I found a very well written article today about the "Future of hotel pricing". This is a report on the webinar hosted by the Center of Hospitality Research at Cornell University School and SAS.
The participants all agreed that dynamic prices are the future of hotel pricing. Still, they also admitted that none can ignore the many challenges facing that pricing strategy.
As a reminder, dynamic prices are the contrary of set prices. It suggests that revenue managers have to be constantly in alert and be ready to change the hotel prices at any up and down on the market. Being able to make real time decisions is what is considered to be the best way to maximize the revenue opportunities. But isn't it very time-consuming? As we are going to see, this is not the only concern about this method.
As the Revenue Management trends evolve, we are passing from an inventory optimization to a price optimization logic. The goal is not any more to sell the maximum of rooms but to sell them at the best prices (meaning the highest prices the customers are willing to pay). With a dynamic prices strategy, the hoteliers would be able to match the prices in real time, based on the demand. If in the morning the activity seems higher than forecasted, prices would follow the trend. If in that same afternoon or evening, activity decreased and the hotels feared not filling the empty rooms, prices would drop. What would be the impact on the guests? While most of the guests are aware of this practice, particularly with the airline industry, what would they think of such fluctuation in prices?
One thing we have to keep in mind is that, even if it seems a very rational and logical idea mathematically, the result in practice may be different. We know that depending on the segments (leisure, business etc.), prices sensitivity is different so elasticity of the prices is to be considered as a crucial component. There are now very sophisticated software (like IDeaS) able to calculate what prices should be, including data like competition, past bookings etc., but none of them can integrate such data as prices sensitivity...
Another element to consider is the additional revenue. The key figure today for revenue managers is not RevPAR but TrevPAR, which takes into account not only the room prices but the additional contribution like restaurant expenses, spas etc. These are elements to think about when you price rooms and Las Vegas is one of the best example as room rates are usually very low because guests will spend a lot at the casinos.
Today, most of the hoteliers continue defining their revenue strategy on Excel, while a few already invested in revenue management systems and follow their recommandations. Still, nothing is won in advance even for the better equipped hotels. Statistics are good but adaptation may be necessary as I said. When elaborating the prices, considerations such as the guests characterictics or profile (loyal customers, student etc.), the additional revenue contribution, the segment and prices sensitivity are as many elements to think about.
That is why today revenue managers are considered to be as much inventory managers as marketers. They have to find the best packages and promotions to attract different types of guests. This is their role to improve guests' experience through adapted offers, offers that they will care about. At the end, it is not the hotels that would fight for the guests but the guests who would fight for the best hotel deals. Some even predict that thanks to the technology progress and forecasting evolution, it will be possible soon to propose one on one prices. Is such customization a good thing for hotels and their guests?
Comments:
I personnaly think that dynamic pricing is a clever strategy as it is the best way for a hotel to make profit. However, we should also be careful that it does not affect the guests 'satisfaction and loyalty. It is also no doubt that it is very time consuming. IHG tries to convince its partners to accept that deal and offers a solution by proposing hybrid prices to its corporate clients, mixing fluctuating prices and capped rates as a security.
This article asks the right questions about the pros and (particularly) cons of dynamic pricing. To mention aonly a few of , we could wonder whether this practice would not turn away our loyal guests, whether it would not make difficult our promotion campaigns and the work of the travel agencies or whether it would not affect our additional revenue. Last but not the least, is it the best way for a hotel image to compete on prices?
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