In the days before developing Right Revenue as a software solution, many of you know that I spent 20+ years in revenue management (most of which was spent in consultancy for independent hotels).
NB: This is an article from Right Revenue, one of our Expert Partners
During that time, I have heard so many iterations of hotels justifying why they follow competitors rate strategies. Honestly, I have never fully understood or agreed with any argument put forward…
Subscribe to our weekly newsletter and stay up to date
Hotels usually adopt one of three different strategies:
- Following some mystical amount above or below a competitor eg ‘I always want to be £10 lower than the Hilton down the street’
- Occasionally, some hotels go a step further and take an average differential of their competitors (better but still terrible!)
- Finally, some hotels use competitor pricing to judge their own wish/walk ie the highest and lowest rate they should accept on the day given what their perceived highest and lowest competitor hotels are selling at.
All of the above concern me for soooo many reasons.
- Firstly, do you actually understand your competitive set? We all know that the hotels you compete against aren’t always the closest by location and that actually your competitors can change based on the time of year or even day of week. Midweek, you may well be competing against hotels in a strong corporate or meeting environment (and yes, that business is coming back and quicker than most experts anticipated) and weekend, your comp set could flip completely to properties that are attractive to leisure guests. Consider your own hotel persona and then consider your guest behaviour. You may well find that who you thought you were competing against isn’t actually realistic. A simple exercise to prove this theory is to look at your OTA channels. Search for your property and then look at ‘people also viewed’. This might well give you a whole new perspective on who the browsing public see as alternatives to your hotel.
- Do your competitors actually know what they are doing? Over the years I have often seen hotels assume that the hotel down the street is much better at revenue management than they are. This is very often NOT the case. Unless your competitors have an RMS, then chances are that rate decisions are being left to a potentially over-worked and over-stressed human being… We all know that great revenue decisions are made weeks and months in advance and that these ‘diamond dust’ days are often overlooked if you don’t have an automated system. So is this human being across the street actually doing a great job and if not, then why on earth are you following their strategy???
- One major reason that I feel that following competitor pricing is destructive, is that you quite literally only have eyes on one tiny part of their business ie their transient BAR rates. How do you even begin to understand how each property is behaving in real terms? As an example, what if Hotel X accepts a group that takes out 50% of its inventory. They may feel a rate increase is warranted but this may well have zero impact on your business so why would you follow? Of course the opposite could happen and Hotel X may lose a group and drop rates, but if your business is strong why on earth would you drop your rate? Isn’t it better to understand your own pace and pick-up; your own rate integrity and market mix, than react to someone else’s? And what about contracted rates; packages; tours; weddings??? You have no idea how individual hotels are behaving with hidden rates, so why are you reacting?
- With the very best will in the world, if you are using a rate shopping tool, they often can only display the information they are given, so you may not actually be comparing like for like. Hotel X may have only superior rooms available, so without a deep dive, you can often be setting your strategy against unrealistic room types.
- Lastly, one very obvious but often overlooked selling strategy is hotel size. If you have a 300-bedroom hotel, then you will have a very different strategy to say a 30-bedroom property! There is no ‘one-size-fits-all’ when it comes to setting public rates and your neighbouring hotel could and should have a very different agenda.
Here at Right Revenue, we are of course aware that competitive pricing is often reflective of demand in the area but as an RMS, our company ethos is NOT to automate our pricing based on a certain competitor. We of course display comp set data within our solution but currently have zero plans to change a hotel partner’s pricing based solely on what one competitor is doing… in our view, that goes against all the wonderful revenue techniques that great Revenue Management represents.
Our advice to stay one step ahead:
- Understand demand in your area
- Be aware of what your competitors are selling at
- But more importantly, understand your own pace; pick-up; demand; price elasticity; lead time; market conditions; contracted demand versus non-contracted, risk of cancellation – and then apply strategies to maximise your own revenue.
There is no secret to any of this… robust rate strategies require automation and that needs to come in the shape of an RMS. We’d love of course if that was Right Revenue, but either way, the secret to having a great rate strategy in place is having a system to do the heavy lifting for you; a system that takes thousands of data points into consideration before coming up with the best rate to sell… Basing your strategy around someone else is NEVER the answer. Get your own house in order and be the leader, not a sheep.