When I wrote my first pandemic-themed article, Hotel Marketing and Revenue Management in the Time of Pandemic, I
was definitely hoping for things to be better by now. I still have a lot of
optimism, but for now, the hospitality and travel industry must continue to
undergo a massive overhaul in how we think about and operate almost every
Owners, employees, brands and investors will continue to
take a direct hit from an event that we thought was only possible in disaster
movies. But there are things we can do to mitigate our losses.
Pricing needs your attention today, almost as much as
everything else you are doing to get your hotel asset ready to reopen and
operate safely. Let’s dive into some of my pandemic pricing principles.
Avoid the speculation Olympics
Opinions can be made to look like facts when you add
professional-looking graphs and charts, plus a healthy dose of PR. I am not
talking about information on the virus; I am talking about the new sport many
industry experts love to participate in: travel recovery speculation.
I have received and declined my fair share of invites to get
on a virtual meeting to speculate about recovery timelines. How can we
speculate when everything is so fluid? Historical data from past disasters does
not help much, as we have never experienced anything like this situation
Companies selling data and software are obviously panicking.
Why would a hotel pay for irrelevant historical and/or forecasting data? This
pandemic is nothing like 9/11 or the 2008 global financial crisis. You can
amuse yourself by overlaying recovery graphs and timelines from past disasters
and then trying to make a prediction - just don’t base your strategy on that.
Can’t fight the urge to speculate? How about we speculate on
these issues instead:
pandemic has brutally exposed payroll inefficiencies in revenue management
and marketing departments across both independent and brand hotels. How
many CROs, SVPs, VPs, directors and managers does it really take to pick
the right rates for your hotel/portfolio?
your marketing team actually producing any marketing or are they just
juggling vendors? What services are you still paying for, and why?
your revenue team call rates without usable historical data, purely based
on market conditions?
your revenue team need to be on property anymore?
Get to a white board and start coming up with ideas on how
to run your hotel leaner than ever before. Let your imagination run wild! This
is a much better use of your time.
Dynamic pricing or bust
Seasonal and historical rate charts are now DOA. The same
applies to any rates you might have historically quoted for groups and
meetings. That piece of business is not coming back for a little while.
The sudden demise of travel demand on a global scale is an
opportunity for you to switch to dynamic pricing if you were not already doing
so. Here are some things to consider when setting rates in the current market:
needs: How much revenue does your asset need to survive? The
keyword here is survive. Don’t forget to account for any changes in fixed
costs, debt, payroll, insurance, interest payments, etc. It’s hard to
believe there are still owners who do not know the actual cost of an
unsold room at their hotel.
pricing: With the global hotel market in flux, you need a new
approach to researching the competition. You can still look at their
rates, but you don’t know what your competitors’ survival needs are. If
you are seeing strange pricing around you, you don’t have to follow their
lead. Love your hotel product, but check yourself before pricing yourself
out of the market.
and demand: Most major travel destinations are flooded with
supply and have little demand. The development pipeline for new hotels in
the U.S. was pretty robust when the year started. Are any new hotels
opening in your market soon? If so, they are going to be competing for
your market share using a fresher product. Are any hotels temporarily
shutting down? You can price adjust to capture demand that is not being
met by others.
factors: These are X factors that can quickly
change everything for your asset and location- including state
regulations, border closures, airline capacity restrictions, vaccine
updates, job market changes, unemployment numbers, etc. In short, they are
things outside your control that directly impact your demand and your
rates. Pricing dynamically forces you to monitor these factors when
setting rates, giving you an edge over your competition. There is no
magical AI-powered revenue management software that can calculate X-factor
values and help you price.
Dynamic pricing is a very old school approach - not a new
concept or just a marketing tagline that can be used to sell software or
services. Until the price tag was invented in the 1870s, pricing for
almost everything was completely dynamic.
Revenues vs. feelings
Here is a very important lesson I learned while working for
the top hotel private equity fund in the world: You cannot deposit your
feelings into a bank account. Banks only accept cash.
The Bank of Feelings is an imaginary entity that exists in
our head. Focusing on actual revenue numbers instead of feelings has had a
tremendous positive effect on my career. Numbers and reality are your friends
when it comes to pricing decisions. Don’t let your ego and self-worth get
entangled with your pricing strategy.
Here are two pricing ideologies that the pandemic is
1. A lower rate is going to attract a certain type of "unsavory" guest to my establishment.
Reality check: The pandemic has cost the U.S. 20.6 million
jobs since mid-March, resulting in an unemployment rate of 14.7%. These are
numbers we have not seen since the Great Depression. There is a very good
chance that the same people who paid a high rate at your hotel in January 2020
are now under- or unemployed. That doesn’t mean they are unsavory. Why not
reach out to get them back at a lower rate for now? It’s the same people, just
with a smaller wallet.
This is even more relevant for independent/boutique hotels
that spent millions "building a brand and a following." Give people a chance to
experience your product for the first time or as a returning guest, and accept
some money to help you pay your bills. Global recovery starts one dollar at a
2. If I lower my rates now, it will take years to build
up my ADR/rate again.
Reality check: Thanks to the pandemic, this is simply not
true anymore. This year, the world economy fell apart, and people are still
severely restricted as to where they can travel. Your dynamic pricing
adjustments should reflect that reality. When the pent-up demand returns,
simply pull up your rates up in tandem. Remember, airlines don’t hesitate to
fluctuate rates based on market demand. Why can’t hotels do it too?
A notable exception to everything I mentioned above is the
type of property I like to call a “trophy asset.” These owners don’t care about
reality or numbers. They demand a high ADR number so they can brag about it
over a round of golf.
For everyone else, please follow my simple rules:
As a hotel owner/investor/manager, this is the time to ask
yourself a very simple question: Is your goal to help your asset
recover from this pandemic and make money? If you answered yes, then
the key is not to overanalyze to the point of decision paralysis. Please make a
call and play the market. It is better to make a mistake than stay paralyzed in
fear of the rates not working.
Wandering in the middle of the road (picking a rate “in the
middle” of what you’re seeing in your market), assuming that demand will just
land in your lap, is a bad idea for pricing and life in general. Mr. Miyagi
taught us this very important lesson in the Karate Kid back in 1984 - words
to live by when pricing in the pandemic: “Walk right side, safe. Walk left
side, safe. Walk middle … sooner or later you get squish like grape.” – Mr.
Miyagi, Karate Kid.
When historical metrics are no longer applicable, you have
to pick a direction based on your product, location and basic survival needs.
If you make an incorrect call, don’t panic! It takes just a few clicks to make
adjustments and you get right back on your pricing horse. Making a call right
or left is better than blindly following the market in the middle. Don’t get
Please resist the temptation to reduce your entire pandemic
recovery strategy to a discount code! Promo-ing the pandemic is one of the
worst long-term strategic mistakes you can make. Flash sales and massive
discounting reads “we have officially run out of ideas” for an asset/brand.
Demand generation is about aligning your marketing and sales
efforts. Instead, offer a really good reopening-fall-winter rate for your
asset. Focus on the value of your product instead of giving 50% off to anyone
clicking on an email. Instead of discount/promo codes, offer fair rates. No
games, just full transparency about the fact that you really appreciate their
If discounting your rates by 40 to 50% created market demand
during a pandemic, hotels would all be sitting at 80 to 90% occupancy right now.
Instead, you need to showcase your product value. What are you offering? Is it
the right price? How are you better than your competition? Ask these simple
questions before clicking “send” on your campaigns. In short, market share
cannot be captured with lazy marketing anymore. You will have to work harder
and smarter than everyone else out there.
Sometimes it feels
like we are living in a simulation. With hotel occupancy worldwide sitting at
historic low percentage points, what does a battle cry against OTAs achieve for
hotels at this point?
Why would you decide
not to work with a global hotel distribution powerhouse while your asset is
sitting at under 10% or 20% occupancy? Booking.com and Expedia are suffering too
and have been hit with massive layoffs. Meanwhile, if they are sending you some
business… what’s the problem? Nothing is free, including direct revenue
everyone loves to talk about.
I have observed that
it is very easy to be a hardcore “book direct” revolutionary with other
people’s money and investment. The fact remains that owners, employees and
investors need revenue from any and all sources right now. I have been
extremely fortunate to be working with owners who understand this and are
allowing their assets to recover instead of grandstanding about parity and
commissions. Other people are leaving money on the table, which works for me –
I take that money and deposit it into my clients’ bank accounts.
I recommend a 100%
back-to-basics approach for best results. The immediate goal should be staying
alive and healthy (for both you and the asset). It is an excellent time to
collaborate with all channels to make some revenue. There are no perfect
answers, but you have to take action.
pricing or just following others in your market is not an option. It’s okay to
make a mistake and then recalibrate. But you have to roll up your sleeves and
jump in right away. Whatever you do… don’t
throw away your shot!
About the author...
is a travel and hospitality consultant specializing in digital marketing and revenue optimization.