BALTIMORE, Maryland—Pricing strategies were the common thread throughout the day-long Revenue Optimization Conference Monday, but it was a panel that specifically addressed the topic for more than an hour that revealed those strategies are no different than taking care of a car.
At least that’s what Ryan Andersen, director of revenue optimization for the Carlson Rezidor Hotel Group, indicated during the “Getting the price right from philosophy to tactics” panel.
“We tell hotels to look at the weights and offsets like an oil change and do it every three months,” Andersen said, when speaking of pricing optimization. “Your strategy may have changed (during that time) and your system no longer is optimizing your rate. There’s still a human element to it.”
The debate over the human element revealed even that aspect only goes so far in the implementation of pricing strategies. Andersen said that while hotel operators get to choose how to weight the variables involved in setting pricing strategies, Carlson’s system automatically shoots competitive sets and can “tell you where your price is.”
“Ultimately, when the right data is available, those weightings can be automated so there is no human element of weighting it,” said Rao Avasarala, VP of business intelligence for TravelClick.
Tammy Farley, principal of The Rainmaker Group, said companies using automated revenue-management techniques can focus on other things because pricing is optimized by pre-set conditions.
Striking the right formula
Kimberly Furlong, VP of revenue management for TPG Hospitality, said strike-through pricing—the practice of crossing out a higher price and publishing a second lower price—has its place in the hotel industry.
“There’s a time and place for strike-through pricing,” she said. “I use it more for independent hotels that can be a little more creative. If it ends up being your primary pricing strategy, then you probably overused it.”
It can be a particular problem because so many other channels float off the best-available rate, and if that rate is created by a strike-through philosophy, it puts undue pressure on the rate structure, Furlong said.
Price parity and flash sales
No conversation about hotel-rate pricing is complete without addressing price parity (having the same best-available rate on all reservations outlets), and the panelists obliged.
Andersen said “from a brand perspective, we will always push price parity” and stressed the most important thing for hoteliers is to stay off extranet outlets—those vehicles that permit controlled access from the outside.
“It’s only going to take a few big hotel companies writing new parity pricing (to force change),” he said. “With the transparency of rates and the transparency of guests who aren’t loyal, is it our best interest to offer different price points in the channels because guests are more savvy?”
Furlong said the concept of price parity is over inflated.
“The biggest risk in breaking parity is losing an important partner that you might need down the road,” she said. “I don’t think parity is as important as we’re making it now.”
It’s sometimes important for guests to see themselves as “getting a win” by securing a reduced rate, but pricing parity prohibits that, according to Furlong.
“I want the option to provide the discount or value-add,” she said. “I would do it across all channels with all my partners. I want to be able to do it to all customers, but the brands have us hand tied a little bit (through price parity).”
The panelists in general gave a thumbs-down to flash sales.
“It’s about knowing the math behind it—did it really make you any more money,” Andersen said. “I’m not a huge fan of flash sales.”
Farley said the danger of flash sales is attracting guests who don’t necessarily fit a hotel’s ideal demographics.
“Does it in any way compromise the integrity of the brand?” she said. “Are the customers the ones you want on property?”
Andersen then summed up the feeling of the panel: “Value perceived is value achieved,” he said.
Facing a big obstacle
One of the biggest obstacles for effective pricing is knowing the rooms available in your competitive set.
“The price you want to put in place has to factor in the supply in the market,” Avasarala said.
“That’s the Holy Grail,” Furlong added. “They have a rate, but you don’t know how many rooms they have at that rate.”
Furlong said pricing specialty rooms is where its gets difficult when a revenue manager doesn’t know how to anticipate a competitive set’s future occupancy.
“We have more difficulty in the industry of pricing a suite or concierge,” she said. “The way we price those right now is so antiquated compared to the progress we’ve made for standard rooms.”
Andersen said the one thing revenue managers must know is the hotel’s customer mix.
“I am really big on (market) segmentation and knowing the price points of segmentation,” he said. “It’s an overall picture, not just the one price point having proper analysis.”
To wrap thing ups, Furlong said knowing the full picture of pricing means knowing how to analyze available data.
“Test and measure,” she said. “I hear a lot of revenue managers say they are testing a price but don’t understand scientifically what it means.”