All About Pricing: Why Assuming is Dangerous When it Comes to Revenue Strategies

By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | May 20, 2012

With the world economy better resembling a roller coaster ride, hoteliers need to have an effective pricing strategy to maximise profits, while riding out the ups and downs in the market. Currently transient demand in the US hotel sector is breaking all records, yet subsequent price increases are not keeping pace. Since April 2010 the increase in average daily rates has been growing at half the speed that it dramatically fell, when the full impact of the global financial crisis kicked in September 2008. The European economy is still in turmoil, with daily ups and downs, leaving the direction for the hotel industry hard to predict.

If forecasting was easy, all weathermen would be rich. In these erratic and uncertain times, pricing decisions will have one of the biggest impacts on hotel profitability. It is more vital than ever that revenue managers understand industry best practice and the latest supporting technologies to ensure their hotel rooms and services are priced at the right rate regardless of periods of high or low demand.

A successful market pricing strategy will mean maximum sales of rooms and additional services, through the balancing of perceived benefits and price. In developing this strategy, customer responses to price changes, market position and competitors pricing must all be assessed. The new reality for hotel pricing is that revenue management and dynamic pricing, a competency based on demand, length of stay and product mix, are inextricably linked. Dynamic pricing finds an optimal price through a sophisticated pricing strategy, based on demand as a function of price, to maximise revenue. There are a range of factors that need to be taken into consideration when determining how to successfully implement dynamic pricing strategies.

Look at the facts

Even with demand returning in the hotel sector and increasingly sophisticated pricing support technologies, few hotels are executing pricing strategy well. While it can be easy for emotions or gut feelings to influence decisions, revenue managers must put these aside and take a data driven approach to pricing - based on facts.

As a starting place, hoteliers need to ensure they have detailed data that is both historical and forward looking. Historical data should include the number of occupied rooms and revenue broken down into market segments by day, for a sufficient period of time to make fact based decisions. If data is then collected every day following it will allow hoteliers to establish simple booking pace forecasts by segment and day of week, from which they will be able to compare to historical data. If this is done consistently, it will allow hoteliers to quickly adapt to any changes when demand picks up and enable them to tweak their strategies accordingly. Sometimes something as simple as comparing occupancy and average daily rates (ADRs) can provide deep insights into pricing and revenue management opportunities, for example by assessing when ADR and occupancy do not move in tandem.

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.