The document discusses the significance of room tariffs in the hospitality industry, outlining how hospitality should be both a service and a profitable business. It covers components of room tariff determination, including factors such as service level, competition, target market, and location, along with different pricing strategies like rack, corporate, and promotional rates. Additionally, it emphasizes the importance of proper tariff fixation methods to ensure sustainability and revenue generation for hotels.

1. Welcome to a new learning
session!

2. Room Tariff

3. Best Hospitality Costs... Nothing!

4. If Hospitality becomes a business or a
profession, however...
•It must be profitable
and sustainable in the
long run!

5. Hospitality & hotels is not just about
great service alone...
•It is also a smartly run
business enterprise, just
like a steel or car
manufacturer, a
telecom business etc.

6. Profit Orientation
• All new students in hospitality need to
become alert to this not-so-pleasing aspect of
their hospitality career!
• Money matters.
• Thinking like that makes you feel bad, isn’t
it?

8. Hospitality is a two way street!
It always has been like that.

9. Heard of “Return Gifts” concept?
• Common in weddings and birthdays...
• Return gifts are given to show care and
concern to those who attended the event. It
serves like a token of value to those who
showed their presence in the event. It acts as
a remembrance to those who are receiving
the warm return gifts.

11. Now you may relax and focus on learning, will you?!!!!

12. Snip of the Front Office Syllabus

13. Important Contents in this chapter
• Room Tariff- Definition, Importance
• Room Rate Designation- Variety of Rates
• Meal Plans- Room Rate plus Food Package
• Room Tariff card- Definition, Design, Importance
• Room Tariff Fixation/calculation:
a) Cost-based pricing.
b) Market-based pricing.

14. What is Tariff?
• A tax or duty to be paid on a particular class of
imports or exports. (Noun)
• Fix the price of (something) according to a
tariff. (Verb)
In this chapter we are going to study the second
type of tariff.

16. What is hotel room tariff?
• A tariff is a list of prices. Room tariffs are lower
in hotels outside the city (suburban hotels).
• Prices are shown on the tariff board in
the hotel reception. This is the tariff for
the hotel rooms.

18. Sample Tariff Card

19. ROOM TARIFF
• Room rate,which is daily price charged for the
usage of hotel rooms and services, is among a
traveller’s first and foremost criteria for choosing
a particular hotel for stay.
• Price is also one of the major elements involved
in the marketing and positioning of a product or
service.
• For example, luxury, upmarket or economy!

20. Sample Hotel Tariff (from Brochure)

21. Room Tariff
• The room tariff of a hotel must generate
sufficient revenue for the hotel to give the
hotel owner a fair return on their investment.
If tariff is kept low, it may not cover all the
expenses. If it is kept high, customers may
not like it.
• The rate of a hotel room is decided by several
factors.

22. Factors Affecting Room Tariff
Cost
Level of
services
Competition
Target
market
Location

23. Cost
• The total expenditure done in providing
services and products to the consumer of the
hotel services is the cost of service.
• The total cost includes fixed cost, material cost
and labour cost
• The higher the investment that has been
made in a hotel property, the higher would be
the room rent.

24. Return-on-Investment (ROI)
• Return on investment is the ratio between the
net profit and cost of investment, resulting
from an investment of some resource. A high
ROI means the investment's gains (profit)
compare favourably to its cost. Wikipedia
• If I invest ₹ 100 in a bank, and earn an interest
of ₹ 10 (@10% p.a.), my ROI= 100/10= 10%
• A successful business should give a higher ROI
than traditional investment methods.

25. Traditional investment methods like...
• Land
• Real Estate
• Gold (Jewellery & Bullion)
• Shares @Stock Market
• Bank Fixed Deposits
• Bonds & Debentures
• Post Office Savings

26. Level of services
• The level of services offered by a hotel
determines the room rent to a large extent.
• A hotel offering best of services like spa,
gymnasium, banquet halls, specialty
restaurants,etc.will charge a higher room rent in
comparison to other hotels, offering limited
services.
• Level of service is directly related with labour
cost. Five star hotels will need more staff to give
personalized services and will have to spend
more on salaries & wages.

28. Ready for a VIP Welcome

29. Guest Relations Executive, in conversation with
guests.

31. Competition
• Competition between similar hotels in the
market also plays an important role in
determining the rack rate of the hotel.
• Law of Demand & Supply (Economics) says that
increase in demand increases price & increase
in supply results in fall in price.
• The higher the competition, the lower will be
the room rate.
• Similar hotels must have competitive
(equivalent) rates or they will fail to attract
customers.

34. Target market
• The target market also governs the rack rate of
a hotel room.
• Hotels, while selecting their room rates, find
out the disposable income of their target
segment.
• (Disposable income= Monthly income, less
Household expenses, less Savings)
• Thus a budget or limited-service hotel quotes
lower prices to attract guests with less
disposable income and an up-market hotel
quotes higher prices for high spending guests.

36. Target Market means the category of
customers the business wishes to attract!

37. Location
• The location of the hotel also plays an
important role in deciding the room tariff.
• Hotels in a city centre or business centre, near
places of tourist interest, or on scenic locales
would have a higher tariff. Cost of buying land
in such places is very high.
• The location and view of the room also
determines the room rate. E.g. penthouse,
lanai etc sell at a premium.
• Rooms with no view or unattractive view would
be sold at lower rates

40. Hotel End-of-Day Point
• A business must measure anything and
everything that may affect profit and success!
• “End-of-Day” is an accounting procedure
undertaken at the end of the each business day
to ensure that all business transactions from
the current day have been correctly posted and
processed.
• Hotel sells space (room) & time (24 hours).
• Different hotels follow different standards for
measuring money value of 1 hotel room per
day.

41. Measuring 1 UnitDay Of Room
Sale
Check-in/Check-
out Basis
Twenty-four
Hour Basis
Night Basis

42. Fixed Check-in/Check-out Time
• Most of the hotels follow the fixed check-
in/check-out system for establishing the end of
the day.
• In this system, a particular time is fixed to mark
the end of the day.
• Generally, it is 12noon. This means that a day
begins in the hotel at 12 noon every day,
regardless of the actual check-in time of the
guest. The day ends next day at 12 mid-day.
• The major advantage of this system of charging
the room rent is that the same room can be
sold more than once in a day.

44. Twenty-four hour basis
• In this system of charging room rent, there is no
fixed check-in/check-out time.
• A room is assigned to a guest for twenty-four
hours from the time of her arrival.
• This system is generally followed in transit hotels
and hotels that are located in the vicinity of
railway stations, where guests normally stay for
few hours.
• In this system, the hotel does not allow relaxation
of time after the completion of twenty-four hours
of stay. In fixed time system, hotel may relax time
up to 2 hours.

46. Night basis
• This system of charging the room rent is a
modification of the twenty-four hour system.
• Here, the room rent is charged only on the basis
of the number of nights spent in the hotel room.
Check-in & check-out exact time is not
considered.
• If a guest does not stay at night, a half day rent is
charged from him.
• This system, once popular in Resorts, is now
outdated and not used much.

48. RACK RATE
SEASONAL RATE
Room Rates Designations
GROUP RATE
WEEK DAY/WEEKEND RATE
TRAVEL AGENT RATE
AIRLINES/CREW RATE
EDUCATIONAL RATE
INTRODUCTORY RATE
CRIB RATE
CORPORATE RATE
ADVANCE PURCHASE RATE
DAY/HALF DAY RATE
TOUR GROUP WHOLESALE RATE
VOLUME GUARANTEE RATE
GOVERNMENT RATE
MEMBERSHIP RATE
COMPLIMENTARY RATE
PACKAGE RATE
MEAL
PACKAGE
MARRIAGE
PACKAGE
MEETING
PACKAGE
HOLIDAY
PACKAGE

49. Understanding Rate Design
Types Of Room Rates
Rack Rate
Promotional Package
Discounted
Complimentary

50. Rack Rate
• The rack rate is the full, published room rate and
does not contain any discounts. The rack rate also
does not include any taxes or surcharges.
• It is generally posted on the wall or door of the
hotel room itself, as the maximum amount the
hotel may charge for the room.
• Rack rate is also called standard rate, legal rate &
display rate.

51. Discounted Rate
• A reduced rate, offered to agentscompanies
giving large amount of bookings, regularly.
• A discount is also offered to normal guests
during off-season, to attract business.

52. Promotional rate (Special Offers)
• Special rates, less than the standard rate,
offered to special groups and at special
events. This is an effort to make hotel popular
in new markets.

53. Package Rates
• A technique used during off-season to
combine more than one product in one
package and sell at lower price.
• This technique is also used during peak season
to bundle less-popular products with fast
selling products.
• Packaging is the idea of reducing profit
margins per item, to generate higher sales
volume, and hence, more actual profits.

54. Pizza Package

55. Cosmetics Gift Hamper

56. Complimentary
• Compliment
• 1. a polite expression of praise or admiration.
Hotels give free stay and food etc. to VIP & CIP
clients, Celebrities and their in-house Executives. It
helps in better public relations. Charging internal
employees is of no use. But, hotels maintain
accurate record of the money spent in
complimentary services and also check its effect on
profitability.

57. Celebrities may get comp. Rates!

58. Corporate Rate
• This is a promotional rate to attract the
corporate market segment. Corporates are big
business houses like Tata, Reliance, Aditya
Birla group etc.
• Their marketing, sales and purchase
departments regularly send executive to all
parts of India & World. They stay in quality
hotels.
• The corporate rate is generally 10 to 20
percent lower than the rack rate.

59. Corporations are large companies.

60. Some are MNCs!

61. Seasonal rate
• During peak season, hotels do not offer any
discount ;rather they may charge a higher
room rate, known as the seasonal rate.
• To attract guests during low-demand periods,
hotels offer a discounted rate known as the
off-season rate.
• Shoulder period is when the demand is
coming down from peak or going up to the
peak. The rates are medium.

62. Peak Season Shoulder Season
Off or Lean Season
This concept was also used while discussing Timeshare
pricing.

64. Advance Purchase Rate
• Though popular in the airlines industry, the
advance purchase rate is a relatively new concept
in the hospitality industry.
• Hotel gives heavy discounts on room rates when
room bookings are done much in advance.
• The advance booking of rooms guarantees a
certain amount of revenue at a given time and thus
helps the management in planning a revenue
management strategy.
• When rooms are booked up to a point, say 40-50%,
then discount can be reduced or removed,
depending on anticipated demand.

67. Week Day/ Weekend Rate
• The demand for rooms in a hotel may be more
on certain days in a week.
• Business hotels will be full during week days &
Leisure hotels (Resorts) will see more bookings
on weekends.
• Hotels analyse their demand levels over a period
of time and fix a higher rate during high demand
periods and a lower room rate during low
demand periods.

70. Day and half day rate
• The day rate, charged from guests not staying in
the night at a hotel, is lower than the rack rate.
• For instance, if a guest checks in at 10 a.m. and
checks out the same evening at around 5
p.m.,he may be charged the day rate.
• Day rate is just a bit more than the exact half of
the normal rate.

71. Group Rate
• Hotels that frequently accept bookings
from groups can offer reservations at a specially
negotiated rate. This is called a Group Rate. ... It
is quite rare that a hotel will accept
a group booking, and therefore offer a
reduced Group Rate, for less than five rooms.
• Normally, a group should book 10-15 rooms to
get any discount.

73. Groups book more than 15 rooms!

74. Tour Group Wholesale Rate
• A tour operator typically combines hotel, events,
activities and travel products to create a package
holiday. They advertise and produce brochures to
promote their products, holidays and itineraries.
• Tour operator – Wikipedia
• A travel agency is a private retailer or public service
that provides travel and tourism related services to
the public on behalf of suppliers, such as; activities,
airlines, car rentals, cruise lines, hotels,
railways, travel insurance, and package tours.
• Travel agency - Wikipedia

75. More on this would be available
when we learn the topic,
“Channels/Sources of reservations
for hotels.

76. Tour Group Wholesale Rate
• Tour Operators buy hotel rooms in bulk, for a fixed
number of days, every month, for the whole year.
They get big discount for this wholesale buying.
• They crate a package tour and publicize it through
many channels.
• Travel Agents then sell these packages for a
commission.
• This system benefits everyone, including budget
conscious travellers.

78. Travel Agent Rate
• Travel Agent is a person whose job it is to
arrange travel for end clients (individuals,
groups, corporations) on behalf of suppliers
(hotels, airlines, car rentals, cruise lines,
railways, travel insurance, package tours).
• If they book a room, for their client, hotel will
pay them a commission of usually 10%.
• They may also charge a service fee direct from
the client.

80. Company Volume Guaranteed Rate
(CVGR)
• A Company volume guaranteed rate ( CVGR)
letter is offered by the Hotel to a company,
to use the hotel services,
at a special discounted rate.
• This discount is offered because the company
has guaranteed to give a minimum number of
bookings to the hotel, per year.
• It is a contract which the hotel and company
must honour.

81. Airlines Crew Rate
• A special discounted rate offered to
employees of recognized airlines. The rate is
allowed only on showing a valid identification
card of the airlines. The discount can be 40-
60% on best available rates. Generally,
booking has to be done online.
• Apart from discount on room rate, F & B
discount of 10-15% is also given.
• Airport hotels allow this rate most often, but
resorts may also offer such rates.

85. Government Rate
• Officers in Government service are given fixed
travelling allowance, according to their rank.
• Hotels design their rates in such a way that all
the needs of these officers are covered within
their allowance limit.
• Such a rate is called Government Rate.

88. Educational Rate
• Special rates offered to students & teachers of
educational institutes.
• These rates may be quite less but, since this is
a regular source of income, and also as part of
Corporate Social Responsibility program,
hotels agree to accommodate.

89. Membership rate
• Hotel run various loyalty programs for
frequent guests and issue them membership
cards with benefits and points. These points
can be used to book free rooms later. Discount
and points are available for repeat bookings.
• Members of politically & socially powerful
organizations are also given special rates to
attract other members.
• Members of influential organizations, like
FHRAI, IATA, IATO, UNWTO etc. are offered
special rates.

90. Hotel Loyalty Programs

93. Introductory rate
• Introductory rates are offered to anyone and
everyone, when a hotel is newly opened.
• These are very attractive to make people
aware of the property quickly.
• Once the flow of business becomes strong,
the rates may be increased.

96. Complimentary rate
• Complimentary rates are mainly offered for
good public relations.
• Given to ministers, senior IASIPS officers,
business heads and celebrities, these rates are
strictly controlled by GM to prevent misuse.

97. Crib rate
• Special rates, applicable to all children
between 5 to 12 years. Extra bed may or may
not be given.
• If the child is an infant (very young), hotel
supplies crib bed for the convenience of the
parents.
• Offered mostly in Resorts.
• Baby-sitters may also be available on an
hourly payment basis.

99. Package rate
Meeting Marriage Holiday
Meal

100. Types of packages
• Meeting (Conference) Package: A combination of
the following products & services;
• Rooms
• Meeting Room or Conference Hall
• Food & Beverage
• Audio Visual Equipment
• Local Activities, like sightseeing trips
• Special Event for the group (e.g. Musical show)

102. Types of packages-2
• Marriage Package: Includes the following;
• Marriage venue (Outdoor or indoor)
• Decoration & arrangements
• Limousine or a luxury car
• Banquet hall & reception room for party
• Rooms for guests
• Room for the newly-wed couple.

104. Types of packages- 3
• Holiday Package: has the following;
• Travel arrangements (local transport)
• Room
• Food
• Activities
• Excursion trips
• Special arrangements (anniversarybirthday)

106. Types of packages- 4
• Meal Package: Combination of room and three
types of meals, i.e. Breakfast, Lunch & Dinner
• There are many types of popular plans.
European Plan
Continental Plan
American Plan
Modified American Plan
B & B or Bermuda Plan

108. • Fixing of tariff is a difficult task for the
management.
• However, if the rate is too high, guest may not
patronize the property.
• Hence, an accurate and competitive room rate
is one of the pre-requisites for running a
successful hospitality business.

109. Two Methods of Fixing Tariff
• Cost-based Method • Market-based method

110. ROOM TARIFF FIXATION
Rule Of
Thumb
Approach
Hubbart’s
Formula
Market
Tolerance
Inclusive And
Non-inclusive
Rate
Rate Cutting
As Per
Competition
Guest
Requirement

111. See you in the next presentation
• On hotel room tariff fixation!

112. • There are various approaches to pricing
rooms. We will examine three popular
approaches.
• The Market Condition Approach
• The Rule-of-thumb approach
• The Hubert Formula
Establishing Room Rates

113. Compilation & Presentation
Praveen Jha
Senior Faculty
IHM Hajipur
Vaishali, Bihar