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The metric that can significantly impact your revenues

Wednesday, February 8, 2017, 15:13 Hrs  [IST]

When most hoteliers consider their revenue management metrics, they most likely think about RevPAR, ADR and occupancy. Perhaps, they would also think about historical and current local demand. But for the majority of hoteliers, their property’s star rating wouldn’t even occur to them (beyond when they initially start working with an OTA and are creating their profile).

What many hoteliers forget is that a property’s star rating is a hugely important factor, both in marketing your property and in determining the best price for your rooms on a given day, because consumers often use star ratings to filter viewing search results on an OTA.

By now, most hoteliers are probably familiar with the Cornell University study done which offered quantifiable proof that having a better TripAdvisor rating would help boost a property’s bottom line; the study showed that, “1% increase in a hotel’s online reputation score leads up to a 0.89% increase in price as measured by the hotel’s average daily rate (ADR). Similarly this 1% increase in reputation also leads to an occupancy increase of up to 0.54%. Finally, this 1% reputation improvement leads up to a 1.42% increase in revenue per available room (RevPAR)”.

The same applies to the impact of your property’s star rating on your room rate. Let’s look at an example of a three-star, 100-room hotel in the United States, which earns USD 110 of RevPAR per room, per day; if the same property went up to a three and half-star rating, their RevPAR would increase by USD 42 per room, per day. If you extrapolate those numbers, the property can increase their annual revenues by approx. USD 1.5 million, simply by increasing their star rating by one half-star (from three-stars to three-and-half-stars)! As you can see, star ratings do have a direct impact on your property’s bottom line.

Even still, some hoteliers are hesitant to try to improve their star rating because they believe that (with a higher star rating); potential customers will have much greater expectations about their property. They operate under the philosophy - “Under-promise, over-deliver,” because they think it will be better, both financially and for customer satisfaction rates, to be the best hotel in a lower star rating (rather than one of many in the higher rating). But that isn’t always true.

It is true that, from a consumer standpoint, a higher rating is perceived to be a “better” property; however, not all travellers use the same criteria for judgement so “better” is a very subjective term. Some customers would perceive a hotel with more amenities to be “better” (and therefore, worth a higher star rating); whereas, others might perceive a clean hotel with interesting design choices to be “better” in a good location (and therefore, worth a higher rating). The point is that you can’t always please every customer, no matter your star rating; however, by having a higher star rating, you’re more likely to secure more, higher priced bookings.

So what now? Focus on optimising your actual star rating on the most popular, top-performing OTAs in your region (i.e. Expedia in the North America, in Europe, Agoda in Asia, etc.). Since this is the site that brings you the majority of your OTA business, the effort you put into increasing your star rating (on this site) will be a worthwhile investment. Keep in mind though, like every other aspect of the online channels, chaos reigns supreme. Many properties will likely have different star ratings on different OTAs, because each site uses different criteria to determine their ratings.

Additionally, you want to make sure you review your comp set’s star rating so that you can know if your property has an advantage (making it more valuable to the customer) or a disadvantage (which would entice customers to book elsewhere).

And finally, I recommend that all properties use a sophisticated revenue management system (RMS) to make executing their strategy easier and less time-consuming. A sophisticated RMS will monitor your property’s and your competitors’ star rating on the important channels as well as the performance of your competitors and market conditions on an ongoing basis, and then adjust your pricing accordingly. It will collect and analyse data constantly, and will continuously adapt to increase your property’s revenues without you lifting a finger.

See, isn’t that so much easier?

(REVPAR GURU provides hotels around the world with an alternative revenue management software solution, designed to deliver maximum bookings and profits.)

The views expressed within this column are the opinion of the author, and may not necessarily be endorsed by the publication.

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