A term used to value a hotels rates and not allow dramatic discounts for better long-term revenue results for the hotel and the surrounding area and competition. Also used to justify the reason for a discount of rack rates compare to other guests.
As a hotel trying to maximise revenue, it is tempting to cave in and offer last-minute rooms for a steep discount, for offer a hotel room at 50% off is better than generating no revenue from it at all. Many hotels find that slashing their prices over completion, increases their revenue and drive new market traffic to them.
However, a recent study conducted by Cornell University shows that hotels that adopt this practice into their this into their revenue management strategies may see an increase occupancy in the short-term, but in the long-term decrease their rack rate value and reward customers who wait for last-minute deals to their hotel. Two things that will hurt a hotels reputation and sales in the long-term.
This term also refers to the justifying of a discount used for a rack rate from guest to guest. Discounts are given to guests in order to fill hotel rooms, increase sales or entice guests to stay longer. However, if these discounts are not justified to guests than another guest at the hotel may find out, leading to a declining reputation. This is why it is important to clearly state the reasoning for discounts to all guests that receive one.