, and therefore offer a reduced  Group  Rate, for less than five rooms . Normally, a group should book 10-15 rooms to get any discount.

33. Tour Group Wholesale Rate A tour operator typically combines  hotel, events, activities  and travel products to create a package holiday. They advertise and produce brochures to promote their products, holidays and itineraries. Tour operator – Wikipedia A travel agency is a private retailer or public service that provides travel and tourism related services to the public on behalf of suppliers, such as; activities, airlines, car rentals, cruise lines, hotels, railways, travel insurance, and package tours. Travel agency - Wikipedia

34. Tour Group Wholesale Rate Tour Operators buy hotel rooms in bulk, for a fixed number of days, every month, for the whole year. They get big discount for this wholesale buying. They crate a package tour and publicize it through many channels. Travel Agents then sell these packages for a commission. This system benefits everyone, including budget conscious travellers.

35. Travel Agent Rate Travel Agent is a person whose job it is to arrange travel for end clients (individuals, groups, corporations) on behalf of suppliers (hotels, airlines, car rentals, cruise lines, railways, travel insurance, package tours ). If they book a room, for their client, hotel will pay them a commission of usually 10%. They may also charge a service fee direct from the client.

36. Company Volume Guaranteed Rate (CVGR) A Company volume guaranteed rate ( CVGR) letter is offered by the Hotel to a company, to use the hotel services, at a special discounted  rate. This discount is offered because the company has guaranteed to give a minimum number of bookings to the hotel, per year. It is a contract which the hotel and company must honour.

37. Airlines\ Crew Rate A special discounted rate offered to employees of recognized airlines. The rate is allowed only on showing a valid identification card of the airlines. The discount can be 40-60% on best available rates. Generally, booking has to be done online. Apart from discount on room rate, F & B discount of 10-15% is also given. Airport hotels allow this rate most often, but resorts may also offer such rates.

38. Government Rate Officers in Government service are given fixed travelling allowance, according to their rank. Hotels design their rates in such a way that all the needs of these officers are covered within their allowance limit. Such a rate is called Government Rate.

39. Educational Rate Special rates offered to students & teachers of educational institutes. These rates may be quite less but, since this is a regular source of income, and also as part of Corporate Social Responsibility program, hotels agree to accommodate.

40. Membership rate Hotel run various loyalty programs for frequent guests and issue them membership cards with benefits and points. These points can be used to book free rooms later. Discount and points are available for repeat bookings. Members of politically & socially powerful organizations are also given special rates to attract other members. Members of influential organizations, like FHRAI, IATA, IATO, UNWTO etc. are offered special rates.

41. Introductory rate Introductory rates are offered to anyone and everyone, when a hotel is newly opened. These are very attractive to make people aware of the property quickly. Once the flow of business becomes strong, the rates may be increased.

42. Complimentary rate Complimentary rates are mainly offered for good public relations. Given to ministers, senior IAS\IPS officers, business heads and celebrities, these rates are strictly controlled by GM to prevent misuse.

43. Crib rate Special rates, applicable to all children between 5 to 12 years. Extra bed may or may not be given. If the child is an infant (very young), hotel supplies crib bed for the convenience of the parents. Offered mostly in Resorts. Baby-sitters may also be available on an hourly payment basis.

44. Package rate

45. Types of packages Meeting (Conference) Package: A combination of the following products & services; Rooms Meeting Room or Conference Hall Food & Beverage Audio Visual Equipment Local Activities, like sightseeing trips Special Event for the group (e.g. Musical show)

46. Types of packages-2 Marriage Package: Includes the following; Marriage venue (Outdoor or indoor) Decoration & arrangements Limousine or a luxury car Banquet hall & reception room for party Rooms for guests Room for the newly-wed couple.

47. Types of packages- 3 Holiday Package: has the following; Travel arrangements (local transport) Room Food Activities Excursion trips Special arrangements (anniversary\birthday)

48. Types of packages- 4 Meal Package: Combination of room and three types of meals, i.e. Breakfast, Lunch & Dinner There are many types of popular plans. European Plan Continental Plan American Plan Modified American Plan B & B or Bermuda Plan

49. ROOM TARIFF FIXATION Fixing of tariff is a difficult task for the management. However, if the rate is too high, guest may not patronize the property. Hence, an accurate and competitive room rate is one of the pre-requisites for running a successful hospitality business.

50. Two Methods of Fixing Tariff Cost-based Method Market-based method

51. ROOM TARIFF FIXATION Cost Based Pricing Market-based Pricing Rule Of Thumb Approach Hubbart’s Formula Market Tolerance Inclusive And Non-inclusive Rate Rate Cutting As Per Competition Guest Requirement