During a panel discussion at a recent conference, I heard the corporate revenue manager for a hotel company lament that even with a revenue management system, the biggest challenge for any hotel is dealing with a foolish revenue manager in the comp set. We’ve all heard similar refrains from hoteliers about only being as good as their dumbest competitor on the street corner.
I thought of this yet again while reading a study from Cornell’s Center for Hospitality Research titled, “Competitive Hotel Pricing in Europe.” The study explored the effects of competitor pricing levels on relative revenue for more than 4,000 branded and independent hotels in Europe over a 10-year period. The research showed hotels priced above their competitive sets consistently earned more revenue than their lower-priced peers.
The authors concluded competitive rates should be a factor, but pricing strategy must “reflect the hotel’s position in producing customer value at a given cost” and include “revenue management analysis and economic conditions.”
I couldn’t agree more. Competitive pricing is just one piece of the pricing puzzle, but many hotels in Europe are paying too much attention to their competitors. Whether it is done manually or with an automated system, any strategy relying on competitive rates and competitor data as the primary mechanisms for pricing is flawed.
It’s impossible to optimize revenue if you can’t sell the right room for the right price to the right person at the right time. A more holistic revenue strategy that takes into account not just competitive and historic information, but also consumer and market level data is critical.
Each hotel has unique demand every day based on its geography, branding, amenities, group business, corporate contracts, online reviews and more. A good forecast considers competitive data, but also other local factors like weather, events, flight arrival information and even web shopping data to more accurately understand overall demand.
The clearer the picture you have of demand for the entire market and for your specific property, the more accurately — and profitably — you can yield rates to optimize that demand based on your own value proposition. If you or your revenue management system are primarily focusing on competitor pricing and someone across the street cuts rate for little or no reason, and others follow, it could and probably will lead to a race to the bottom for everyone.
A more comprehensive revenue strategy that integrates sales, marketing and revenue management is critical to succeed in today’s complex distribution landscape.
When the marketing department is involved in the overall revenue management strategy, demand can be better understood and then priced and promoted in accordance to that. A revenue management system should be more than just for the revenue manager. It should be a platform where general managers and directors of sales and marketing also collaborate and use the insight to drive demand and a more informed pricing strategy.
For example, hotels using web shopping regrets and denials can track consumers shopping their website to see who is buying, who is leaving and at what price points.
Compare two dates and see how a revenue manager and marketer could gain incredible insight into demand and even price sensitivity: On one day, 100 people shop a specific date at a hotel’s booking site and five book rooms. On another, 10 shop a specific date and five book rooms.
Traditional revenue management systems would only reveal both dates brought in five bookings, but a more sophisticated revenue strategy system tracking web shopping data would provide far more visibility and provide real-time opportunities to respond. It’s easy to see there may be more demand and sensitivity for the date and price in that first example and less of both in the second. Imagine being able to respond in real time to both scenarios.
Hotels focusing primarily on competitive pricing are missing the big picture. By layering in consumer insights and other data, demand can be more accurately forecast and of incredible value to not just those pricing the property, but also to those managing, marketing and selling it.
Managing Director, EMEA at Duetto
Michael joined Duetto as Managing Director for Europe, the Middle East and Africa in 2014 to spearhead the rollout of the Revenue Strategy technology company throughout the region. Before joining Duetto, he served as CEO of eRevMax. Michael has an engineering degree from the University of Cape Town and a business degree from the Open University.
Latest posts by Michael McCartan, Managing Director, EMEA (see all)
- It’s Time for Change if Hotels are to Drive Profitability - April 6, 2017
- How Successful Revenue Management Boosts Hotel Profitability - March 3, 2017
- How Big Data Can Help Hotel Revenue Managers Get to Perfect Pricing - February 17, 2017