Business intelligence. Revenue Management. Electronic Distribution

Transcription

1 REVENUE MANAGEMENT HOTEL PRICING Whitepaper On Hotel Pricing Current Challenges and Opportunities Business intelligence. Revenue Management. Electronic Distribution

2 Table Of Contents 1. Executive Summary 2. Hotel Pricing 3. Challenges 4. New principles to address challenges 5. Summary

3 Executive Summary While its almost implied that the revenue management department uses the right practices and processes to achieve RevPAR leadership, the definition of right practices needs to remain relevant at all times. Traditionally hotel pricing was more about hotels own seasonal demand and historical trends. With hotels getting sold online, this changed and other hotels in the competitive set pricing started influencing the price like never before. Further, hotel reviews on various user generated content sites brought further transparency as hotels could be compared not just in terms of price but also service quality. This is very important to the modern traveller. Now, not just price but ratings started influencing hotel s price and from the eyes of the modern traveller both had to combine to make a logical story for the purchase to happen. While Revenue management consists of a lot of moving parts coming together including forecasting, market segmentation, displacement, historical demand, elasticity, competition rates, and more, this paper is more specific to Transient Hotel Pricing and how this function needs to attune to the mindset of today s traveller. Done well, it has the potential of achieving the right fit between the hotel and its potential customers completing the proverbial full circle of selling the right product at the right price to the right customer. Your pricing methodology should stand to benefit with the findings in this paper. We hope you avail the suggested practices to prepare your hotel better for pricing in todays world.

4 The customer of today is willing to pay more for a superior product (hotel) with better customer reviews. Hotel Pricing Historically hotel demand has experienced cyclic phases of peaks and troughs. The last decade registered 2007 as the year of significant surge in hotel revenues but had early signs of the slump to follow since occupancy correction started appearing but ADR growth pulled up the over all revenues. What followed in the next two years was not pleasant and hotels were not prepared to deal with it. Going back a cycle, the boom of 2000 aspired many cash rich organizations to invest in the booming industry but the financial crisis followed by one of the worst slumps that the industry had ever faced changed things. Plenty of new inventory just released with no demand to support the business. Here stepped in the OTAs and bridged a gap that existed. Essentially buying travel was becoming more transparent. Potential bookers could log on and buy hotels on their own and wear the hat of a travel desk assistant. All they needed was better know how and background about the product they wished to buy and this naturally gave birth to Hotel Reviews A useful tool to gain wisdom before committing a purchase at any hotel across the globe. This was one of the first industries to create business out of Karma in the form of service and product. Hotel reviews were naturally consumed by bookers and this has only gown over the last few years. Once again OTAs led the way. The evaluation of user generated content as part of booking a hotel was a step few would bypass for what was their at stake was a pleasant holiday or a series of unpleasant surprises and who would want to take chance? This empowered the consumer to almost advantageous levels and served a fresh wake up call for hotels that were just relying on traditional sales and marketing methods to attract business. Since pricing and hotel reviews were available at the click of a button, evaluating one in light of other to establish value were inevitable. Traditionally hotel pricing was a result of historical demand, price elasticity, competitive rates and macro economic sentiments however the empowered customer changed this. Value quotient became important to almost all segments and hotels couldn t ignore that anymore. Research by SAS institute and Cornell university presented case studies on how value played a dominant role in buying hotel accommodation. Consequently, the customer of today is willing to pay more for a superior product (hotel) with better customer reviews. This new metric presented a pricing opportunity that hotels with superior reviews could leverage to enhance profitability. Suddenly hotel operations was converging with profitability.

5 Image Source: Case Study CHRS 2012 RateGain Chandra Service Excellence Model, Cornell hospitality Research Summit. Challenges The way to stay ahead in todays world is not by doing what others are doing. Following historical trends will be helpful but cannot be the only source of intelligence defining your future course of business. That way your business will never be future ready but always dependent on past performance and that can be misleading due to several special events planned and unplanned. Today a series of negative reviews can have as much detrimental effect if not more as a special event occurring resulting in change in business mix. The above image highlights the disconnect that exists today in a hotel s environment. I choose to call it a disconnect as it s the same reviews across various sites that help your target audience decide on you over some other hotel or vice versa. How can this be ignored? It s obvious that having access to historical trends is helpful but not enough. Your visibility, reputation and availability in a compressed market are as much of a contributing factor and the hotel cannot afford to ignore it. While user generated content on niche review sites and social commentary gets spoken about, monetizing it has not been spoken about in the same scope. All this while social media management sits with marketing but revenue management uses it to push promotional message expecting demand generation. The convergence of marketing and revenue management in a common area like social media incubates the need to think beyond the obvious. Will someone really buy a promotion if its just posted on your Facebook page? Not likely, however if an actively managed Facebook page with real client engagement and positive reviews, carrying plenty of happy testimonials from people with authentic identity on social media likely to let a hotel command a premium positioning with the promise to deliver happiness consistently through service quality likely to succeed? Our results have shown this to be true.

6 New principles to address challenges Historical Trends are not enough: With hotel pricing and service quality standards becoming transparent due to OTAs and hotel s brand site, other hotels with similar positioning from customer s point of view have started exercising influence on every hotel. Traditionally hotels have been using revenue management systems that factor historical demand patterns to make pricing recommendations but in today s time that doesn t seem to be a holistic approach. A pricing solution for current times needs to have a mix of extrinsic and intrinsic approach rather than intrinsic only. Value Perception is critical: In a case of over simplification just to establish the point, if the market consists of two customers and two hotels only and if the consumer has the wisdom to choose the hotel with better service standards and product and will be willing to pay the higher price for the same, it naturally puts the better hotel in a position to charge more. Even if this is oversimplification and there are other moving parts, this factor must be accounted for when setting up your price to align it to the market. Better differentiation from the competitive set, lets a hotel become a leader in pricing over others that may indulge in discounting as a tactical RM strategy. Transparency of information, introduction of new business models and user generated content have flipped revenue management capabilities to the consumer and THEY ARE SAVVY! How RevGain Helps Competitive pressure applied is unique to every date Supply constraint should assist in determining the optimum price Online reviews can help your hotel succeed and drive profits Occupancy and pick up pace are utilized in decision making Competitive rate benchmarking factors inflation and city supply Pricing Automation is a necessity: Pricing cannot be a manual exercise. There are natural biases and emotions involved in a manual approach when the market indicators think and suggest differently. Additionally the indicators change all the time and no two business days are the same, there may exist several pricing opportunities for the same date at different times due to various factors that dynamically influence a customer s choice. In an environment like this, a manual approach to get pricing right for the next 365 days cannot be enough. Further pricing as a function should be automated in terms of data collection, suggestions and distribution to bring efficiency. Deployment of pricing tool: Traditional pricing solutions have an exhaustive to do list followed by an elaborate set up process. In current times that may be too long as one can miss on immediate seasonal demands and pricing opportunities to maximize revenue Disclaimer: RateGain is an industry leader in providing decision support through rate intelligence and RevGain (A RateGain price optimization tool leverages its integrated suite of products to simplify pricing and then further distribute it.

7 Summary Historical data by itself is not enough to help you make pricing decisions The scope of transient pricing is exhaustive and includes market compression, reviews and ratings, competitive pricing, pick up pace and business on books Enhanced transparency in purchasing hotel accommodation has empowered the consumer to make better choices Consumer is extremely particular about the quality of service and doesn t mind booking a hotel even at a premium if its justified in terms of value Hotel pricing should leverage how customers perceive the hotel against other hotels positioned in a similar bracket A manual pricing approach may result in revenue leakage Pricing automation is not limited to pricing suggestions only. The entire transient decision making and distribution process should be available as an ecosystem to benefit the hotels. Transparency of information, introduction of new business models and user generated content have flipped revenue management. capabilities to the consumer and THEY ARE SAVVY!

8 For more information about this whitepaper, please contact: Yogeesh Chandra Executive Vice President Hospitality RateGain T: About RateGain RateGain is a leader in hospitality and travel technology solutions for revenue management decision support, rate intelligence, seamless electronic distribution and brand engagement helping customers around the world to streamline their operations and sales. RateGain global customer base comprises leading travel suppliers and intermediaries including airlines, hotels, cruise lines, car rental companies, online travel agents, tour operators and wholesalers. Since its inception in 2004, RateGain expertise in innovating solutions for the dynamic travel ecosystem has resulted in continuous growth and an established position as a thought-leader and trendsetter in the marketplace.