Assessing the impact of consumers’ new found confidence in rate shopping

The handling of price discounting in the recent past reflected the maturity level of RM strategies and probably also gave a fair indication of whether or not RM was part of an organisation’s culture.

Published: 07 Sep 2010

The handling of price discounting in the recent past reflected the maturity level of RM strategies and probably also gave a fair indication of whether or not RM was part of an organisation’s culture.

Different hotel companies took different approaches to the economic situations seen in the recent past. Rate resistance and contract re-negotiations were the unfortunate hallmarks of the corporate transient business segments in the previous year.

“Generally, I believe that competitive benchmarking has finally gotten its fair share of focus from hoteliers – external pricing pressures were just as important as internal demand levels when it came to setting business strategy,” London-based Nayan Peshkar, regional director - Revenue Management Europe, Millennium Hotels and Resorts told EyeforTravel’s Ritesh Gupta in an interview recently.

“Price wars were bound to occur, though here we can see a clear division in the approach RM professionals took – One line of thought was that rate stability provided a better opportunity for a healthy GOP and this relied on the premise that the downturn would be short lived. Another line of thought was simply that short term gains in terms of occupancies were good for the top line – these will eventually flow through reasonably to the bottom line. The premise here was that the downturn would drag on. The jury is still out on the impact of these two strategies on hotels in the current situation, where the markets seem to be bouncing back,” said Peshkar.

Commenting on the same, Bill Kotrba, who serves as senior director of Industry Strategy for JDA’s Pricing and Revenue Management Group, pointed out that the hotel industry has a large franchise component which isn’t seen in airlines and many other industries that use RM.

“Hotel chain headquarters may have very sophisticated central RM departments with very advanced systems, only to have franchisees ignore those systems and recommendations. So it’s difficult to say whether brand XYZ practices mature RM or not based on the way individual hotel franchises behave,” said Kotrba, who is scheduled to speak at the forthcoming Travel Distribution Summit North America 2010, to be held in Chicago (13-14 October).

He added, “Sometimes adjacent full-service and limited-service hotels of the same brand have different owners—and completely different pricing strategies. This often leads to brand dilution whereby the full-service property offers lower prices than the limited-service property. In the best case scenario, hotels fully understand their relevant competitive set and how customers will respond when prices change.”

Changes in consumer behaviour

“There is no doubt that consumer behaviour changed last year – partly due to their new found confidence in rate shopping and partly due to our inability as an industry to have a long term approach to rate integrity,” says Peshkar.

He added, “I am not so sure that new segments were created – we did see aberrations of behaviour prompted by the two issues. Is this likely to create new consumer segments? Not in my opinion. I do believe that 2009 merely escalated the evolutionary changes that were coming the way of the corporate transient segments - Most bookings of the future will be from one electronic means or the other and will have some measure of rate shopping and comparison attached. Hence, RM professionals need to stick to the basics while qualifying if indeed there is a new breed of customers, whose behaviour is significantly different from the old ones thus requiring them to re-position the sell strategy for a hotel.”

Transparency in pricing

The Internet has brought instant price-transparency to businesses in the travel industry. Has this forced a shift in pricing strategy and how can revenue management help?

Kotrba says, “There is a very old saying in pricing, “You’re only as smart as your dumbest competitor.”

“Competition on the web has made this painfully obvious. Unfortunately, this immediate visibility into competitors’ prices has led many to engage in profit-destructive and spiraling price wars. Managers insist they want to maximise revenue and profit, but their pricing behaviour indicates otherwise. The least sophisticated will match absolutely any price to maintain market share and fill rooms or seats, usually with disappointing results,” said Kotrba.

He further added, “Revenue Management (RM) helps in a number of ways. Companies that have embraced RM are very disciplined and analytical in how they approach pricing, and they are adopting the latest technology to do this more effectively. Avoiding price wars is all about understanding which competitors are relevant and really affect your results, and also about understanding how your customers will respond to price changes.” This kind of price-response modeling is a major area of recent innovation in RM science and there are early adopters in the hotel space.

“The most valuable finding has been that some hotels can price above competition in certain markets and still fill to capacity,” said Kotrba. “It also helps to segment your rates in ways that limit exposure to dumb competitors.”

For example, offering deep discounts only to specific customer segments, or via opaque distribution channels.

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.

For more information, click here:

Or contact:

Marco Saio
Event Director
marco@eyefortravel.com
0044 (0) 207 375 7219

Or

Rosie Akenhead
Event Director
rosie@eyefortravel.com
0044 (0) 207 375 7229

 
 
 

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