Questions to Ask When Planning Your Pricing Strategy

by Beonprice - 15 December, 2016

Questions to Ask When Planning Your Pricing Strategy

The basic concept of Revenue Management (or Yield Management) is based on the following reflection: “To provide the right service, to the right customer, at the right time and at the right price”.

So, there are 4 variables in play: service, client, time and price.

Many hoteliers have not successfully adapted this simplification to current times, as there are many more parameters to be taken into account and because markets are evolving very fast. Today, sales histories and competitor pricing alone are not relevant.

  • Does the sales history really work?

Despite the fact that any Revenue Management strategy must bear in mind sales and demand forecasts, we are working in such a volatile market that past data has increasingly questionable value. This information needs to be integrated and adjusted in order not to result in erroneous sales forecasts for the hotel. Furthermore, if we also consider that advance bookings are becoming less frequent, this information loses even more meaning.

  • Do we relate customer satisfaction to price?

Although in most cases satisfaction is associated with a drop in price, the real virtue lies in adjusting prices upwards without losing customer ratings. At this time, failure to take into account the relationship between customer rating, prices and their conversions into sales is limiting. Nevertheless, an approach of focusing only on the present puts the profitability of the business at risk.

  • Do we relate prices to net revenue from the sale?

If from within the establishment itself we do not know how to measure our Yield Management decision in terms of net income, we are unlikely to know how to decide where to sell, and at what price we should distribute our product.

  • Sustainability of accommodation at any price?

Some hotel chains and independent hotels with significant short term financial needs opt to lower their sales prices with the main goal of increasing occupancy and therefore income. This may be a necessary moderate way and short term measure, but maintaining the strategy over time can diminish the image of the establishment, making it difficult to increase prices.

  • Do you really know how much it costs you to capture your client?

Establishments bear both the direct and indirect cost of attracting customers, and it is useful to know what these are. It is necessary to bear this cost in mind not only in terms of occupancy levels but also for ADR (average daily rate). It is vital to analyse the channels used along with the associated costs and setting them against the profit generated by customers. In this way we can choose the channels that offer the best performance.

  • What is the strategy adopted for search engine positioning?

Knowing who we are and what our target is will help us to act under a strategy that is consistent with the services we are selling. We have to be realistic when tending towards certain key words in SEO and/or SEM strategies for our establishment.

  • Is there a true commitment to the sale of other services? 

The sale of other services relating to accommodation in itself to demand profiles is becoming increasingly significant in certain segments of the market. Applying Yield Management techniques to other services, such as catering, will have a positive impact on the income of the hotel. In order to do this it is essential to understand its evolution and to adjust the strategic approach of “supplier” to “retailer” (distributor).

  • Segments by typology and context?

A particular client, in different situations, will have very different needs. The same customer, will display very different habits depending on whether it is a holiday or a business trip. That customer’s expectations must therefore be met equally, regardless of the situation.

  • Do you really think it is useful to ‘fire at will’ with offers?

Continuously working with last minute strategies entails long-term profitability issues. Loss of credibility, customers who could afford to pay more adapting to the offer and cancellations by previously book guests are from of the problems arising from short-term strategies.

  • Are all customers looking at price?

Despite price being the most important parameter, according to the Tripadvisor’s Tripbarometer 2015, it is important to know how to seek out opportunities with those customers who are willing pay a little more. Taking advantage of limitations on offers at key moments in order to maximise sales is a critical part of Revenue Management.

The ability to assimilate these matters in the current climate of change, new agents, new platforms and technologies will help us to find out more about our potential guests. The interests and habits of the different traveller profiles end up being the key to Revenue Management strategy and therefore the success of the establishment.

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