Revenue Management. Business Intelligence. Electronic Distribution

Transcription

1 REVENUE MANAGEMENT HOTEL PRICING Whitepaper on the function of Pricing Limitations and Opportunities Revenue Management. Business Intelligence. 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 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 RateGain, a leading travel technology company has launched RevGain a new generation price optimization tool that crunches data from our inhouse data warehouse and factors comp-set selection, seasonality, competitive pricing, reviews, business on books, pick up pace and market compression to make transient pricing suggestions. RateGain draws heavily on its rate intelligence capabilities and combines it with proven demand analytics based predictive modeling. This powerful approach delivered as a S-a-a-S (Software as a Service) model and supported by industry leading revenue management talent will help the hotels embark on their journey to optimum pricing with significant ease and automation. 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 you lead 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 RateGain is an industry leader in providing decision support through rate intelligence and RevGain leverages its integrated suite of products along-with data sets like value perception, pace pick-up, supply constraint as well as weighted distribution of qualified comp-set to let you choose a price that a buyer is likely to buy as well as protect your margins based on demand. Hotels can benefit by designing their own module based on qualifying comp-set hotels, re-purposed comp-set performance to establish weightage spread as no two hotels exert same pressure on a hotel. Once the hotel selects RevGain, RateGain intends to support it through technology, domain know how and sufficient infrastructure in leading process outcomes.

7 Summary Historical data by itself is not enough to help you make pricing decisions The scope of transient pricing is exhaustive 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 premium if its justified through value perceptions. Our statistical analysis and analytical approach leverages booking pace, qualified comp-set price benchmarking, value and supply constraint to align how customers will respond to price positions RevGain the new generation price optimization tool is unique and clearly differentiates itself from other industry solution providers based on real time competitive intelligence, reputation, value, price benchmarking, market compression and booking pace. The RevGain intuitive dashboard presents a decision support tool to optimize retail pricing based on above mentioned pricing factors with customized tolerance levels to meet the needs of every hotel in a unique manner 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 Mobile: +91 (981) Tel: yogeesh.chandra@rategain.com 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.