Elasticity Competitor Rate Considerations

NB: This is an article from IDeaS

Worried the hotel down the road is attracting more guests than you are? Contemplating dropping your rates to combat a dreaded seasonal lull? Don’t be too quick on the draw. You need some additional insights before making any rash decisions. Fortunately for you, elasticity and competitor considerations take center stage in this third and final post in our series about revenue management system (RMS) must-have features.

Public pricing rates are the lowest non-restricted rate bookable by all guests and they impact revenue management in numerous ways. Arguably the most important is how their price sensitivity is measured and analyzed. Attempting to increase or decrease hotel rates without considering how the change will affect demand is like betting all your black chips on a hunch you only feel is right.

Does that mean hotel managers are all seeking that one magical price point and — voila! — they just wait for revenue to roll in? Not quite.

What makes pinpointing the best rates so complex is the elasticity of the industry. Elasticity can vary by market segment, time to arrival, day of the week, season and many other factors. That means there’s no single magic number. What’s more, competitor rates play a huge role in understanding price sensitivity.

Long gone are the days when guests would research hotel rates in isolation. The internet makes it easy for potential guests to compare your rates against competitors so they can select the one that best suits their needs and budget. A hotel manager’s gut reaction might be to match the competition’s rates, but doing so is risky. Rather, competitor rates need to be considered carefully when estimating price sensitivity.

How will your property’s demand be impacted by a rate change? How does the rate compare to competitor rates? Will the new rate be higher or lower than the competition, and by how much? How will this affect the flow of revenue?

Accounting for all these questions is essential for selecting the right rate at the right time. Spreadsheets won’t give you the data-driven insights you need to make a truly informed decision. And because public pricing can change several times a week and up to several times a day, you need those insights on demand.

An advanced RMS can help by analyzing elasticity and the effects of competitors’ rates to give you data-backed insights regarding appropriate pricing throughout the day, week, month and seasons. Hotel managers are then able to select the best rates with confidence every time.

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