What is the meaning / definition of Group Displacement in the hospitality industry?
Group bookings can help increase profits for hotels, but (perhaps surprisingly) not always! Sometimes reserving rooms for a group booking (and therefore making them unavailable for transient customers) can prove a mistake.
There might have been more profitability in refusing a group booking, even if it involved a group consisting of several people who wished to stay for several nights and even over the weekend.
Typically groups get better rates than individual bookers.
For example these same rooms could be sold at a higher price trough OTA or even directly from your website.
This is the reason why before accepting a group it is necessary to make a displacement analysis.
When transient or walk-in customers (and individual, couple, or family) are precluded from making a reservation due to a group booking being taken instead, they are described as being ‘displaced’ by the group booking.
One or several groups can be displaced by a particular group, too, if the hotel so decides.
Thankfully for hotels, Group Displacement, which would form part of their Displacement Analysis process, is not all down to guesswork! Group Displacement can be measured.
Before accepting any group reservation, the following data must be considered when calculating the overall profitability:
- How many rooms will the group require?
- How much revenue will also be generated from food and beverage and other services?
- Will the group need a meeting room (or maybe even more than one)?
- And if so, what will the extra cost of this be?
If the group wishes to stay at the hotel as they are also holding or participating in an event there, will they want to book extensive event space? And if so, how much extra revenue will this create for the hotel?
One mistake some hotels make is to always accept the group booking that will make them the most money.
Of course, it is important to always strive to maximise profits, but sometimes this can prove a mistake – a classic example of short-term thinking! It can sometimes prove better for business and hotel/customer relations overall if a hotel accepts a group booking from an organisation or company that makes a booking annually (and has done so for several years) than from a one-off group booking with more immediate profitability potential.