March 18, 2012

The Three Little Pigs help us analyze traditional pricing vs. revenue management pricing for hotels

Yep, story of the three little pigs provide the perfect analogy...

Comparing traditional pricing and Revenue management pricing performance related to the classic story of the three little pigs and really helps to define their fundamental differences in terms of the value each of these metrics mechanisms create.

For the purposes of the comparison, we can use the 2 pigs at the opposite ends of the house building spectrum to provide a relevant analogy to traditional vs. analytical. Many independent hotels focus on Occupancy and ADR metric, means no application of revenue management principles are being understood. The RevPAR is not being present neither in their discussion or reporting line.

So, let's recap the house building (measuring) practices of the "straw house pig" and the "brick house pig". A brief summary of our characters are as follows:

The Straw House Pig
The "Straw house pig" benefits from convenience. In the original story, the straw house was built quickly and easily without much trouble. The problem facing that pig was the lack of security but also the high cost of maintenance over time. When a storm came or the wind blew, this straw house would be damaged if not destroyed and the rebuilding process would begin again. of course, the good news was that it required very little heavy lifting, expertise, or time to build.

The Brick House
The little big that built the brick house camped out for a while, worked hard, planned a permanent structure, and laid down the bricks, one by one, until the structure was complete.
After completion, the brick house would require some light maintenance, but it remained solid and strong, able to provide the little pig a better return on her investment of time and the longer term than the straw house pig. Storms could come and go with little to no effect on the plight of the "brick house pig"and the house at times provided life saving protection and security.

The straw house pig's method compares well with a business owner whose choosing many different strategies, focusing on what the market or what the travel agencies/dmc dictates and adjust his pricing strategies according to its competitive set. When competitors are slashing their rates, the hotel will be damaged and will follow low prices structure of the market. Building market share in those conditions prove to be difficult. Your competitors can jump in the fray and undercut your positions in a matter of hours. Their focus is to practice same pricing than in the last 10 years.

Summary: Straw House Pig = Traditional pricing

In contrast, the "brick house pig" built on a revenue management culture designed for long term, low maintenance benefits. Building it required time, expertise, hard work, and revolutionize thinking process. This compares well to a planned and executed revenue management strategy. Those companies engaging with proper rational pricing, dynamic pricing, single image parity inventory, sell sequencing, demand patterns and deep market segmentation, there are in the best position to grow their revpar and increase their profitability. With pricing understanding being analyzed deeply, they understood how not to be dependent from a single market segment (Wholesale, Online Bookings, Corporate) but be able to define multi market segments.

Summary: Brick House Pig = Revenue Management pricing

Brick House Pigs will grown in a downturn economy. They will have the best chance at growth when they have engage in a process, of not only printing data analysis, but engage in analyzing and establish realistic risk strategies.

Romain @ Profit Therapy Thinking

No comments:

Post a Comment

We thank you for participating in our Revenue Management discussions, and look forward to bring you the best of our ideas. For more information, please visit our company website at