In today’s ever-changing environment where hotel operators are struggling to balance supply and demand, identifying additional revenue opportunities in both high- and low-demand situations is critical, according to JDA Software.

Published: 14 Oct 2010

In today’s ever-changing environment where hotel operators are struggling to balance supply and demand, identifying additional revenue opportunities in both high- and low-demand situations is critical, according to JDA Software.

Bill Kotrba, senior director of Industry Strategy for JDA’s Pricing and Revenue Management Group, says the hospitality market has never been more competitive, with room supply far exceeding traveller demand. Additionally, the ability to shop for and compare room rates online has heightened traveler expectations for bargain prices. This increased price transparency means hotel operators must look closely at their existing pricing and segmentation practices or risk leaving money on the table. With high levels of competition, more dynamic pricing, decreased margins and changes in consumer behaviour, hotel operators need a different approach to boost profits and support market growth.

“Dynamic pricing based on competitive intelligence, market and customer insight, as well as customer segmentation, can give hotel operators a competitive advantage by lowering costs, avoiding price wars, and attracting and retaining valuable customers,” said Kotrba, who is scheduled to speak at the forthcoming Travel Distribution Summit North America 2010, to be held in Chicago (13-14 October).

At the conference, JDA will outline key recommendations to help hotel operators maximise revenue opportunities, including:

• Transition to a Dynamic, Price-Sensitive Approach: To improve revenue on all stay nights, even during low-demand periods, hotel operators must transition to a pricing and revenue management approach that can help predict how customers will respond to changes in price. By leveraging advanced technology such as price sensitive revenue management, hotels can efficiently adapt to demand, current capacity and other market factors. This frees hotel staff to spend considerably less time on forecasting, analysing and number-crunching and focus more on improving the customer experience and other strategic business goals.

• Utilise Advanced Segmentation Strategy: Up until about 10 years ago, hotel price segmentation evolved around offering different prices in different distribution channels. This was effective because comparing prices across different channels was relatively difficult and time-consuming for a customer. During high-demand periods, hotels could improve results by offering fewer rooms for sale via low-priced channels. But now the convergence of traditional distribution channels and online channels has resulted in extensive price transparency, leading to the collapse of channel-based segmentation. Consequently, hotels are now left with weak segmentation such as loosely-enforced group membership discounts, rather than distinct price points controlled by the hotels. Hotels looking to maximize their revenue-generating potential, decrease their cost-of-sale, and differentiate themselves from the competition should consider price segmentation that helps deliver utility and value to customers, such as offering discounts for booking rooms early and paying in advance.

• Avoid Deep Discounting: The current economic environment and overall competitive nature of the hotel industry is causing hotels to aggressively discount room rates. Desperate to keep up with or beat their competitors and reduce vacancies, hotels are engaging in competitive price wars and drastically discounting room rates in an attempt to retain market share. Deep-discounting strategies result in a profit spiral that can create huge challenges as hotels try to compete at a lower price point in the future. The key to avoiding deep discounting and profit spirals is to understand price elasticity and how customers will respond to changes in price. The most advanced tools actually take advantage of today’s instant price transparency to recommend prices that maximize revenue and profit, often preventing destructive deep discounting.

Travel Distribution Summit North America 2010

Bill Kotrba, who serves as senior director of Industry Strategy for JDA’s Pricing and Revenue Management Group, is scheduled to speak at the forthcoming Travel Distribution Summit North America 2010, to be held in Chicago (13-14 October). The two-day event will feature over 80 speakers, including the ones from Hilton, Wyndham, Travelport, Lufthansa, Expedia, Google and from many other such organisations of repute.