Creating differentiation and building guest loyalty is more complex than ever for hotel brands.
Not only can potential guests engage with your hotel (and your competitors) on an endless variety of booking channels, they’ve become accustomed to the thrill of the low-price hunt as part of today’s travel environment.
Rewards programs worked in the past, but over time have become nearly identical and commoditized.
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For an industry that prides itself on comfort, amenities, personalization and guest experience, the reality remains that today’s business and leisure traveler is driven, most often, by price and price alone.
So, what can we do to change this? The answer may lie in the eye of the beholder.
A race to the bottom with commoditization
Business 101 teaches us that when competing goods and services become indistinguishable, they become commoditized.
When commoditization occurs, brands are forced to lower prices - price being the last point of differentiation they can control.
Unfortunately, this “race to the bottom” means that margins decline and brand value diminishes.
Commoditization of hotel brands is happening today. For example, when guests use an online travel agency to search for a London hotel, they get a sample of five-star hotels.
Because many hotels offer very basic and similar information on OTA sites, they’re forced to compare properties based solely on price or brands.
In most booking scenarios, it’s difficult for guests to identify which hotel best meets their needs or has specific amenities that might be of value.
So, who do we blame? The OTAs?
Maybe, but in truth we’ve helped create our own monster.
Hotels have spent decades determining the optimal price point of a room for various customer or market segments. We have it down to a science.
But, we may have gone too far in prioritizing price over each customer’s personalized desires and needs.
It’s time for a change - and a new business model that gives guests the power to define their own value for each price.
Today’s pricing model is broken
Currently, hotels price by the single unit, based on demand and availability, not the unit’s unique features.
Sure, we take into account a few features such as bed size, but overall, we’re pricing on unit type.
It is difficult to change this since OTAs dictate how products are displayed on various channels.
But it promotes direct cost comparison by establishing price as the single common denominator. Our guests have been conditioned to chase the deal.
Terms like “Great Value,” “Booked 4 times in the last 6 hours” and “In high demand” have been given preferred real estate over high-resolution photos and descriptions.
Even in the luxury segment, discounting (“Save 38% today”), urgency (“41 other people looking now”) and scarcity (“In high demand”) have become the new value drivers for guests to select a property.
Customer-choice pricing refocuses value on differentiating factors
The good news is, we know what guests are fixated on: price.
So, now we have an opportunity to reframe their focus to consider price as one component of their experience - along with other components that offer various types of value.
This new model is exactly what hotels need to combat the growing threat of commoditization, build differentiation back into the booking process and rebuild guest loyalty.
Here’s how it works.
A hotel offers a guest (while booking) the option to select individual components of a room, or other features that the guest may find of value.
This enables guests to select what best meets their personal preferences at the time. Hotels can provide a better booking experience and a better stay by offering a wider array of choices and personalized self-selection.
This new model for pricing - “customer-choice pricing” - gives the consumer the ability to personalize their own experiences and assign each component a monetary value.
“Will I pay more for what I want?” or “Will I give up some components that I value less to get a lower price?”
A customer-choice pricing model starts to dismantle the threat of commoditization because it puts the power back in the hands of the customer.
It lets them correlate price with things they truly value - the tangible amenities, features and services each hotel can offer.
The key to succeeding with a customer-choice pricing model is to vary price according to what’s most distinctive about a hotel’s offering rather than the makeup of each product or service.
Klaus Kohlmayr
It works because it encourages guests to consider options that fulfill their unique and personalized needs, rather than force them to make a booking decision based solely on price.
When a guest values a separate living area, a pull-out sofa bed or a balcony, they will choose to pay for it. If they don’t, they can select the more economical offer that does not include these features.
Customer-choice pricing allows hotels to break products and prices into components of value.
As a result, a value attributed to features that currently go unnoticed now drives differentiation and minimizes direct price comparison for products that are actually different.
Providing guests with choice can uncover scenarios for additional revenue as guests choose more attributes - and by making those selections on their own, they are more aware and appreciative of the value they receive for the cost.
Promote what differentiates your brand
The key to succeeding with a customer-choice pricing model is to vary price according to what’s most distinctive about a hotel’s offering rather than the makeup of each product or service.
Who do we blame for the status quo? The OTAs? In truth we’ve helped create our own monster.
Klaus Kohlmayr
This has the ability to take the hotel’s product offering out of head-to-head price competition and allow it to compete on its personal relevance to customers and the value it provides.
This model represents a true opportunity for hoteliers to combat commoditization by dynamically pricing each component according to customer preference.
Even when customers are hunting for the right price, hotels can now tailor the experience by giving them the right choices instead.
By increasing transparency, providing clear value differentiation and pricing unique offerings based on demand, hotels will unlock immense value for themselves and their guests.
About the author...
Klaus Kohlmayr is chief evangelist at
IDEAS, a hotel revenue management and technology specialist.