Online Bookings: Does Your Pricing Strategy Measure Up?
By Jean Francois Mourier Founder & CEO, RevPar Guru Inc. | December 25, 2011
It seems like yesterday that a hotel's overall pricing strategy had to take into account two (or, at the most, three) relatively straightforward sales channels: direct, travel agents, and, in the case of larger chains, a global distribution system (GDS). With limited options for inventory distribution, pricing and forecasting were also limited. Travel agents needed published rates many months in advance, as did the advertisements that drove direct sales. GDSs had (and have) a bit more latitude- by aggregating room inventory across an entire chain or franchise network, occupancy-based pricing is more feasible- but GDS rate changes are still made in days, not hours or minutes.
Then, of course, the internet showed up. And just as it changed all of our lives, the rise of the online marketplace marked a fundamental shift in the way hotels sold their rooms.
Hotels are now faced with a myriad of sales channels. Add online travel agencies (OTAs) to flesh-and-blood agents, an individual hotel website to the direct channel (which was dominated by phone bookings, pre-internet) and third-party room aggregators to global distribution systems, and you have a daunting range of available avenues for room sales.
Today, the unquestioned growth leader among these channels is online. More than 44% of all room sales are completed online, a figure which is expected to grow to 57% next year. The online market for hotels is projected to exceed $65 billion in the US by 2010. Clearly, the current size and future potential of this channel demands an innovative pricing strategy to match it. Yet many hotels, while embracing certain aspects of the online revolution, nonetheless maintain a traditional pricing structure.
Why is this? The short answer is, because traditional pricing has always worked. Hotels have always employed smart men and women to determine the equilibrium between what a guest is willing to pay and what a room is worth, and to achieve the fine balance of occupancy, rate and operating margin that results in positive revenue per available room (revPAR). Complex formulas have been conceptualized and implemented to govern these variables, and courses at hotel schools from Ithaca to Las Vegas are dedicated to developing sound strategies for hotel profitability.
But the game has changed. The online marketplace moves at the speed of electrons and revenue managers need a sophisticated and fully automated system that will help keep up with the pace and update the rates continuously, in real-time. The most elegant calculus can't predict the permutations of occupancy from three months out. And as the current market has (painfully) reminded us, the only constant is change.