10 Failures pricing strategies of Hotels

by HuéspedIncógnitoCR
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Estrategias de precios en hoteles

Talk of "Revenue Management" today means considering much more than prices, the latter being only one dimension of what we have to understand how yield management. Ignoring these changes means out of the market, not understand customers and, thus, undermine the sustainability of the hotel business.

What was meant by Revenue Management (or revenue management)

The Revenue management (o Yield Management) It is the generic term that is referred to a set of strategies to optimize revenue from operations, especially when the product / service for sale:

  • It is available in limited quantities.
  • Expires in a given time.
  • The basic concept of the Revenue Management (o Yield Management) means: provide adequate service, the right customer, at the right time and, at the right price.

Thus, the main elements of traditional Yield Management are: the service, the client, time and price.

In practice, many hotels often determine their selling prices based on:

  • The prices of their competitors.
  • The results of previous years.
  • The current evolution of sales (occupation, ADR, etc.).

This way of defining a pricing strategy is already somewhat outdated because it does not take into account the great changes that have occurred in the last decade, mainly in the distribution and the customer. It's more, especially in a sector such as hotel (still not very standardized services), where the customer bases his choice depending on multiple factors when choosing (how and when to book, where to stay, etc.), is where more can be noticed these limitations.

What problems have to solve today's strategy of a hotel Revenue Management?

  1. Past sales data induce errors when forecasting.

Any strategy R.M.. You must take into account sales forecasts / demand (forecast), traditionally they based on historical data. To explain the very basic (without going into how the booking is constructed curve, how to calculate the pickup ...): sales statistics / last occupation, They help us understand whether the evolution of current sales is positive or negative, that is to say, if we are right or wrong, if we have to raise or lower prices, create offers etc.. If we also consider that the advance of reserves is declining, understand how to manage prices 2 weeks view becomes even more complicated.

In a market as volatile as it is today, past values ​​have an increasingly questionable value and need to be integrated and adjusted to not lead us to errors in sales forecasts Hotel.

If we also consider that the advance of reserves is declining, understand how to manage prices 2 weeks view becomes even more complicated.

  1. Prices do not consider customer satisfaction

What impact have such a lower price on satisfaction of my clients in the valuations published on sites like Tripadvisor, Booking, etc..? To this question many hotels often respond (and match) that involves lower prices better ratings for hotels. This improvement of the hotel's reputation is usually temporary because the following clients arrive with higher expectations (to best rating, higher expectations), the hotel must meet to avoid receiving negative evaluations and, selling at discounted prices, improve service is something even more complicated than usual ...

But ... What happens when we raise the price? How will these price changes to future reviews? And how to justify and convince a client that the same room reserved for 60 dollars in August or September must pay 100 the 150 dollars in December or January.?

Which today ignores the relationship between score of customer reviews, their prices and sales conversions obviously does not quite know what it does.

If we just look at the total income in the short term and forget about future revenue certainly we are putting at risk the profitability of our business.

  1. Prices alone do not take into account the net proceeds of sale.

some hotels, por ejemplo, They rise much commissions paid to online agencies in order to increase total sales. But nevertheless, if instead of focusing on the increase of total sales it generates, us to focus on the incremental income (sales - fees / expenses to support sales) often we would see that these actions have no justification. And this is because the hotel do not pay a commission only incremental additional sales commission that this rise can generate but it does on all sales, including the intermediary had generated with a lower commission.

It is important to note that when measuring the effect of paying a higher commission, or other actions to improve the "visibility" of the hotel, It should be considered if there is a clear "billboard effect", ie if there has been an increase in requests by email, by phone, booking, etc. on the website of the hotel.

If we do not measure our decisions Yield Management (and distribution is part of it) in terms of net income, hardly we know things as simple as deciding whether it is worth selling at higher prices and higher commissions or vice versa.

  1. Prices do not consider business sustainability.

Some hotel chains and independent hotels with strong short-term financial needs, They have greatly reduced their selling prices with the main objective to raise the occupation, revenue and improve cash flow. This has led to a reduction in the level of service offered (hired staff, services, etc.). In the very short term offer "rebates" reducing costs is a good patch to survive but this effect is very short because the brand image of the hotel is deteriorating rapidly and this prevents power back to get high levels of employment with previous prices "premium". Is fish biting its tail: the less you give, you will pay less and less will enter ...

Well Then, when we finish squeeze the cow, What will we?

  1. Prices do not take into account the cost of attracting customers.

In addition to the fees that are transferred to intermediaries, hotels also support a number of expenses and investments in marketing to attract customers directly or indirectly (such as appear in a newsletter of an online agency).

But are we ligand, selected and planned marketing efforts depending on occupancy levels or ADR (average daily rate) objective at all times? En la actualidad, leaving out some very important strings, or attempting to do so.

Are we selecting intermediaries in terms of what they bring us in terms of net incremental income (removing commissions, human resource time and other expenses ...)? Or are we signing contracts with everyone without realizing wear in resources and operational efficiency (and profitability of their work) this entails?

  1. online positioning and pricing strategy.

Many hotels are trying to position on Google for searches with high volume of requests as "cheap hotel in Guanacaste". Does it make sense to invest all efforts Online marketers in position for this type of search when the hotel has to offer cheaper rates?

The type of marketing strategy (level of tariffs, segmented offers, hotel typology, etc.) are the things that must be reflected as a top priority in a pricing strategy and vice versa.

Aiming to search for niches like "family hotel in Guanacaste", when a hotel has such many quadruple rooms and "offers for families", is the type of positioning to consider when pricing strategies and online marketing for the hotel are defined.

  1. Sales of other services (ancillaries)

Understanding which client is best for your hotel capture it is essential to improve profitability.

The client produces a number of expenses regarding your stay at the hotel which are additional to room rate (pure and accommodation). These are: breakfast, upgrades, foods, transfers, Internet access, fitness center, car rental, excursions, etc ... Depending on the customer profile and the context of your stay, independent income to housing concepts can be very important. Many casino hotels in Las Vegas, por ejemplo, They offer their rooms for free if the customer agrees to play at their casino during your stay.

Apply yield management techniques also other services, as catering, It is something that also has very widespread and can substantially benefit the income of hotels.

Understanding the total expenditure potential of different customers is essential to deliver the right rate to the right customer (some refer to this as "Total Revenue Management").

It is crucial to understand that you have to change the strategic focus of "provider" retailer " (distributor): I have a client who wants a room, What else you I can sell? The best answer may lead to something no one until now has been raised.

This change of mindset has to be reflected in the day to day hotel but also in its web, etc. The cost of acquiring a customer is increasing day (and if measured as % on total revenues) and therefore each occasion to increase sales revenues something has to be utilized to the maximum. airlines, also in this case, We teach a path ...

Pricing strategy

  1. Customers should be segmented by the context and not only by type

Define pricing strategies depending on whether a customer is "Leisure or Business" is very limited. A business customer when on vacation with his wife and children and travels choose differently. If this is not understood it will be difficult to sell something and / or meet your expectations when you're on vacation.

  1. Indiscriminate offers cause problems

Provide a linear discount to all customers, especially in the last minute, to achieve an increase in employment often leads to problems as very important profitability:

- The hotel loses credibility with those who booked earlier and at higher prices.

- cancellations are received and "new reserves" of those who had already booked.

- Customers wait for the last minute before booking next time because they do not want to be deceived.

- A discount is offered to those who were willing to pay the fee without offering.

- Offers such as "coffee for everyone", although they may produce increases in revenues in the very short term, They are dangerous and harmful. If you only look at total revenues in the short term, for the hotel awaits an almost unmanageable future, where prices are decided on the fly, without control and without following a logic that maximize profitability.

A strategy such as "If the Hotel Pepito low prices, I also low prices ", You can never achieve sustainability of a business in times of crisis.

  1. Not all customers seeking price

Recognize that each customer is willing to pay more for what he values (late chekin, checkout, breakfast in the room ...) the first step is to identify who give a price or other, an offer and conditions or other and thus avoid undermining the profitability of the hotel "giving away" universal discounts.

It is recalled that while segmenting deals, limit and restrict, usually yields better results, exceed the number of promotions offered at the same time is counterproductive, because the oversupply complicates the decisional process of buying. One must know how to measure the optimal number of bids that maximize sales at all times.

conclusion:

With this post I tried to explain why the Revenue Management by itself no longer makes much sense and it has to do not only own sales targets but also the marketing, CRM, finance and operations remembering that, at the end, customer interest must prevail to ensure business sustainability.

Of course there are many other considerations that are often wrongly ignored when defining the strategy Revenue Management (How income and affects selling prices improved facilities? How much should we spend on marketing to raise revenue x% at a certain price? What is the cost of acquiring a customer? What is the lifetime value of the customer or customer lifetime value? …) but the goal now is not to write a book ...

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