Dynamic Vs. Static Segmentation: Who are Your Real Competitors?
By Ravneet Bhandari Chief Executive Officer, LodgIQ | December 04, 2016
Revenue managers spend considerable time observing and reviewing their competitive set. After all, they've had historical success looking at the hotels with similar pricing and amenities. It's been the stalwart approach to decoding the price forecasting puzzle. As an industry, we've commonly accepted this is the right way to do things.
But be warned, this approach is like looking at a spectacular mountain. Every angle around the mountain looks different to the observer, with each view revealing bite sized pieces of the overall picture. The reader starts with a full-page image, but when seen from another angle, an entirely different picture is revealed. Revenue managers are so busy looking at their competition through a 'partial' image, they cannot see the full picture.
Conversely, hotel guests see the full mountain, and with it, an entirely different picture emerges. When your potential customers are looking for a hotel room, they're not limited to one view, they work their way around the proverbial mountain. They see the full array of hotels in a wider spectrum of pricing, amenities and other offerings. That means, customer stay decisions are based on many more factors than what the typical revenue manager usually considers.
Customers might be unaware of the difference is between an Upscale hotel and an Upper Upscale hotel, or Upper Midscale vs. Midscale, or even Upper Midscale vs. Upscale. Therefore, the entire notion of chain scales is partially irrelevant to the potential customer, rendering the idea of static segmentation moot. Yet, we are hyper focused on the category in which our hotels have been subjectively placed.
By formulating a revenue management strategy with a static segmentation mindset, you're inadvertently tricking yourself into believing you're making decisions based upon accurate and complete information. That's a red herring distracting decision makers from the truth; to deliver the most revenue to the hotel, and flow the most dollars to the bottom line, revenue managers must stop making siloed decisions and take a more fluid approach through dynamic segmentation. That means rethinking conventional revenue management approaches. A well-conceived revenue management strategy is about finding the right mix of business for a specific period of time and that mix of business is guaranteed to change often, because the number, and types of customers coming to your town at any given time is continually in flux.
Who is Your Competitive Set?