Click to Learn about Hotel Revenue Data Science Master Course
In recent times, the hotel industry has been grappling with slowing demand, an issue that calls for finely-tuned revenue management strategies. As we navigate through these uncertain times, it’s crucial for hoteliers to avoid common pitfalls in pricing and promotions that might further jeopardize their profitability. Here are five strategic recommendations to ensure you’re maximizing revenue without falling prey to unforced errors.
Reassess Your Markups
A key area that requires careful attention is the pricing differential between your various room types. It is crucial to reassess the price differences between your premium and standard rooms. Research across consumer industries indicates that shoppers are typically less sensitive to price changes for premium products. This suggests that there may be room to sustain, or even increase, the markup on luxury accommodations because consumers purchasing these types of products are less affected by economic fluctuations compared to value shoppers. Maintaining standard markups or percentage increases across all room types could cause you to miss out on leveraging this potential. Adjusting your pricing strategy to reflect these nuances can capitalize on the unique demand dynamics for higher-end offerings.
Shuffle Your Competitive Set
Demand elasticity can differ notably between standard and premium brands. If your competitive set is composed only of many aspirational properties, which is OK during normal demand periods, it may distort your pricing analysis during slowdowns. It is vital to incorporate a varied mix of competitors into your pricing analysis. A more comprehensive perspective will assist in setting prices that are not only competitive but also realistic and attuned to broader market dynamics. Utilizing tools like Ratebuckets allows for a deeper understanding of market-wide dynamics, moving beyond a narrow focus on a select group of hotels that might employ differing pricing strategies. This broadened view helps ensure that your pricing decisions are robust and market-responsive.
Limit Desperate Promotions
Following the Covid-19 pandemic, some hotels witnessed a temporary spike in demand, often termed the “post-Covid bump.” It is crucial to recognize that these circumstances were extraordinary and not indicative of long-term trends. Implementing aggressive promotions out of a mistaken necessity to return your performance to the “bump” levels can lead to diminished profits and potentially harm your brand’s value. Tactics such as offering extensive food and beverage credits, free nights (especially under unlikely length-of-stay conditions), or significant discounts for advanced bookings might seem appealing but can actually erode profitability during slower periods if your base prices remain unchanged. It’s important to remember that strategic pricing, much like holiday sales for seasonal items like ham and turkey, should align with periods of high demand rather than being discounted during off-peak times.
Monitor Internal Brand and Portfolio Elasticities
For those managing a hotel within a chain or group, it’s vital to grasp how pricing adjustments at one property can influence others within the same portfolio. Understanding this internal brand elasticity sheds light on consumer perceptions of value throughout your entire brand spectrum. Specifically, RMs and GMs at economy brands should pay close attention to how their pricing compares with that of the group’s higher-tier properties. It’s particularly important to monitor the pricing strategies of 3 and 4-star properties within the portfolio, even if they operate in different markets. This comparison helps gauge the price-to-value ratio of their own hotels, ensuring that their pricing strategy aligns with broader brand positioning and market expectations.
Don’t Wait Too Long to React
Human nature inclines us to cling to hope, particularly during tough times. Nevertheless, in the realm of revenue management, it’s crucial to ground decisions in data rather than personal feelings or optimism. It’s important to resist the temptation to wait for encouraging signs or optimistic feedback in strategy meetings, which can sometimes be biased. Immediate action on pricing adjustments is essential; postponing these decisions can lead to inefficacy as market conditions might change rapidly. Keep in mind, research indicates that we tend to view our own results more positively and judge others’ outcomes more critically. This bias can skew perception and delay necessary changes, impacting the success of your pricing strategy.
Ultimately, the goal is to segment your market more effectively to pinpoint where precise adjustments can be made. By delving deeper into your booking data, you can gain a clearer understanding of different customer segments and their specific needs and preferences. This informed approach allows for more targeted and effective pricing strategies. Simultaneously, maintaining a vigilant watch on your competitors is crucial. Understanding their moves and strategies will help you stay competitive and agile in a constantly evolving market. By combining detailed data analysis with keen competitive insights, you can fine-tune your pricing and promotional strategies to protect profitability.
