The hospitality industry has been evolving into a much more data science industry for several years.

The combined impact of shifting demographics and new technologies are the primary catalysts for this metamorphosis. The Internet provides consumers an opportunity to think of the hotels as commodities.

The many changes occurring today are proof positive that this industry is no longer limited to being an “art.” We have officially moved into the John Naisbitt coined “hi tech, hi touch” world.

Led by revenue management, but now including distribution channel management, social media marketing, Web 2.0 or 3.0 – call it what you like and more – this industry has been transformed.

A quick summary of hotel pricing

Revenue management is the set of techniques that determine which reservation requests to accept and which to reject to optimize revenue. The principles of revenue management had their origin in the airline industry back in the 1970s, but the concepts are equally applicable to hotels, restaurants, attractions and recreation venues.

The airlines used mergers and supply constraints to avoid commoditization. They simply owned the routes they wanted and pulled aircraft off the runways, which in turn filled flights. Hotel brands, led by Marriott and Hilton in the 1980s and 1990s, delivered a myriad of new brands such as Homewood Suites by Hilton, Hilton Garden Inn, Residence Inn by Marriott and Courtyard by Marriott. By the 21st century, every major hotel company had a verticality of brands from budget to full-service hotels. Online Travel Agencies, (OTAs) began to sell hotel product at deep discounts and this led the brands to negotiate fees with the OTAs.

Today, it is time for the industry to price based on value perception and not just price relative to a competitor. Understanding the true demand in a marketplace is quite scientific.

Know your customers’ behavior and decision process

Packaging is the answer to the commoditization conundrum. The large amount of demographic and psychographic information available about the make-up of today’s traveler requires analytical skills and creativity to correctly respond to the marketplace. Product choices by consumers are influenced by a model of the consumer decision process. There are two risks that hotel executives must overcome to achieve success in the marketplace:

  • Performance Risk – the chance that the product may not satisfy the consumer
  • Financial Risk – the monetary loss from a wrong decision

As for performance risk, loyalty to a chain is a major factor in product choice by consumers. Hotels allow guests to accumulate points that may be exchanged for guest stays and upgrades. The consumer’s perception of the hospitality company and what it stands for is paramount to the success of the venture. Product quality must be exceptional, service must be at the level of “wow” and there must be a compelling value proposition for the consumer to choose your business.

As for financial risk, loss of market share is difficult to regain. Desertion Management may be the single most important marketing strategy in today’s market. Consistent staff services and attitude make a significant difference in competitive advantage in every market segment. Hotels that can train and motivate their team members will have a much better chance of getting repeat business. We will further dissect desertion management later in this article.

Sample formulas for success

My father, Richard A. Rauch, Ph.D. created a multivariate model of consumer behavior that applies here in part. As such, I am borrowing key facets of this model from his work in the field of retailing in the 1990s:

A = B x W x N

A=       Attitude toward the business

B=       Belief of a consumer that the business possesses a particular desirable attribute

W=      Weight of importance of the attribute to the consumer

N=       Number of attributes important to consumers

Click to read the full article at: ehotelier