Developing a pricing strategy is critical to most businesses, but how does that strategy need to differ with perishable inventory vs non-perishable?
NB This is a viewpoint by Blake Madril, a revenue technology strategist at IDeaS Revenue Solutions.
When an office supply store prices a product such as staplers, there’s really no consideration needed for how many staplers are in stock. There are costs associated with the stapler that need to be covered but the price for the first stapler sold is likely the same price for the last stapler sold. If the stapler does not sell today, it can always be sold tomorrow.
Hotel rooms, on the other hand, are perishable inventory that needs to be sold each day - or revenue opportunity is lost. The number of rooms available to sell - and the demand in the market - should influence a hotel’s strategy. Looking at price alone works well for selling staplers, but to sell rooms and optimize revenue, hotels need an approach that understands the relationship between price, inventory and demand.
So how can hotels use their revenue management technology to take their revenue strategy past managing price alone and dramatically improve their revenue performance?
Here are three areas of strategic revenue opportunity hotels can capitalize on.
Revenue strategy by room type
Hotels need technology that considers the varying room types they have. Each guest requires different room features; some guests search for a view, some want a certain bed type and others just need more space. With unique demand for each room type, a hotel’s revenue strategy needs to support their guests’ buying behavior.
Today’s automated revenue technology can analytically determine the ideal price, inventory controls and overbooking strategy for each room type within a hotel. Some revenue management solutions are limited in these capabilities and only provide the ability to manually set rate differentials on each room type.
This means hotels provide all the insightful data necessary to produce these decisions…but still have to manually set rates themselves.
With hotels already managing so many other rates as it is, it’s important they can rely on their technology to automatically and analytically do this for them.
Managing market segments
Hotels have demand from many different segments of business, such as packages, qualified discounts, OTAs, corporate negotiated and loyalty programs. With a variety of different business segments to account for, how can hotels effectively manage the demand for each segment?
It’s important that hotels price each of these segments individually - whether that involves setting a fixed price, a flexible discount percentage or an amount off another rate. However, if hotels are only manipulating price, they end up missing out on additional revenue opportunities.
Take loyalty pricing, as an example, where guests with an established value at a hotel, brand or chain are offered an incentive to book direct. If this incentive involves a discount off the published rate, hotels might find themselves struggling to manage these discounts over periods of high demand. By only managing price, their options become far more limited.
They can reduce the discount to 0%, but then their loyal guest sees their “personalized price” is the same as the published rate - without understanding it’s because they are booking on a high demand night. Or perhaps the hotel still offers a discount but as a result, ends up sacrificing revenue to their bottom line.
These options are rather inflexible and neither support a strategy that drives maximum revenue or profitability.
Automated inventory controls
How can hotels go beyond basic pricing for a strategic, flexible approach to managing their business?
Continuing with the example of loyalty pricing, consider a hotel with two guests with a similar overall value: one is checking in on Monday for three nights and the other on Tuesday for one night. The hotel is forecasted to sell out on Tuesday night and doesn’t need to offer the loyalty rate of 15% off the published rate. How can a hotel use their revenue technology to manage these types of scenarios?
Some revenue systems require the hotel to manually reduce the loyalty discount to protect itself from one night stays on peak nights. However, advanced revenue technology that provides automated inventory controls, such as a hurdle rate (commonly referred to as a last room value or LRV), establishes a threshold for each night to ensure the hotel captures the maximum revenue over a guest’s entire duration of stay. An LRV requires the loyalty rate to meet or exceed its value to be bookable, so this inventory control automatically restricts the loyalty discount for the guest staying one night, but still offers it to the guest booking three nights.
The optimization of both pricing and inventory controls can and should occur multiple times each day for every day into the future - and shouldn’t require hotels to manage tactical activities, like manually adjusting discount percentages. The ultimate goal is to price a room that will result in the most overall revenue and profitability for the hotel.
The challenge is hotels are pricing rooms offered through many different channels, across many different days, to many different types of guests. Hotels are not selling staplers off a shelf and these capabilities not only enable hotels to focus their time on more strategic revenue initiatives but also dramatically improve their profitability.
NB1 This is a viewpoint by Blake Madril, a revenue technology strategist at IDeaS Revenue Solutions. It appears here as part of Tnooz's sponsored content initiative.
NB2 Image by leolintang/BigStock