Revenue for the future II: Pricing management
by Julia Rey - 15 April, 2020
In the last two decades, we have witnessed a spectacular development in the field of pricing and revenue management globally. E-commerce, artificial intelligence and Big Data analysis have influenced decision making, increasing data-driven strategic and operational processes, to improve the impact on revenue growth.
At the present time, where we are attending an unprecedented event, with an absolute impact on the demand for tourism products, we must again start from scratch and and work with no comparable data.
Periodically review your medium and long-term pricing
You have to start thinking about the pricing of your public rates in the medium and long term. Based on the studies published by Deloitte y EY, which indicate a very progressive recovery in tourism, it seems that we should wait until 2021 to achieve a similar activity to periods prior to the crisis. In this sense, it is probable that in the coming months we will work with relatively low rates, but it is necessary to keep in mind the importance of not dramatically dropping prices to avoid competitiveness wars that do not benefit anyone and do not stimulate demand.
Keep track of high demand dates
Periodically review the calendar along with relevant news regarding special events and dates, and reset your demand calendar and model days based on available information.
Decide the minimum sale price for each type of day (high, medium and low demand days) and analyze if there is a maximum price that your customers would be willing to pay for the quality of your product.
Remember to look closely at the hotels in your competitive set and see how they are reacting to changes, from what date they are on sale again, how prices move on critical days, etc.
Do not worry if your prices fluctuate frequently as the information about what is happening in the market and demand changes. The main thing is to be updated and not miss opportunities.
Review your rate structure
We already talked in the previous article about how to redefine your rate structure, rate codes and indexations. Think now how you are going to work your price points and if you need to modify something regarding how you have been working so far. In this area, we propose different options, which to a certain extent depend on the technology you have to manage it:
Price levels: The traditional form based on BAR levels, in which the price jumps from one level to another, depending on the booking pace. This is an slightly flexible structure, since prices are limited by predefined levels, while your optimal sale price can be between two levels and you will not be able to apply it. On the other hand, this structure facilitates internal price management and distribution, in hotels whose PMS requires working with preconfigured prices.
Open rates: Revenue Management tends towards the application of open rates, that is, with free prices, not predefined in advance. This way of working allows you to freely move prices without following ranges or rules, and take advantage of your optimal price at all times. For this you need softwares that allow you to work with free prices daily, we recommend that you check with your PMS if you want to change to this model.
Modelo mixto: It is the most frequent, given that the trend is to move towards open rates more and more. It is possible that you are now in a period of transition: there is the possibility of working at an intermediate point between both models, in which some of your rate codes work with price levels and others with open rates. The transition will again depend on the technology you have and your agility to manage different rate models.
We recommend that you consider this change if you are still working with the price levels model: you will join the general trend of revenue management, and optimize your results. The open rates model allows to better capture demand and now is the time to take advantage of all the possibilities. If you are a Beonprice customer and need advice to take this step, please contact our Customer Care.
Boost your Ancillary Revenue
In Hospitality we have always had complementary revenue, the main source being accommodation. The airlines, again, lead us by demonstrating the impact of ancillary revenue on the bottom line. Give the deserved importance to the different services of your property and think about how you are going to promote extra revenue to improve performance.
Designing attractive activities and products for the client beyond accommodation can become a source of revenue of great value, in addition to increasing customer satisfaction and loyalty. Set your sights on Total Revenue Management.
Think about your pricing ethically
Ethical pricing is the balance between the success of the company and customer satisfaction, and although pricing is the lever of revenue optimization, it is also a determining factor in customer satisfaction and ultimately in customer loyalty.
The ethical price or fair price has nothing to do with low or high rates, expensive or cheap prices. It has to do with adjusting to the value of the product, in terms of consumer perception of quality.
Dynamic pricing often raises concerns about the fairness and honesty of the business when it comes to pricing methods for the consumer, and particularly the tourism and hotel industry. In a time of crisis like the one we are experiencing, it is vital to work with trust and be transparent in our decisions related to the client. Focus on communicating the value of your product to adjust customer expectations, and set prices based on what the consumer is willing to pay based on that perceived value.
At Beonprice we are convinced that the current period gives us the opportunity to meditate at all levels, think about where we came from and decide where we want to go. We encourage you to continue working to improve your strategies in the medium and long term, to be prepared for a better future. You can find more information in our ebook on pricing strategies. And remember:
Revenue Management never stops!