the power of scientific pricing
TRANSCRIPT
The power of Scientific Pricing.How to make 35% more revenue?
Maximize your Revenue Hospital ity and Travel technology solutions
WHAT IS BEHAVIOURAL PRICING FOR HOTELS?
Behavioural Pricing is a form of price discrimination. The goal of price discrimination is to maximize profits by adjusting the price that different customers pay based on data about the consumer. Price discrimination is
common offline, such as the Museum of Modern Art charging adults $25 but students only $14.
PRICE DISCRIMINATION
CONSUMERS PSYCHOLOGY
Adding Small Differences can Increase Similarity and
Choice
$100 $100
Scenario 1
$100 $110
Scenario 2
46% Peoplemade a purchase
77% Peoplemade a purchase
What does this mean for my hotel?
$100 $100
What shouldbe the price of my hotel room?
HOTEL 1 HOTEL 2
MY HOTEL
The Anchoring Effect
$300 $200
$100 $120
Should I be the Anchor or price lower?
12% increase in sale of $200 watch as $300 watch acted as an Anchor What does this mean for my hotel?
HOTEL 1 HOTEL 2
MY HOTEL
CONSUMERS PSYCHOLOGY
Weber’s Law of Just Noticeable Difference
$10Per Gallon
$9.8Per Gallon
$10.4Per Gallon
$14Per Gallon
30%
Should I increase my price by 10% or 30% ?
20%Price
Increase Price
Increase
Customers don’t notice an increase whenthe average point is less than 10%
What does this mean for my hotel?HOTEL 1 HOTEL 2
MY HOTEL
CONSUMERS PSYCHOLOGY
Social is the King
$150
What is the rightprice for my hotel room?
$150
Average Ratings 4 of 5 Average Ratings 3 of 5
Price $17.99
Price $14.99
1% point increase can increase rate by 15% What does this mean for my hotel?
HOTEL 1 HOTEL 2
MY HOTEL
CONSUMERS PSYCHOLOGY
WHAT IS SCIENTIFIC PRICING?
Optimized Pricing
Business Analytics
Automation
WHAT IS SCIENTIFIC PRICING?
Optimized Pricing
OPTIMIZED PRICING
Price optimization is the use of mathematical analysis by a company to determine how customers will respond to different prices for its products and services through different channels.
Amazon, one of the largest retailers that uses optimized pricing, changes its prices of its 15-20% of its inventory every 10 minutes on average.
The company saw a 27.2% increase in sales from 2012 to 2013 and generated over $44bn in sales just last year.
This resulted in Amazon being named one of the top 10 retailers in the US for the first time.
WHAT IS SCIENTIFIC PRICING?
Business Analytics
BUSINESS ANALYTICS
Hotel Occupancy
What is your current booking pace?
60%
70%50% 85%
40%
OCCUPANCY RATE
o Functions of the increased price model: a) increase supply b) temporarily intentionally reduce demand.
o By offering more money to drivers, they were able to increase on-the-road supply of drivers by 70-80%, and more importantly eliminate two-thirds of the unfulfilled requests.
BUSINESS ANALYTICS
Competitive Benchmarking
Where are your rates positioned in the market?
BUSINESS ANALYTICS
Perceived Value
Average Ratings 4 of 5 Average Ratings 2.3 of 5
Price $17.99 Price $14.99
Restaurant 1 Restaurant 2
How does your hotel fare against the competition in value when prospective guests are making their hotel shortlists?
BUSINESS ANALYTICS
Market Compression
WHAT IS SCIENTIFIC PRICING?
Automation
AUTOMATION
Competitive benchmarking
And rate trends
Market compression
indicators
User generated reviews and
ratings
Occupancy data from your PMS
WHY SHOULD HOTELIERS WORK WITH SCIENTIFIC PRICING?
Would be process driven:Which means that a revenue manager would consistently follow the same process in determining the optimum price.
Would be scalable: A revenue manager should be easily able to continually replicate the process and scale it up, irrespective of the number/ type of rooms in the property.
Would be fast: The methodology can be applied at a speed which would match the pace of market movements. Market factors change rapidly, and if revenue managers aren’t fast enough, they will not be able to determine the right price in time to distribute those prices.
Thank You