Is Rate Shopping an Intelligent Approach to Increase Topline for Hotels?

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. March 04, 2011

Pricing in the hospitality industry is done on various models. Amongst the popular ones include cost based, market based, margin based, predatory, loss leading etc but the most common practice is to bench mark your price against other hotels in your competitive set. This is because travel is a huge expense at personal or an organization's level and price comparison of various hotels of similar profile is an obvious step in the procurement / buying process.
WHY monitor competitors?

In order to ensure that the hotel is not underselling or turning guests away due to a high price tag the revenue manager has to monitor its competition's pricing very closely and have a dynamic strategy to proactively set prices or respond to similar decision from its competition.

Pricing by Market Segments

The hotels breakdown their customers into market segment and pricing at each market segment need to be competitive to say the least. However, due to the nature of the business, all the contracts in terms of price and value offerings that the hotel enters into is 'privileged information' and the only ethical way out for accessing rate based information is to gather rate data available on public channels of various hotels and study it very closely to draw your own pricing strategy.

An efficient rate shopping tool is a must in the arsenal of every revenue manager who wishes to yield better from the Transient (non contracted) segment and ensure that neither is the hotel under nor overpriced (leaving money on the table or being priced out by the competition).

Word of Caution: We would especially like to mention that one should exercise caution in terms of not relating this information to mirroring competition's rates. Reviewing prices is completely different to price based positioning which is a separate call to establish the property's perception in the market but it still has to be in relation to other hotels of similar profile.

Collection of pricing data and its comparison is a very cumbersome task if done manually. Not only is it time intensive but also it leaves scope for errors.

Moreover, it's not real time in nature either due to the time involved in fishing this data out date by date, property by property.

In this nature of business, rate/price shopping automatic tools provide a perfect answer to this business challenge.

Here are the most important ways in which you can use your price intelligence tool to not only respond to market based demand well but also ensure a higher RevPAR by yielding the transient segment optimally.

• Price differential
  Note the dates where price between your competition and you is over or under a certain threshold to recognize opportunity of changing the price to come with- in a range. This will ensure that you do not lose a sale due to rate resistance on one side and also do not undersell on the other.
• Benchmark against previous report
  Have you responded to market demands in time? Do you look at the rate report frequently enough to understand when the competition changed its price?Did you change your pricing strategy subsequent to market changes or were you too late to respond.
• Inventory Management
  Since the shopping tools enable you to look at data at room level, you can easily understand if the competition is selling similar inventory as you are or do you see opportunity that you would like to capitalize on. If others in the city are selling suites only due to high demand, you rather close your lower categories to fill the higher class of room types first while the demand lasts and release the lower category back in the saleable inventory at higher prices closer to date to enhance your yields.
• Rate Parity
  Since rate shopping tools collect data from various channels of your choice, you get to see the customer's side and if he/she is getting rate parity amongst your public channels. Moreover, are all your competitive hotels maintaining parity on all their channels? Do you see a case where the competition is ranked higher than you on a particular OTA while they are selling at lower rates on the same OTA as compared to other channels of theirs? We leave it to you to take this one forward but it surely helps you get better over your competition if this is a frequent occurrence.
• Record Keeping
  Regular generation of these reports saved and filed with your personal notes are a great source of record that may be used for future pricing, measure of a certain strategy's success or just for audit purposes.
• Bird's Eye view
  A good rate shopping tool will help you not only focus on tactical pricing but also present competition's pricing snapshot for the next 365 days. Religiously used, this will ensure you are able to pick up emerging trends faster and put a strategy in place to perform better. This is especially helpful in case of special events or seasonality based changes.
• Transient (Non Contracted)
  It is a very important segment as it helps you in yielding better and the two most important factors that contribute to this are forecasting (so you know how many rooms to be kept aside for this segment) and pricing (to help you maximize your yields on different days with different demand levels) and a real time rate shopping tool will go a long way in assisting you achieve your yielding goals better.

About the author:
Yogeesh Chandra is a hotel revenue management specialist and has worked as Revenue Manager with Spencer on Byron Hotel Auckland in New Zealand and Taj and Leela Group in India. With over 11 years of industry experience, Yogeesh has also been associated with Intercontinental Hotel Group, SKYCITY Entertainment Limited and Millennium & Copthorne Hotels, New Zealand. He is currently AVP, Product Management at RateGain.