This represents the core of a quite lengthy and detailed discussion.
A hotel manager regretted the change from the RAC-Rate to the BAR (Best Available Rate) and compared it to Yield Management in Aviation.
Three misinterpretations in one sentence…
The rack-rate (off the Rack) has always been – and is – the rate, anyone “selling” a room was allowed to book at. Unconditional. That rate – in that definition – exists until today and must exist.
Many hotels fixed a rate and called it “rack rate”, published on the indoor or in the locker… But the rack rate is as variable through the year(s) as is any other “rate”. So there seems to be a misinterpretation of a definition by some…
What is the Best Available Rate? It”s one of these meaningless phrases, these politicians manqué in Marketing love. See next.
Third misunderstanding: Yield Management.
I experienced the development of yield management in American Airlines, who made this an art first (late 1980s). And it is an art! The definition for yield management was explained to us at an employee conference with Bob Crandall himself (to date a model “airline manager” to me). In short: They are there to optimize the own pricing structure to achieve the “best available selling rate”. To do that, they got tools to monitor the prices of competition, they took into account long term developments, including public holidays, regional vacation periods, congresses, events, … And they talked to the local sales teams to assure to be aware of trends – something you cannot do to date with technology only! Within two years after launching the department, it employed more than 3.000 of the best people American could find or hire and had achieved a revenue increase making that effort very valuable. I do recommend to have a look at the Wikipedia article on Yield Management.
Today, most managers believe, Yield Management is purely technical. But it is a predictive art. Many managers only look at a single puzzle piece: A good yield manager can be worth an entire sales team. But that does not say you can replace it. In most airlines, the yield management rarely speaks to sales, they stick to the “electronic reports and figures”. Stupid, they miss an essential “early warning system”…
Best Available Rate… The boss of my business training (whole sale) emphasized two rules I found invaluable:
- Don”t bleed out your supplier. He has to live. If he lives safely, it”s also to your own benefit.
- Price dumping is a Pandora”s Box. They undermine the trust in your products.
And there was a joke that at the time was historic already: “You purchase a box of these screws for 1 Dollar, you sell them for 99 cent, how could you?!” Answer: “You stupid don”t understand that. It”s the quantity that counts!”
Our industry (aviation and hotels alike) have paniked themselfes into price dumping. To date, I question the competencies of any manager, blindly following that path. In 1997, a senior airline manager (unquestioned by his peers) alleged that brand has no value any more. Customers would only purchase by price. I did argue strongly against it. And today argue no less for brand. Everyone can sell cheap. But you get no cheap loyalty with customers, you need brand loyalty!
So what is the Best Available Rate? Can that be the dumped price? Is it the best selling rate? How does it link to the Rack Rate? I don”t blame the pricing managers, they only do what their senior managements ask them and express as expectations. But maybe you should reconsider your pricing “policy”? Create one…?
Food For Thought…
Your comments sure welcome!