“The Method” and How to Improve Your Hotel’s Pricing Strategy
While you have surely given considerable thought to improving your pricing strategy, it is likely that, for many years, the term revenue management was not part of your vocabulary.
Your curiosity may also have led you to notice how, in some cases, flight prices change every time you perform a search for one date or another. Airlines have pioneered the use of supply and demand data to optimize their pricing policy, which is basically the same form of revenue management that is used in the hotel sector: a practice based on the analysis of the supply and demand situation with the aim of better adapting the offer to the situation that the market is experiencing.
Nowadays, hoteliers who use even the most basic revenue management techniques can improve their inventory management, their staff deployment, their ability to market their hotel to a suitable audience and manage the dynamic prices of their rooms to optimize income, to give just a few examples. Understanding the business, segmenting customers in an appropriate way, and forecasting demand as accurately as possible, will lead to optimal pricing and greater profitability.
When outlining an optimal pricing strategy for the hotel, we propose a tried-and-tested methodology which ultimately brings great rewards. With this in mind, here are the factors on which to base your pricing strategy and its orderly system of advantages and opportunities:
Basic knowledge of the terms to use. A basic working knowledge of the terms used in revenue management is crucial to understanding how the process operates. Learning concepts such as ADR (average daily price) or RevPAR (income per available room) is essential if you want to internalize actions and quantify results. Parameterizing events, both internally and in terms of business, facilitates comparison with other accommodations. Mindful of the complexity of setting a standard for every kind of accommodation, we at Beonprice have developed the Hotel Quality Index (HQI™), the only hotel market index that measures the integral quality of a hotel.
The importance of segmentation in distribution mechanics. Operating under segmentation not only serves to facilitate the path towards implementing a better revenue management strategy but also has a positive impact on other hotel operations. Effective segmentation helps to build a more focused and profitable marketing strategy. The information and learning generated from segmentation facilitates both the improvement and management of the product. As an illustrative example, relevant in the case of city hotels, we have the business traveler segment which allows us to identify transitory and contracted bookings separately. It is also good to classify reservations that come from OTAs or ones that have been made on the hotel’s website. Customers who book through different channels, but exhibit similar behavior (price sensitivity when booking), can be grouped together.
Fixing prices according to the tourist-product relationship and market situation. Hoteliers base rates on segments, which means that they no longer allow a single rate rate for the entire hotel. Rates can be adapted to the customer profile or many other factors that directly affect traveler perception. Here is a simplified example: if you see that a room type is sold often, you can increase the price of this type of room to increase the average daily price. Even if a higher price leads to fewer bookings of such rooms, optimizing the supply and demand rule will result in higher revenue.
Forecasting and future estimates. A forecast can be developed from a set of historical data upon which to base a decision and minimize risks. This forecast allows us to better plan how a hotel will operate during specific time periods. A forecast can be as simple as generating a yield higher than 10% over the previous year. For example, if an event in the area attracts a series of new clients, this prediction will help the hotelier understand how to maximize revenue through revenue management. If we cross-match the historical data of direct competitors, or even variables affecting OTA booking speeds, we can predict what is going to happen in the future and how this will influence our revenue strategy.
Balancing technological and human factors. Revenue Management combines a human factor, based on the equipment that we have at the hotel, with a technological factor, which helps us to take full advantage of the Big Data phenomenon to understand the market and the information that we can extract from it. The better we are able to combine and optimize these factors, the better we will be able to take full advantage of the potential of dynamic pricing and availability management.To make this “method” a reality, Beonprice has developed a Revenue Management Manual entitled: “How to improve your hotel’s pricing strategy.”In this way, we will take advantage of the knowledge accumulated with the hotels that work with our RMS (Revenue Management System) and the way in which they have improved their results by combining technology with a job well done.