When it comes to rules, even those described as “flexible” don’t make the cut for higher profits.
NB: This is an article by Bonnie Hollenhorst, Principal Product Marketing Manager at IDeaS
I have a confession. I appreciate a good oxymoron: “Jumbo shrimp,” “living dead,” “genuine imitation,” etc. And in the universe of revenue management, I recently saw a new industry oxymoron that caught my attention: “flexible rules.”
“Flexible rules” are supposed to help revenue managers adjust their pricing by room type when conditions have been met, such as a certain number of days prior to arrival, occupancy percentage or remaining inventory for a particular room type.
But rules—even those as descriptive as “flexible”—don’t hold a candle to the profits and power an automated, analytics-based pricing approach by room type can deliver.
So, because I’m also a sucker for a good real-world comparison, let’s think about this as if we were at the horse races.
Here’s what a rules-based race would look like:
- Begin race at an average pace
- When two horses pass you within ten seconds, increase your speed
- When three horses pass you, switch lanes
And here’s what an analytics-based horse race would look like this:
- Analyze the statistical line-up of horses
- Craft a strategy that gets you to the finish line as fast as possible
- Continually observe the performance of all horses around you and adapt strategy as needed
In the first race, you set a strategy that may or may not get you to your desired outcome, and it reacts to change only after it occurs. In the second, you already know how to start, proceed and finish before the race even begins, nimbly adapting where necessary to achieve the optimal outcome.
Think about it in regards to your technology: Setting manual price differentials for room types has always been available through property management systems. So when it comes to your revenue technology, shouldn’t it have something more to offer?
Analytically determining pricing for each room type based on demand—not a list of rules—is going to give you the decisions you need to win the revenue race.
A robust revenue management solution understands that different room types have different demand. These room types need to be independently priced in an automated fashion, while also assessing price sensitivity, seasonality, day of week, lead time, and more.
Your solution also needs to understand the relationship between all types of business, not just focusing on public rates.
That’s how you drive more revenue.
Don’t wait for five rooms to be sold before you make your next move. You could be missing out on rates that guests are willing to pay for your specific room types. To put it back in context for my fellow oxymoron aficionados out there: It’s the “only choice.”
