Rate fences are rules that are applied to specific room rates. They are set by revenue managers to prevent customers who are willing to pay higher amounts from having access to promotions or discounts.
From the consumer’s perspective, certain rules will apply to a reservation in order to complete a booking at a certain rate. Rate fences allow hotels to offer different rates to new clients than to existing or returning clients.
What are Rate Fences For?
Rate fences are used to help revenue managers differentiate and optimize products and/or services. For example, a hotel might offer special holiday rates to attract new customers. But a hotel can set rate fences so that existing or returning clients are unable to book a room at the same special rates as new customers. This is how a hotel can use a “flash sale” to attract new customers while not giving away all of its rooms to customers that are willing to pay a standard rate.
Benefits of Rate Fences
Rate fences allow revenue managers to increase room yield and optimize revenue. They can also be used to protect room inventory during high demand periods and to generate more long term stays.
Other benefits of setting rate fences include avoiding revenue loss from last-minute cancellations, increasing demand potential with conditional discounted offers, targeting specific niche markets, and offering promotional campaigns through targeted sales channels.
Limitations of Rate Fences
One of the challenges of setting Rate Fences is that customers must perceive the restrictions placed on their bookings as acceptable. Revenue managers must balance the need to protect a hotel’s interests with the potential to allow customers to book at lower-than-average market rates.
How are Rate Fences Determined
There are two main types of Rate Fences: physical and non-physical. Non-physical Rate Fences can be further broken down into multiple categories, such as fences based on customer demographic, fences based on transactional characteristics, and fences based on controlling availability.
Examples of Rate Fences
Here are some examples of the most common types of Rate Fences:
1. Physical Rate Fences
a. Room Location
b. Room Size
c. Room View
2. Fences Based on Transactional Characteristics
a. Time of Purchase
b. Quantity of Purchase
c. Location of Purchase
3. Fences Based On Buyer Characteristics
b. Industry Affiliation
c. Purchase Frequency
4. Fences Based On Availability
a. Geographic Criteria
b. Distribution Channels