A hotel must be able to distribute its products to the widest possible audience in the most profitable manner.

Published: 18 Nov 2009

A hotel must be able to distribute its products to the widest possible audience in the most profitable manner.

A section of the industry considers this to be different pricing through different channels.

If one is going to break the pricing parity rule, then there is a need for a value variance strategy (or product variance strategy) to be in place to justify the pricing variable.

Some RM professionals also believe that not all channels need to have the same products being sold through them. It is important to understand the true cost of each channel, and then selling products that appeal to the customers that can be reached through each of these channels, in order to drive maximum profitability from each channel.

From NH Hotels’ perspective, its corporate director RM, Stan van Roij, and marketing and e-commerce director, Diana van Roest, acknowledge that hoteliers should go for channel differentiated pricing, either with a difference in rate, or with an admin surcharge for certain channels.

In order to gain an insight into some of the relevant issues related to pricing strategy, EyeforTravel’s Ritesh Gupta spoke to Stan and Diana, who are scheduled to speak at the forthcoming RM and Pricing in Travel Europe 2009 Conference in Amsterdam (November 24 and 25). Excerpts:

Ways to discount and attract additional customers that do not compromise core pricing: Hoteliers acknowledge that it is not acceptable to compromise on price integrity at any level of unqualified business. In any economy there are other ways to discount and to attract additional customers that do not compromise your core pricing. At the same time, a section of the industry also admits even though maintaining price integrity should be a core objective of all hotels, but unfortunately, for most hotels, despite the best laid plans and forecasts, competitors’ pricing and the dynamic occupancy trends will force hotels at some level to start to compromise. Strict adherence to price integrity targets without adaptation to the realities on the ground at the property level would be a dangerous policy and totally unnecessary considering the options available to revenue managers today.

Stan and Diana: We do not believe that discounting attracts additional customers, it merely ensures that you capture another part of the total existing demand. However, since all hotels do the same, it is hardly successful in capturing other parts of demand.

Role of opaque pricing channels in today’s environment: The purpose of these models is to allow hotels flexibility in pricing while maintaining rate integrity across other channels. The factors that a hotel needs to consider is really what are the core objectives of the hotel and to what degree is the opacity actually achieved. Unproven models in which the customer can easily game the system to identify the property will have a lesser degree of opacity and may be less attractive to hotels. Whether you choose to utilise an opaque pricing channel or not is up to the individual business and its own business strategies.

Stan and Diana: It helps selling certain number or rooms, without destroying the overall price structure, but it comes at a very high cost, since the mark-ups/commissions are extremely high.

Bundling: Bundling is considered to be a great way to provide value, but it is not a necessity. Whether one chooses to bundle or not will purely depend on the target market of the business. If there is a need to bundle your offers to attract more business, then by all means go for it. But if you can get way without bundling and get full retail revenues instead, then why bundle? However, if you do choose to bundle, it is important that you bundle and price the package appropriately so that it's not reflecting an exaggerated discount on retail equivalent prices. Once you give too much of a deal, the recovery will be a very long road once you try to take it away.

Stan and Diana: Bundling is not a form of discounting. If you start adding elements from suppliers in your packages and you are discounting your own rooms, something is wrong. Overall, a bundle/package cannot be cheaper than the sum of the individual elements.

Elasticity of demand: Some senior RM executives say the entire equilibrium of pricing is based on several factors including elasticity of demand being one. Sure, this is influenced by several considerations right from product, value, relevance that makes price elasticity determination a bit more complex. In addition there are also compelling cases that also are an exception to general function of price elasticity and one needs to consider the same.

Stan and Diana: Price elasticity is still a mechanism that works, however with a lower price, you are not creating demand, you just capture a part of the existing demand that you did not capture earlier (because you did not need to). It must be evaluated however, as price does not have the same elasticity depending on the season or day of the week

Profit parity or price parity: Profit means nothing to potential demand. Potential customers are not interested in buying products based on profitability, they purchase based on a need for your product and attached to that product a price that appropriately reflects that product’s offering and value. When you look at the basic rules of pricing elasticity, demand conditions and market conditions in order to base your pricing decisions and if these conditions are ignored to use a profit based model to price yourself the challenge is converting that demand at an appropriate level.

Stan and Diana: Apart from the technical challenges (such as is there enough management information as well as do your systems allow you to manage this), the challenge lies in the world of distribution. This is about taking back control over our own inventory and that is the biggest challenge.

RM and Pricing in Travel Europe 2009 Conference

NH Hotels’ Stan van Roij and Diana van Roest are scheduled to speak at the RM and Pricing in Travel Europe 2009 Conference. In all, there are more than 20 speakers including:

For more information, click here:
http://events.eyefortravel.com/revenue-management/agenda.asp

or Contact:

Simon Carkeek
Executive Director
EyeforTravel
+44 (0) 207 375 7181
simon@eyefortravel.com