Hotels have rates down to a science: Here’s the formula

HAVE you tried to bargain with a hotel for a lower room rate lately? If not, get ready for a Kafkaesque experience. It often goes like this:

“What’s your rate?” you ask the reservations agent.

“When are you arriving?” she asks.

“When can I get the best rate?” you ask.

“I don’t know,” she replies. “The computer doesn’t show that. Here’s the best available rate for your dates.”

Blame your frustration on yield (also called revenue) management, a system hotels use to get top dollar. This system involves manipulating rates and rules to squeeze the most profit from every room.

Knowing a little about it can save you a lot. Think of yield management as supply-and-demand on steroids, with an assist from computers.

Under this system, you can find lower rates by reserving early and timing your stays to low-demand times. If you book late, forget it.

And don’t expect to steal a deal during the year-end holidays at a popular Hawaiian resort or to score savings in a host city during the Super Bowl. Yield management won’t allow it.

Airlines pioneered yield management after they were deregulated in the 1970s. It began migrating to hotels in the 1980s and spread in the 1990s.

Until then, the reservations desk typically quoted a high price -- the rack, or brochure, rate -- unless you objected. Then it was lowered to a level you would accept, said Sheryl Kimes, interim dean of the Cornell University School of Hotel Administration in Ithaca, N.Y.

Kimes said Marriott led the charge against the old system.

A German hotel in the 1980s, tried offering lower room rates to Oktoberfest celebrants who extended their stays, said Bruce Hoffmeister, Marriott International’s senior vice president for global revenue management.

Guests took the bait and stayed longer, boosting revenue, Hoffmeister said. Other hotels followed suit.

“Now all North American hotel chains are using some form of yield management,” Kimes said.

But what is it, and how does it work?

For answers, I turned to a report called “Yield Management” that Cornell issued in 2001, summarizing research by Kimes and others. Reading it is like slipping behind enemy lines to peek at the battle plans.

“The core concept of yield management is to provide the right service to the right customer at the right time for the right price,” the report says.

It’s all about timing.

A big problem, industry experts say, is that room demand waxes and wanes by day of the week, time of year, special events and other situations that hoteliers can’t control. Yet every night, a Hilton or Sheraton has the same 100 rooms to fill.

Ensuring that rooms get booked at the maximum price possible, without getting stuck with vacancies at 5 p.m., is a delicate high-wire act.

Enter yield management, which aims to “gain control of consumer demand by using time- and price-related strategic levers,” the report says.

Yes, they’re manipulating you.

By lowering the rate for stays during slack times, hotels induce penny-pinching vacationers to book then, filling rooms that otherwise would have gone vacant. By saving some rooms for last-minute bookers, often business people who have no choice, they can demand higher prices for the now-scarce rooms.

The technique is called “differential pricing,” which, the report says, “often involves charging customers different prices for using the same service at the same moment.”

Kimes said it’s better than the old system, because it’s at least understandable. When guests compare notes and learn that one got a lower rate just by asking for it, it “drives people crazy,” she said.

“As long as you are open about what the rules are, people are pretty OK with it,” she said her research has shown.

These rules, which may involve advance-booking cutoffs, nonrefundable payments and off-season or other restrictions, are called “rate fences” in the 2001 report. They herd customers into the “right” slots and create what hotels hope is “a logical set of prices that make sense to potential customers.” Pay more, get more; pay less, get less.

To figure out how far ahead to start charging more, Kimes said, hotels use computers to generate forecasts, based on historical data from bookings in years past. If reservations are falling behind the usual rate, hotels will drop prices; if running above, they’ll raise them. Adjustments are typically made once a day, she said.

The 2001 report explains the process in detail. A hotel’s revenue manager, it said, graphs the expected average room demand for each date and “sets trigger-points at which to open or close rate classes, either to encourage or discourage demand.”

The system sounds like a finely tuned Porsche, but even the report acknowledges kinks.

“The chief potential downside of yield management is the possibility of alienating customers who run afoul of the rate-fence rules,” especially if there is not a fair or logical reason for the different prices, the report says.

To which I’d add: If hotels won’t say which dates have low rates, customers may feel exploited. Unlike airlines, many of which allow online bookers to conduct flexible searches by date to get the best price, hotels typically don’t clue you in.

If you phone the front desk or a chain’s reservation number, however, and ask, Marriott’s Hoffmeister said, “our agents are very willing to work with the caller to check multiple dates,” and may even suggest dates when bargain rates apply.

“Properties are getting tougher and tougher to pin down on rates,” said Michael Petrone, who oversees AAA’s inspection program for hotels and restaurants. Some independent innkeepers still set prices “as the customer walks through the door,” he said. Occasionally, a big hotel, caught with vacant rooms at 5 p.m., may drop its rates, industry experts said.

You can only hope.

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Jane Engle welcomes comments but can’t respond individually to letters and calls. Write to Travel Insider, L.A. Times, 202 W. 1st St., L.A., CA 90012, or e-mail jane.engle@latimes.com.