REPORT FROM THE U.S.—The fundamentals of supply and demand might be in the hotel industry’s favor, but without the proper price optimization strategy revenue managers will struggle to push rates, experts said during an HSMAI University webinar.
”The room demand is very, very strong. Room supply is not going to be an issue for the next couple of years, so I think pricing power should be back in the hotelier’s hands,” said Jan Freitag, VP of global development for STR, during the webinar “What are the Best Practices in Pricing and Price Optimization?”
“People are indeed traveling,” Freitag said. The U.S. hotel industry sold 1.05 billion roomnights through September—the largest number since STR began tracking data in the early 1980s.
VP of global development for STR
Freitag said the upper end of the market is selling seven out of 10 rooms every night, which is a good indication there is pricing power in those segments. The lower-end of the chain-scale, however, still has room to grow, he said.
The problem is that pricing as a discipline is still not well understood, Freitag said.
“We are getting worse at pricing rather than better,” said Chris Anderson, professor at the Cornell School of Hotel Administration.
Anderson used the prisoner’s dilemma scenario to describe hotels’ current reactionary pricing strategies: If two hotels hold rates, both will profit. If one hotel decreases rates, its competitor will suffer if it continues to hold rates. Inevitably, the competitor that held rates will lower them, and this action will result in a significant loss in profits for both hotels.
“Every price action is usually prompting a response from a competitor,” he said.
Consumers have been taught to be deal seekers, Anderson said. “At the end of the day, we should try to figure out how to target brand-loyal consumers,” he said.
Kathleen Cullen, corporate director of revenue strategies for Heritage Hotels & Resorts, said online travel agencies are merchandising pros and can be helpful if used in the right way.
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Cullen and Anderson outlined key points revenue managers should consider before giving inventory to OTAs:
• Revenue managers should not plan to use opaque pricing channels as a way to sell inventory, Anderson said. However, it is a great tool to use to get rid of inventory two or three days before. He said approximately 70% of booking for opaque channels is about three days or less, which makes it less strategic for a hotelier to use for inventory seven or more days out.
• Membership-selling channels such as TravelZoo and flash sales are targeted to more price-sensitive consumers. “Flash sales should be used to fill your need period,” Cullen said. However, they dilute your profit because you are sharing revenue with the third-party.
• Sites such as Jetsetter and Tablet are good channels for capturing extra business and stimulating demand, Cullen said. They target travelers who weren’t necessarily planning on traveling.
• Cullen said sites such as Expedia and Travelocity are great to use for exposure for the property.
• Daily deal services such as Groupon are less affluent, Cullen said. They are marketed toward the price-sensitive consumer and should probably only be used to fill a need period.
Search engine optimization
Professor at the Cornell School of Hotel Administration
Google’s increasing participation as a distribution channel is also important to keep in mind in the pricing process, Cullen said.
Organic search results are becoming less prominent than paid search results, and Cullen said companies increasingly will have to pay for placement rather than just having free placement.
“Hoteliers need to be aware of it. If you’re not participating in paid placement, you will be pushed down and down to the bottom of the page,” she said.
Consumers tend to stay at the top of the page when browsing, Cullen said. The further down a hotel’s site is featured on a search page, the less activity it will have.
Mobile as a channel
Cullen said it is important to understand what the parameters are and who will be booking with mobile apps such as Hotel Tonight.
The app displays three suppliers’ information in one particular market for “tonight only” deals. It pulls from opaque inventory, but it is not opaque to the consumer, she said.
When considering “tonight-only” deals for a hotel, Cullen said it is important to be prepared for the customer that already made the booking and goes to check-in at the hotel asking for the Hotel Tonight rate.
Moderator Jeff Higley, VP of digital media and communications for STR and HotelNewsNow.com, asked each of the panelists to share final thoughts with participants regarding price optimization:
Jan Freitag: Trust the data. STR revised its 2012 forecast downward, but the growth is still positive. We are increasing the rooms, so we are increasing the rates.
Chris Anderson: Be strategic, be tactical. The last thing you want to do is not understand. Don’t participate without understanding who the targeted market is.
Kathleen Cullen: The most important thing: Be in control of your marketing efforts. And stop the price wars. We only hurt ourselves, and we hurt each other.