Hilton just announced it will roll out a “flexible pricing approach” that likely mimics airlines. Hotels may want to price like airlines, but are they ready for the related customer satisfaction nightmares?
About two weeks ago after Hilton’s Q3 earnings call with investors, people picked up on what President and CEO Chris Nassetta said about the four brand launches in the works, and that news was the talk of the town for the next few days.
But what my ears really perked up at was Nassetta and CFO Kevin Jacobs’ announcement of a new pricing structure for the 13-brand company, a strategy riffing off of this year’s major changes in cancellation policies, drawing the cancellation policy window back to 48 and in some cases 72 hours.
Here’s how Nassetta described the new pricing policy:
We’re “taking it from 48 or 72 hours (cancellation windows) to seven days, and then seven days and beyond, with a flexible or semi-flexible pricing approach,” he said. “I think it’s going to … help us deal with this issue (of short-term cancellations) in a more meaningful way and a way that drives higher RevPAR growth.”
The company is “deep into the testing” of this pricing module “and we like what we see,” Jacobs said, adding to the analysts on the call that there would be more details next year.
“We have an opportunity to incrementally make customers happier by giving them choice (while driving) better RevPAR growth,” he said.
While it’s too soon to say exactly what this would look like, we can infer that it will be a pricing policy that mimics airlines in a way: You’ll pay less for nonrefundable rooms, booked further out. The more cancellation flexibility you want—on a shorter booking window—the higher the price for the room goes.
I brought this up to a panel of private equity hotel investor owners that I moderated last week at The Lodging Conference in Phoenix, asking them if this was the ideal goal in terms of pricing.
There was a resounding “yes” from around the table and from the audience.
Hilton led the book-direct charge (quite successfully if you ask them, and with varying degrees of success if you ask owners), so they’ve established themselves as envelope-pushers when it comes to taking back control of distribution.
On the positive side, flexible pricing like this could definitely benefit owners and operators, and their revenue managers who are dealing with inventory, no question about it.
I’m not entirely convinced, though, that the traveling public will necessarily be happier with the choice given to them, like Nassetta said. I fear the downsides of a practice like this could result in some drops in customer satisfaction and retention. The reason: People just don’t take the time to familiarize themselves with every little change you make. All it will take is one person who booked a family vacation at the cheap, nonrefundable price (who didn’t read the cancellation fine print) to cancel, then find out they’re liable for the cost, and bam—they’ll never stay with your brand again.
The big disconnect is that hotels want to price like airlines, but they definitely don’t want the customer attitude of “all they want is my money, customer service is dead, they’re just nickel-and-diming me” that goes along with airline pricing.
If that happens for hotel brands, they’re dead. Doomed. Retention and loyalty will go to whatever brands don’t do it—just like how I threw my loyalty to United Airlines out the window the first time they sneakily booked me into that awful Basic Economy tier where I didn’t even get a seat assignment or overhead bin space.
Should I have read all the fine print and memorized the booking codes associated with Basic Economy so I would have known better than to choose it? Sure. Did I? Nope.
And what do you know? United just last month pulled back on some of its Basic Economy restrictions because customers complained so much (though of course they’re not the only airlines who do it, and it’s not going away anytime soon).
So hotels, if when you adopt flexible pricing structures, make sure you also earmark lots of money for marketing and education. You’re going to need it.
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