All About Pricing: Should Competitors Influence Your Strategy?

By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | December 25, 2011

After 18 months of financial uncertainty, it is now widely accepted that a recovery is underway across the global hospitality sector and that some regions (in particularly the Asian hotel sector) have recovered faster than expected. On a positive note, the faster return of demand indicates that many hotel executive teams have done better to plan for a return in demand than in previous recessions.

Such has been the recent growth in demand across the Asian hotel sector that Jonas Ogren – Area Director for STR Global – commented that ‘Revenue Per Available Room (RevPAR) for the region as a whole is certainly on the rise and has been for the past 10-12 months. On a rolling 12 month basis, RevPAR levels are now (as of August) only 10% off levels just prior to the Global Financial Crisis. USD RevPAR in Asia Pac as a region has grown more in the past 10 months than it did in two years prior to the crisis - so it's definitely coming back very strong’

However, despite the improving financial outlook there is also an increase in competition across the hotel industry, which means that hoteliers around the world must continue to work on developing a consistent, long term pricing strategy which includes a rational approach to competitor pricing rather than simply reacting to any competitor price change.

One of the most significant, profit-impacting decisions all hoteliers face is very simple: successful pricing. While it seems like a simple decision, it is also inherently complex and not without its risks. Pricing correctly has shown to be the fastest and most effective way to increase profit across all industries - including hospitality - but even with demand returning in the hotel sector and increasingly sophisticated pricing support technologies, few hotels are still executing it well.

What Drives Dynamic Pricing?

The basis of accurate hotel room pricing around the world has always been length of stay, rate management and overbooking management. The new reality for the global hospitality industry is that revenue management and dynamic pricing, a competency based on demand, length of stay and product mix, are inextricably linked. Dynamic pricing approaches demand as a function of price and the most optimal price obtained through a more complex pricing strategy increases revenue. In the long term, pricing optimization will replace the traditional approach to revenue management because, to put it simply, a hotel that charges at a fixed room rate can leave a great deal of money on the table.

Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.