Could hotels benefit from Uber-style responsive pricing?

Pricing a hotel room has become a very subtle business and technological solutions are stepping up to the mark

With new intermediaries entering the fray all the time, and consumers becoming more savvy and demanding, pricing a hotel room or service right is an almost impossible task.

But clearly there is an opportunity here as a recent $21 million investment into Duetto by global venture capital firm Accel suggests. It seems that Accel is taking a bet on the fact that hotels may be waking up to the fact that they can price better to ward off intensifying competition from OTAs and other intermediaries. Like more established companies, iDeaS and Rainmaker, software as a service firm Duetto is hoping to makes its mark by helping hotels to automate and dynamically optimise their pricing strategy using big data.   

The Duetto algorhithm automatically surges or discount prices – a bit like the technology of upstart car rental firm Uber - by factoring in variables like website traffic, relevant public holidays, weather, happening events, longer stays and so on. Get it right and responsive pricing technologies like this can signifcantly improve an hotel’s profitability.

And why wouldn’t they want to. As Kurien Jacobs chief revenue manager of Highgate Hotels understands only too well, your pricing strategy determines how you perform versus your competitors.

Facing up to the competition is becoming increasingly important for hotels that hope to survive. On a worrying note, Patrick Bosworth, co-founder and chief executive of Duetto Research, says that since 2009 commission paid out to intermediaries has soared to 37%, while hotel revenues have lagged at 20%.

Change afoot?  

The traditional method of pricing in RM was to lower the price, create a base and gradually increase prices as more rooms were booked.

But, according to Jacobs, today transparency in prices means it’s best to price within a small band from the first reservation to the last. “The customer doesn’t know if the hotel has a strong base and is pricing much higher than its competitor with no base,” he explains.

One well-recognised shift in the hotel space is the shortening booking window as a result of mobile, as well as the impact that social media recommendations and reviews have had. “This has made the job of RM, distribution and marketing executives much tougher,” says Bosworth.

Why? Quite simply, because it changes the relationship between things like price and price elasticity of the customer, and overall demand. “As your reputation data, or reviews change, the price points that you used to be able to use to fill property profitably are changing,” says Bosworth.  

And, according to Jacob, with a diminished booking window a competitor could drop prices in the last minute thereby impeding the ability for the hotel to raise prices for the last few rooms.

The reality, however, is that as hotels continue to discount heavily in the last minute, the booking window will continue to shorten.

To combat this, Jacob’s recommendation is to measure constant change in the booking window, predict irrational behaviour and project prices as much as possible before the arrival date. He also believes hotels should focus on non-refundable bookings. 

Staying on top of OTA moves

Today most OTAs sort hotels on a number of factors such as conversion, rate competitiveness to other channels, prior booking trends, quality score etc. This makes it critically important to understand how price can lead to better conversions, says Jacob.

To date, the OTAs have fared better on pricing strategy. So with commissions rising things like dynamic pricing capabilities as well as add-ons and the ability to upsell seamlessly during the booking flow are becoming essential weapons – that that’s where technologies like Duetto and more established solutions like iDeaS and Rainmaker come into play. 

Looks aren’t everything

In Jacobs’s view many hotels today are focused on the look, feel, and ease of use of their direct channels, rather than clearly describing the price of the room, amenities or relevant offers and packages. “It is important to focus on both look and feel as well as the engine that powers direct distribution,” stresses Jacob.

Clearly, the role of all hotel executives has become much harder but it doesn’t have to be that way. One thing that would really improve matters is if hotel companies were better equipped to capture and act upon critical data, and that data could be shared in a unified way across all departments.

Duetto appears here as a part of EyeforTravel’s sponsored content initiative 

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