The Power of Personalization: Customer-Choice Pricing
By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | September 2018
OTAs may help hotel-room shoppers find the best price, but at what cost? Sure, everyone loves a good deal, but let's not forget that people will pay more for the things they value. By instituting a personal, choice-driven approach to the sales process, hotels could see both guest satisfaction and their profits ascend to new heights.
A Win-Win Strategy
Personalizing the guest experience is all the rage right now, and hotels are eager to capitalize on opportunities to monetize. Loyalty programs are no longer just marketing initiatives but also revenue management strategies to control top- and bottom-line performance. As travelers demand more tailored accommodation experiences-blame the millennials, of course-a "customer-choice pricing" model may be the best way to deliver the ideal product to the ideal guest at the ideal price.
To understand how this works, let's shift industries a moment. Consumers are already used to customer-choice pricing from purchase scenarios like the car-buying process. Auto dealers enable shoppers to define their own value standards. Most vehicles include the basics: an engine, some seats, four tires, etc., and there's the obvious cost difference between luxury and economy. But beyond that, at a more granular level, the price can still vary quite a bit. Some may seek nice-to-haves like heated seats or built-in navigation. Others may not care for those frills but still want some automation like cruise control and anti-lock brakes. The minor differences from one customer to another become important factors in determining price.
It's not much of a stretch to see how this same value-decision framework could apply to hotel-room booking. A bed and bathroom is to be expected in most cases, and rooms with balconies or kitchenettes already come at a premium. But the sky is the limit in terms of other monetizable amenities and services. Some people may be willing to pay a higher rate for the assurance of a quieter room, away from the elevators and other busy areas. Leisure seekers may enjoy a comfortable lounge and TV space, whereas business travelers are fine with just a desk. Families with kids will see more value in a sofa-sleeper. A back-pain sufferer might be grateful for a pillow-top upgrade.
The car salesperson has the advantage of being on the showroom floor as the potential buyer peruses models. They can assess the shopper's likes and dislikes during a test drive and start to narrow in on the right price as they sit across the desk from their prospect. The promise of certain features can even be used as negotiation tactics. Ultimately, it comes down to how much they can squeeze out of the customer to make the most profit.