by Bruce Harris

One thing is certain: If the hotel uses contract language that says, "We will tell you your group's rate 12 months out," then the entire negotiation process has been wasted. If a hotel is allowed to unilaterally determine the increase, you may end up with higher rates, and lower attendance, than you anticipated.

To protect against that, one method is to determine a "peg rate" to control how prices will increase. Often, for example, the hotel's rack room rate is used. Future rates should be at least the same percentage below the future "peg rate" as equivalent current group rates are below the current "peg rate." Here's an example:

 

Current Rack Rate......... $150

 

Current Group Rate....... $120

 

Percentage Below

 

"Peg Rate".....................20 percent

The future group rate should be 20 percent below future rack rate. "Peg rates" accurately reflect pressures and economic conditions. And they reflect the competition in individual markets. It sounds reasonable, but here's what some hotels offer as their "peg":

Hotel A &endash; "Your group rate will not increase at a percentage greater than our 'corporate rate' increase."

Hotel B &endash; "You have been given our group rate' based on your anticipated guest room and food and beverage needs. Your rate for 1999 is guaranteed not to exceed our 1999 group rate."

If you have a contract that uses the phrase "corporate rate" as your "peg rate," you should be shaking in your boots. Just what is a "corporate rate"? I called a few hoteliers to find out their definition. Said one: "The corporate rate is a rate we give to steady volume groups whose offices are usually in close proximity to our hotel. The rate is low because these groups, usually have a weekly need for a certain number of guest rooms all year long."

When I asked if these "steady" customers all get the same "corporate rate," my hotel friend laughed. "Since every group has different volume," he said, "there are almost as many different corporate rates at this hotel as there are groups who receive them." Another hotelier was asked if his property's corporate rate was higher than the rate usually given a good piece of group business. "In most cases," he answered, "our corporate rates for our steadiest volume customers are lower than our group rates. We could not afford to have a high percentage of guest rooms selling at the lowest corporate rates.

"Our lowest corporate rates," he continued, "are similar to airlines' 'Super Saver' rates. We have a limited number of rooms that we can sell at that rate."

To further complicate the situation, consider that there are hotels that offer a so-called "corporate rate" to anyone who calls and identifies him/herself as working for a corporation. This rate is a virtual sham to enable the reservations department to offer a lower rate to call-in travelers who balk at the standard rack rate.

What all this means is that the term "corporate rate" has been totally diluted. It does not, in fact, represent any particular rate. Any contract that uses "corporate rate" as a "peg rate" puts the planner totally at the mercy of the hotel.

In the example of "Hotel B," the term "group rate" is used as the "peg rate." But for the term "group rate" to have any validity whatsoever, it must be a narrowly defined rate that all groups receive during a similar time of year. This presumes that rates do not change based on the total value of a group's business, something I personally find hard to believe. For that reason, "group rates" should not be used as the "peg."

All of which takes us full circle and brings us back to "rack." It's a rate that is publicized. It's available to anyone who calls the hotel during any given season. And it's an excellent "peg" because it moves up and down in direct relationship to the economy. For all these reasons, your long-term rate should be "pegged" to the percentage difference between current rack and group rates.

First published in: Convene Magazine, July 1994