Hotel allotments: Taking a strategic approach to group bookings

BOGOF.

It’s a blunt start to an article we’d like you to read, granted, but we don’t mean to be rude: anyone familiar with retail practices will know this stands for ‘buy one, get one free’.

In efforts to maximize hotel revenue and volume of sales if not profit on certain lines, the tactic is deployed liberally at supermarkets the world over, and there are parallels in the hospitality industry.

While significant discounts shouldn't be applied to all rooms at all times, strategic price reductions can be beneficial. Typically, these discounts are more modest than 50%. The goal is to boost overall business volume enough to offset the reduced profit margins on discounted rooms.

It all comes back to the perennial challenge for revenue managers: balancing guaranteed revenue against maximizing profits, and the question isn’t whether you offer a broad range of options; it’s how you do it in a way that achieves the best overall financials – and the easiest booking experience for potential guests.

An important strand in this thinking is the concept of hotel allotments. These group bookings represent a big chunk of your mix. But the question is:  how are they best allocated so you don’t compromise more profitable transient business, and how should you manage the process?

In this blog post, we explore the issues that will help you answer these questions for yourself.

What are hotel allotments?

A hotel allotment is a block of at least five pre-negotiated hotel rooms that have been bought out and held by a customer transacting on behalf of a large group, usually a travel organizer with a huge buying power, such as a tour operator, wholesaler or hotel consolidator.

In some circumstances and depending on the booking engine and customer interface you use, they can be bought by customers in different categories, such as a company PA booking dozens of rooms over several nights for dozens of their colleagues.

Whether they’re classed as ‘tour operation allotments’ or other more standard types of allotment is something that you should make clear on your internal systems so that you and staff at your hotel are all on the same page. The economics operate on the same principle but how you market and sell these options might vary.

There’s a clear benefit to hotels: guaranteed revenue with a high ticket price, albeit with lower profit margins. Promoting allotment and facilitating these sales is also good for winning business in the first place and increasing the chance of repeat bookings.

The issue of allotments – and group bookings more generally – overlaps with the topic of displacement analysis, but our focus here is on how to make them work, not on whether you should or shouldn’t take the booking.

The two types of allotments: fixed vs call-off

We've discussed the two types of customers. Now, let's look at the two types of allotments: fixed and call-off. You might also encounter these referred to as hotel-driven and guest-driven allotments, respectively.

As the name implies, fixed allotments require the booker to pay upfront for a fixed number of rooms on an agreed set of dates for a fixed price. It’s then up to them to allocate them to individual guests.

Call-off allotments are slightly more complicated. As the buyer, you’d agree with the hotel on a price per room for a block of rooms of certain room types over an agreed set of dates, but it’s up to each individual guest to reserve their own room at that agreed room rate. A cut-off date by which rooms must be booked would apply, after which any untaken rooms would go back on the open market.

Because the latter offers more flexibility to the guest, hoteliers can – all things being equal – usually charge slightly more per room. But with the former, you’re guaranteed the price you agree.

Room allotments help hotels maximize bookings

By now, you should have a good sense of what the general benefits of hotel allotments are to your hotel, but let’s summarize some of the main ones here:

• They can help drive direct bookings

• They create significant opportunities for upselling and possible upgrades

• If you get the right balance they will boost your hotel revenue and guest experience, which could lead to good reviews on the likes of TripAdvisor and on social media

• They provide guaranteed income in leaner times

• They demonstrate flexibility and value for money, which is good for your reputation and drawing in new and repeat business

• It’s always good to have as broad a mix as possible so that you spread your risks

Allotments also benefit guests and tour operators, particularly catering to the SMERF segment. By bringing groups together, they enhance the guest experience, often leading to more enjoyable stays.

How to allocate rooms for allotments

Deciding how many rooms to allocate for allotments is a function of the data-driven revenue management decision-making that forms the core of your job.

As you’d expect, your starting point will be to look at past performance using a business intelligence tool – so metrics such as year-on-year and period of time-to-date. By doing this, you can spot patterns and plug what could be gaps at the same time this year.

But you need to keep an eye on forward-looking data too, factoring in demand, seasonality, upcoming local events, and pickup and pace.

Balancing direct sales, OTA bookings and block sales takes careful consideration. Remember, room allocations and discounts don't have to be fixed. With user-friendly software, you can adjust these dynamically, just like other room rates, to maintain agility.

Consider setting fixed upper and lower limits on the percentage of rooms for allocation, either annually or seasonally. The specific percentages, however, depend on your judgment and market conditions.

In summary, the main steps to consider when crafting  your strategy are:

• Is demand low enough that you actually need to offer any rooms on an allocation basis?

• If so, review your past performance and forward-looking data to determine when to market allotment

• Set upper and lower limits on how many rooms should be allotted at any one time

• Look at your financials to determine what percentage discounts to offer for different types of allotment, lengths of stay and number of rooms etc

• Review your tech stack, including your property management system (PMS) and customer-facing elements, to optimize and streamline the process. This should include the guest and booking experience

• Ensure that your team understands your strategy and has the tools in place to manage it

Hotel allotment strategy best practices

We’ve just covered all of the basics and fundamentals. Now, let's dive straight into pointers on the best practices that will help you maximize the opportunities of your hotel allotment strategy.

Ensure you have live visibility into room availability

For successful allotment strategy management, hoteliers need real-time data on bookings and occupancy rates. This information should translate to accurate availability displays on customer-facing channels and your hotel website. Without a clear view of the data, you can’t make reliable decisions.

Get it right and it will enhance the accuracy of your demand forecasting – because it works both ways. While demand metrics can help with setting allotment numbers, once you’ve set your numbers and you monitor uptake, this helps you gauge demand.

The right levels of visibility come down to having the right software, putting in the right data, establishing a regime on how often you should review it, how you review it and what decisions or changes of course, if any, you make as a result of your analysis.

Negotiate room release policies

While the concept of a room release policy is  straightforward, implementing it profitably requires skill.

Working with tour operators is the best way to establish a clear release  policy for any unsold rooms, something that usually only applies to call-off allotments.

The key is to agree on a reasonable timeframe, leaving you as the hotelier plenty of opportunity to free up unused rooms and sell them to transient travelers.

But the agreement must feel fair to both parties; failing to strike a balance won’t foster a good relationship with tour operators and group booking managers, with whom you should strive for repeat business.

Implement a dynamic pricing strategy

Dynamic pricing is crucial for effective hotel allotment.This strategy adjusts tour operation rates based on real-time data. Factors influencing these adjustments include market demand, trends, conditions, competition, occupancy rates, booking times and customer behavior.

As used more generally in the hotel industry, dynamic pricing provides the most optimal room prices for any given time, resulting in the best balance between average daily rate (ADR) and occupancy.

Adopting this methodology will ensure that tour operators receive competitive prices without sacrificing revenue potential from the transient segment.

Other best practices in brief

Without going into detail, here are a few more best practices that you should bear in mind:

• Periodically review your allotment agreements

• Monitor your performance, as you would all elements of revenue management, and make adjustments accordingly

• Keep channels of communication open to keep dialogue with tour operators and group booking managers alive

• Look into way to cross-promote with other packages in either direction as part of your wider marketing strategies

• Keep your colleagues in the loop

Hotel property management solutions make it easy to manage your allotment strategy

Using the right data with the right techstack is a theme woven into this article. A mix of industry leading solutions will improve operational efficiency, revenue, distribution and general hotel management, as well as your efforts in hotel allotment strategy.

Discover how Lighthouse's commercial platform can help you make data-driven decisions, boost your revenue and strengthen your allotment strategy.