The Science Behind Hotel Room Pricing

TUESDAY, June 30th - 9:00AM (PDT) Duetto Educational Series

Next Webinar – July 23rd – 9:00am PDT

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Founded byIndustry Leaders

World-ClassTechnology Development

Committed toCustomer Success

Advanced Tips From Revenue Management Professionals

MEET THE EXPERTS

Gayle EhreanSenior Director,

Customer Success

Tim KolmanSenior Solutions

Engineer

Chris KnotheSenior Solutions

Engineer

About Duetto

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Founded byIndustry Leaders

World-ClassTechnology Development

Committed toCustomer Success

About: Our Team

Nathaniel Estis GreenSenior Global Solutions Engineer

Vincent CusmaSenior Manager Customer Success, Asia Pacific

Agenda

▍Why is pricing important?

▍What are the most common pricing mistakes?

▍What is “hotel pricing”?

▍How to optimize pricing?

▍Moving forward.

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Revenue Management Introduction

“The application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth.

The primary aim of Revenue Management is selling the right product to the right customer at the right time for the right price and with the right pack.

The essence of this discipline is in understanding customers' perception of product value and accurately aligning product prices, placement and availability with each customer segment.”

Cross, R. (1997) Revenue Management: Hard-Core Tactics for Market Domination. New York, NY: Broadway Books.

Inventory /Capacity Demand

Price

$

Refreshing Basic Terminology

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Variance Year-over-Year(YoY)

Compression

Rolling ForecastOccupancy Forecast Accuracy

Segmentation Booking Window Out-of-Order(OOO)

Ever Leave Money on the Table?

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Hotel ABCFinancial District, NYC97% OTB @ 14 DBA

Hotel ABCFinancial District, NYC97% OTB @ 1 DBA

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OTA: $300| 25% Commission| Non-Loyal Customer; price

sensitive| Minimal ancillary spend

Hotel ABCFinancial District, NYC97% OTB @ 1 DBA

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Booking Engine, Loyalty: $350| Repeat Guest| Marginal acquisition cost| Higher-potential ancillary spend

OTA: $300| 25% Commission| Non-Loyal Customer; price

sensitive| Minimal ancillary spend

Booking Brands Now Dominate Consumer Point of Entry

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Consumer

Stay Brands

v

Booking Brands

Courtesy

The Hospitality Distribution Landscape

Group Referral& Booking Sites

Online Tech Companies

OTAs Consumer Websites

Retail & Corporate

Channel Management

GDS

Hotel’s PMS & CRS

TransientConsumer

Travel Agent

MeetingPlanners

BusinessTraveler

Courtesy of:

Hotel Websites

Online Tech Companies*

Hotel Chain Websites* OTAs* Consumer

Websites*Retail &

Corporate*

Channel Management*

GDS*(Global Distribution System)

Cost: Variable Cost (Pay-Per-Click, other Ads)

Cost: Variable %+ Management Fees Cost: Variable % Cost: % or Fixed Cost: Variable %

Cost: Variable per booking

Cost: Variable per booking

Hotels PMS & CRS*Cost: Fixed + Annual variable

Group Referral and Consumer*

Cost: Variable %

* Notes costs that have been increasing at varying rates YoY

Commissions Rise at 2x the Rate of Revenue Growth

39%+

2009 2010 2011 2012

%Increase

CommissionIncrease

14

20%20%24%

20%

Total Acquisition Costs

Room Revenue

Sales & Marketing Expense

Total Revenue

Retail commissions onlySource: HAMA Study 2013-2014

Courtesy

Common Mistakes in Pricing.Ways to curb common mistakes.

Top 7 Mistakes in Pricing

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1

2

3

4

5

6

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Selling out too soon

Not changing rates

Pricing by “gut feel”

Reacting to sudden price changes by the competition

Selling rooms on a first-come first-serve basis

Linking your different price points together

Shutting down price points at the end of the day (5pm)

What is Pricing?Evolution of Hotel Pricing.

Industry at a Crossroads

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1970s 1980s 1990s 2000s 2010s 2015

Separation of ownership, brand, and management

Product segmentation; financial engineering

First online booking; enter Expedia

Online distribution explodes complexity

Crowded value chain

Meta search; enter tech giants & new gatekeepers

__Non-Dynamic________________Semi-Dynamic_____________________Fully Dynamic_______

Pricing Strategies

Competitor Driven Pricing

Market Data Driven Pricing

Price-to-Budget

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One-Rate

Seasonal

Weekday/Weekend

BAR

BAR by LOS

Open Pricing

PricingApproaches

Pricing Types

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Seasonal

Pricing Types

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Seasonal

Best Available Rate (BAR)

Pricing Types

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Seasonal

Best Available Rate (BAR)

BAR by LOS

BAR Pricing = Lost Opportunity

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BAR 1$100

Retail/ Transient Rate Code: BAR

15%

With BAR Pricing comes static:- Room Type Differentials- Discounts/ Offers

Occupancy45%

BAR Pricing = Lost Opportunity

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BAR 2$200

BAR 1$100

Retail/ Transient Rate Code: BAR

15%

With BAR Pricing comes static:- Room Type Differentials- Discounts/ Offers

45% Occupancy75%

BAR Pricing = Lost Opportunity

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BAR 2$200

BAR 1$100

Retail/ Transient Rate Code: BAR

15%

With BAR Pricing comes static:- Room Type Differentials- Discounts/ Offers

45% Occupancy75%

BAR 3$300

BAR Pricing = Lost Opportunity

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BAR 2$200

BAR 1$100

Retail/ Transient Rate Code: BAR

15%

With BAR Pricing comes static:- Room Type Differentials- Discounts/ Offers

45% Occupancy75%

BAR 3$300

The more price points hotels have available for their demand, the

closer they get to capturing the entire

opportunity for revenue.

Pricing Types

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Seasonal

Best Available Rate (BAR)

Open Pricing

BAR by LOS

Traditional Pricing

Day 1 Day 2 Day 3 Day 4

CAPACITY

AAAPromo Rate

10%20%

✔✔

AAAPromo Rate

10%20%

✔✔

✖ AAAPromo Rate

10%20%✖

AAAPromo Rate

10%20%

✔✖

Open Pricing

Day 1 Day 2 Day 3 Day 4

CAPACITY

AAAPromo Rate

10%20%

✔✔

AAAPromo Rate

10%20%

✔✔

10%20%

5%✔ AAAPromo Rate✔ 5%

AAAPromo Rate

10%20%

✔✔

5%10%

Open Pricing More Important Than Ever

▍Independently price every single segment, offer and room type

▍Maximize revenue over high demand and need periods

▍Keep all channels open and benefit from the “billboard effect”

How to Optimize Pricing?Evaluate data sources & system connectivity.

Big Data = Better Data

Reviews & Social Media

Competitor Pricing Data

Booking & Reservation Data

Web Shopping Regrets & Denials

Weather

Air Traffic

Traditional Revenue Management

Traditional Revenue Management

Which, again, begs the question…

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Excel v.s Revenue Strategy Systems?

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VS

Excel

You Need Proper Connectivity

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RMS

PMS CM(Channel Manager)

CRS(Central Reservation

System)

Rates, Reservations, Blocks, Restrictions Rates, Reservations, Blocks, Restrictions

Rates, Reservations, Blocks, RestrictionsRates, Reservations, Blocks, Restrictions

Rates, Reservations, Blocks, Restrictions

Key Things to Evaluate: Per Segment

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Market VolatilityComp Set

IndexComp Set

PricingPace OtherPick-Up

Moving Forward.Things to keep in mind.

Highlights of Hotel Pricing

▍ Optimize pricing through having fully-dynamic Open Pricing abilities which is fully-enabled through

system connectivity

▍ Managing the rising acquisition costs requires flexible pricing to optimize profits

▍ Effective yielding through keeping channels and discounts open maximizes revenue over high

demand and need periods

▍ Understanding your segmentation is the most important thing for proper forecasting which impacts

pricing and other decisions

▍ Pricing, especially per channel, can have long-term effects on consumer buying behaviors39

Questions?TUESDAY, June 30th - 9:00AM (PDT) Duetto Educational Series