Pricing it right in 2013: facing the risks for the best rewards
Revenue managers face challenges on a number of fronts as they attempt to optimise their pricing strategies in today’s business environment. EyeforTravel’s Ritesh Gupta talks to Alex Dietz, principal product manager at SAS, about how this is playing out.
Technology is changing, as is customer behaviour. As an example, we have all seen and been affected by the dwindling lead-time on hotel reservations. In addition, the ready availability of competitive information – both to the customer and the industry - has made pricing more competitive and dynamic.
According to Dietz, it’s no longer okay to set a strategy and “let it ride”; revenue management teams need to be diligent. Also, the distribution environment has become both fragmented and dynamic. As a result, revenue managers have to stay competitive on multiple fronts, and keep abreast of the latest distribution opportunities – which seem to turn up on a near daily basis. One thing seems clear, optimising the current distribution world while keeping one’s eyes open for the ‘next greatest thing’ is definitely a challenge.
For Dietz, when it comes to pricing strategy for hotels, there are three areas to think about:
1. Transient Pricing – especially the setting of ‘retail’ or ‘market’ rates
2. Contract Pricing – negotiated rates for corporate, wholesale, and so on
3. Group Pricing – negotiated group rates, including associated ancillary sales for meeting space, food and beverage, and so on
With respect to transient pricing strategies, there are four areas that hotels should be focused on:
1. In addition to distribution channel opportunities, with the rate of change happening for this segment of today’s travel environment, every revenue manager needs to keep their finger on the pulse of the new opportunities in distribution – and find the right opportunities that match their hotel’s needs and branding.
2. The second item is related to this – distribution pruning. As we consider new opportunities on an ongoing basis, it is critical that we consider the whole portfolio of distribution channels that we use. Are they all contributing? Are they conflicting? Are they still a good fit for us from the perspective of branding and service? Are we able to manage them properly? Regular pruning of underperforming channels or segments is critical.
3. The third item is competitive pricing. Competitive information is readily available today – are you using it? How? Unfortunately, we see far too many hotels that utilise competitive rate information as a primary driver of their tactical pricing practices – but they use it incorrectly.
4. Finally, if you are going to utilise competitive pricing information, it is important that you carefully consider your competitive set. Competitive sets must be chosen carefully – studies have shown that hoteliers too frequently choose a competive set that is ‘aspirational’ rather than realistic. Recognise that your comp set may represent different types of properties with whom you may compete for different segments – and no one property may compete in every segment. A competitive set should represent a balance of properties that represent the segments that each property serves – and some portion of the comp set may take greater precedence on certain periods than others.
On the other hand with regards to negotiated rates:
1. It is essential that local properties understand the strategies employed by the brand in creating corporate rates. Most hotel properties have a certain number of negotiated rates that are created by central brand staff. Since the local revenue manager doesn’t create them, it is important that they take time to understand these rates, and how they can be controlled. Are they dynamically priced (ie. linked to the selling rate)? Can they be yielded?
2. Next, when determining strategies for negotiating local corporate rates, hotel companies will want to make sure that the same strategies are appliedin creating local corporate rates as were applied by the brand. Policies regarding issues like dynamic pricing and last room availability need to be mirrored in local rates as much as possible, as deviations can lead to channel conflicts.
Finally, we have group rate strategy which are particularly complex because:
1. Group strategies frequently have down-line impacts on transient pricing and price strategies
2. Group strategies – much more than transients – need to be guided by the physical aspects of the property
3. Finally, group strategies can be impacted by conflicting incentives between sales and revenue management
Because of the intricacies around groups, it is often at the integration of the three strategies that hotel companies have the most difficulty in determining and executing good pricing strategies.
But what of new developments like the concept of last minute, exclusive discounted mobile deals? How have these impacted the decision-making of hotel companies?
For Dietz, it is always important to view distribution opportunities in terms of their overall fit within a hotel’s distribution portfolio. Of course, last minute mobile discounts are very attractive to a certain segment of the market that is highly price-sensitive, and generally brand-insensitive.
“When properly managed, these programmes can be revenue-positive,” he says. But if they are not managed properly they can produce either or both of the pitfalls of such programmes:
• Dilution: Incomplete fencing or revenue management control leads to high-revenue, brand-sensitive customers obtaining discounts from the programme. Most opaque programmes, for example, exclude customers from obtaining frequent traveller points in order to reduce dilution.
• Service: Incomplete planning leads to service issues associated with the programme. For example, poor systems integration leading to customers arriving before their reservation has been received at the front desk. This is just the worst: service headaches and reputation damage from a niche discount program.
“Of course, all hotel revenue managers recognise the risk in encouraging an even shorter booking window – but I’m afraid that the cat is out of the bag on that front,” says Dietz.