Challenges of implementing rate fences in hospitality

CHALLENGES OF IMPLEMENTING RATE

FENCESA CASE STUDY OF HILTON MARCO ISLAND BEACH

RESORT& SPA

BRIEF SYNOPSIS

• The purpose of this study is to analyze different rate restrictions and rate

fences in one of the major Hilton Group hotels, Hilton Marco Island Beach

Resort & Spa.

• Rate Fences during peak and off season

• Hilton’s rate policies and restrictions may change depending on ;

• business volume,

• expected arrivals,

• special occasions, and

• banquet events

ABOUT HILTON MARCO ISLAND BEACH RESORT SPA

• Perfectly located in Marco Island, Collier County in Southwest Florida

• 4 Diamond Hotel AAA

• 11 Story Building

• Has Total of 297 rooms.

• 4 Penthouse suites. These 4 rooms located at 11th floor.

• Has great spa built on 10000 sq ft. including full service saloon.

• 2 Full service Restaurants total of 7 Food and Beverage Outlets.

• Resort also provides Meeting rooms, spaces, wedding and catering activities.

RATE FENCES & RATE RESTRICTIONS:

• Fence is used in the agriculture industry to contain the animals in certain areas to avoid them getting out of the restricted boarder.

• Rate fences in Hospitality: control the demand between peak and off-peak seasons, to reward trustworthy customers, and to arrange the highest margin for the business (Kimes & Singh, 2009).

• According to Hanks et al., (1992) Rate fences allow customers to segment themselves into appropriate rate categories based on needs, behaviors, expectations and willingness to pay (Hanks et al., 1992, p.21).

• The Strategy of designing fences are:• Keep the value of property high

• High Room rates or well designed room rates

• Increase the occupancy of hotel with high rate.

There is no common rule for rate fences however,

• “Customers should perceive the restrictions offered to them as acceptable to complete their bookings, while hotels needs to protect their own interests by restricting customers’ booking behavior in the form of imposing restrictions on payment policies, changes, cancellation policies and advance requirements” (Denizci Guillet, B., Liu, W., & Law, R. (2014)

EXAMPLE OF FENCING

• if you own a hotel which has only 100 rooms and your occupancy is at 70% for the ADR of $100.00. Your new sales manager suggests the rate is too high and should be lowered in order to fill up the hotel and increase the revenue. Administration of the hotel insists to Revenue Manager to lower the rates to $69.00 so that hotel will be full. The hotel soon is at full occupancy at a rate of $69.00 and generates $6,900.00 revenue. Of course with higher occupancy, the cost of cleaning the rooms will be higher. Let’s say 30% of the room rate will be cleaning cost. Therefore, $2,070 is the cost of cleaning then subtract the total income $6,900 = $4,830 will be the profit of the hotel. Furthermore, if the sales manager insisted to put fences-discounted rates only for senior citizens and keep current guests under 50 years old at regular price of $100; we continue getting $7,000 from current in house guests and $2,070 from the senior guests, total of income would be $9,070. ( Tim Colemen, 2012, Hospitality Upgrade)

CHALLENGES OF RATE FENCES AT HILTON MARCO ISLAND BEACH RESORT SPA

During the conversation of Hilton Asst. Rev Manager • They use five Channel fences and 2 out of 5 always experience

problem• 1- Time of purchase Fence • 2- Geographic Fence • 3- Opaque Channel

• 4- Product Fence • 5- Distribution Channel Fence

QUESTIONS AND DISCUSSION WITH INDUSTRY

PROFESSIONAL

• 1- How do you integrate fencing decisions with Revenue making decisions?

QUESTIONS AND DISCUSSION WITH INDUSTRY

PROFESSIONAL

2- What’s the most difficult channel to manage and requires so much time?

3- Do you have any strategy or fence that we are not aware of?

Questions and Discussion with industry Professional