Price Strategies: Thinking Out of the Box?
Intermediaries, either online or offline, became particularly creatives since the decline and abolition of Rate Parity, and are redefining the distribution landscape.
NB: This is an article from Hotelperformance
In this article I’ll try to be creative too and propose new ideas to change what we are used to do. I definitely believe we need to break with the past: we have to reshuffle the deck and start a new game.
Here is the predictable list of things we are used to do in our industry:
- Best available rate (also called Standard Rate) for the decision of daily selling prices
- Establish fixed differences (in absolute or percentage value) of Non-Refundable and other rates and promotions compared to the best available rate
- Sell the best available room and breakfast rate on all web channels
- Set fixed values among different room types
- Establish a fixed supplement between the various meal plans
- Working towards parity rate or disparity rate
Well, if we want to change we have to question what we have done so far and be brave to do something different.
We have understood that the pricing based on costs and marked are over, and we have assimilate that the best practice to identify the right offer is applying the Value Based Pricing, also known as Customer Based Pricing, because it takes in reference the potential customers, their Willingness To Pay and their preferences
At this point it is important to consider that the value of what we sell is not limited to the room type, but to the entire experience that your customers can live staying in your hotel, as well as from the intangible aspects. Among the intangible aspects, in addition to the image that the customer has of the brand (just think about Apple), there are the advantages linked to the type of purchase made, such as flexibility.
The communication of intermediaries over the last decade has made extensive use of the advantage of “no restrictions” and the possibility of cancel at any time and without penalties, with heavy collateral effects on cancellations ratios (and hotel forecasts): today the value of the guaranteed reservation (maybe prepaid, in whole or in part) is very high.
As written above, we have too long been used to defining the BAR rate (Best Available Rate or Standard Rate), and calculate the price of the Not Refundable one with a simple arithmetic operation: remove a percentage (or a fixed value), which is often the same throughout the year. Of course, we can differentiate this percentage according to seasonal periods, but this should lead us think and question “what the value of a free cancellation booking is and what the value of a not refundable one is?”
Perhaps we should do the reverse path: define the price of the Non-Refundable, and to this, add a value that compensates for the risk of cancellation. In this regard, I believe that the Early Payment Benefit option of Booking.com is a very interesting message, as it offers a discount to the customer that, initially, chose for the free cancellation rate, and is willing to accept the prepayment condition. We could do the same on our booking engines, together with an insurance proposal, such as the Besafe Rate. We could have the BAR rate in parity with the Non Refundable rate on OTAs and therefore propose a discount with the Early Payment Benefit option, which is not detectable by the rate control softwares, thus having 3 benefits:
- More visibility as OTA algorithms would assign us for the rate parity
- Best price guarantee on the hotel website
- Lower risk of cancellations
Another element is the value of additional services to the room, for example breakfast.
We were always been used to sell our rooms in Bed & Breakfast, giving little value to breakfast. However, this is not the case: for the customer breakfast represents a service of primary importance and it is well known by reading the reviews. In recent years Hotel, chains and OTAs encouraged us to sell the room without breakfast, even if with different reasons.
We can therefore apply the concept of Value Based Pricing also on the breakfast price to assign more value to Breakfast. The price of breakfast can be flexible depending on the season and differentiated by segment and by channel. For example, we can sell on OTAs in both Room Only and Bed & Breakfast, defining variable differences between the two rates depending on the season. We can do the same on our site, perhaps defining a lower difference than the one applied on OTAs, or we could only sell in Bed & Breakfast by placing this price on the same level as the Room Only price applied on OTAs: in this way, we would make a much appreciated gift to those who book directly… breakfast!
Many other services and elements make up the value of a stay. For example, the view (sea, lake or mountain view). As for breakfast, we can also define different prices depending on the season; we could reserve the sale of the rooms with to our direct channels, applying the same price of the rooms without view on OTAs.
Daily works and the many manual operations we have to do to collect and analyse data, make updates on distribution channels etc., do not leave us the time and the “serenity” of thinking about these strategics actions towards distribution, disintermediation, optimization of total revenue, ancillary revenue, optimization of KPIs including for example the NetRevPAR. With all technology available today, more and more accessible, we can perform daily analysis and tactical actions more easily and quickly, thus dedicating ourselves to strategic ones.