February 26, 2013

RSVP Hospitality Tips: Developing your pricing understanding

Since the time we were all junior economists, we've have been told that the world is driven by supply and demand.

Of course most of this blog readers, works in hospitality industry, and they can assimilate the demand and offer patterns, through the hotel occupancy.

There are a lot of parameters needed prior to define your pricing structure.

1) Business Mix:
First of all you would need to determine, review and understand your business mix.
- When was the last time you concentrate and give a thought about your business segmentation (Public Rates, Corporate Rates, Wholesale Rates, Internet Rates, Group Rates)?
- Which is the market leader that drive your revenues?
- What is your comparison room nights versus last year?

History is very important, both long term and short term. When looking at historical data, make sure to adjust for any anomalies in that time frame. For example, Ramadan oftentimes fall on different dates and need to be taken in account when comparing year over year data.

There are always lots of explanations to comment about last year or last month business. Lots of hotels room nights shifted from Wholesale and Corporate into the Web segment in the last 2 years simply because they made clients are attracted by commercial from "Best Rate Guaranteed" message and also the hotelier  provide more inventory to OTAs and invest in online booking brand development.

How many of the hotel sell their Rack Rates less than 1% of their overall revenues per year? Do you consider you are then well price, if your public rates never sell. Or do you discount too heavily?

Any Business Hotel General Managers would aim to grow the Corporate Market, because it is a loyal market segment, and base on business relationships. As Corporate client stayed in different cities, they get to speak about their experience and promote your hotel. On top of this, you get to know the booker, that brings more business to your hotel.

2) Purchasing Behavior:
There are lots of metrics that are available in the hotel industry in order to understand our clients.

One of the most important one is to be able to determine when the client are making their booking for your hotel. The booking pace has helped hundreds of hotels to optimize their revenues. 

Clients know that if they reserve in advance (45-90 days), they may benefit from better prices, since they know the hotel will increase their rates towards last minute due to demand.

Length of stay is also something to consider, as a one night stay might block your weekly business and create a top down occupancy, so think of looking into your statistics by days of the week.

Someone that is price sensitive will look at multiple distribution channels prior booking your hotels.

Sometimes even for AED 5-10 difference, they will book your hotel on a dedicated website.
- Lots of clients are paying from their pockets, so price matter,
- Other clients are paying for their nights but are re-imbursed by their companies, so they prefer to select the hotel that the company assigned.

Pay attention to your customer loyalty factor, as you may have a customer that came to your hotel 10 times, but used 10 different hotel booking methods rather than booking direct.

3) Exterior Business Intelligence
The calendar of events is widely available in the industry. However do you use it properly to setup your prices? do you increase/decrease your prices looking at a specific period? However business seasons have changed and it's important you assigned high - mid - low season, but also integrate a flexibility and dynamic pricing factor.

Observe your competitor, not just as a regular visit, but understand their pricing points, their special offers (determine the market), their corporate pricing, their wholesale pricing. You have many  ways to observe their rates. If you see one of your competitors sold out at a certain date, when you are averaging 50% occupancy, try to give some calls to your colleagues and understand what business they have.

Compare your room category products with your competitors by attributes: room size, bed types, views, floors, away from elevators, facilities, service, tv size,

Most of you have access to the daily competition report (occupancy, average rate and revpar) of your competition. How many of you compare RevPAR metric with your competitors? You can also purchase market competition reports on daily / weekly / monthly to have a better understanding like this link Why not looking at a various element from the market?

Integrate in your pricing development, also the customer reviews collected from Trip Advisor or from their own websites or OTA websites.

The economic conditions, like the overflow demand of rooms resulting, observed in the Gulf cities like Dubai, Doha, Riyadh for last 2 years, is also a direct consequence to some un-rest and conflicts situations in Egypt, Syria and Levant areas.

The above seems to be a lot and are all included in the activities of the Revenue Management / Pricing development, and should be share with all your business organization associates. Revenue Management is not a software, neither a business tool that work without a team, or a complicated algorythm mathematical approach. It's rather a business approach that combine historical data and future demand.

If you have difficulty of getting the right pricing approach, contact us at info@rsvp-hospitality.com and we will establish a 30 minutes free session to assist you.


Romain Saada
RSVP Hospitality

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