What’s the right room type supplement to charge?


Charging a supplement for your premium product in order to maximise revenue is a good revenue management principle. However if you get it wrong it can have implications for your revenue. If it’s too high customers won’t pay it and if it’s too low you are leaving money on the table.
So how to check? The first thing to do is compare the achieved average room rate (ARR) for each room type with the supplement.  So if a hotel has classic and superior room types and the superior room type is £20 more than the classic room type then the achieved ARR for that room type should be around £16.50 (£20 less VAT) if you are always selling the room for the supplement.  This indicates that customers perceive the difference as worth the supplement and assumes that the occupancy percentage for superior rooms is the same as classic rooms. So the question to ask is would customers pay more for the superior rooms? If they would then you have lost revenue and could increase the supplement. Customers tend to react negatively to large changes in price, so a small increase of say £2-5, would be a good way to test this. If this increase still achieves sales then 6 months later you could increase it again.
What if the achieved ARR for the superior rooms is less than the supplement? If it is more than 50% less than the supplement then this would indicate that half the time customers are not paying the supplement, but are getting a free upgrade. Is that what you want? So perhaps if you were to reduce the supplement, say by £5 to see if the customers would then perceive that the superior room is value for money. 
Some other thoughts would be how does the superior room differ from the classic room? Is it clear on the website what the benefits are that the customer is getting? Have your reservations staff stayed in the room, so they can enthusiastically sell the benefits? What about an incentive for staff who sell the rooms at the full supplement?
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