All About Pricing: Should Competitors Influence Your Strategy?
By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | March 06, 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.
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