Carlo Fontana - Pricing & Value Proposition

Whoam I:
Hotel Berna, Milano – 122 rooms website since 1996www.hotelberna.com
Hotel Lugano Dante, Lugano – 83 rooms website since 1997
www.hotel-luganodante.com
The www waslaunched in 1991
The current market situation
Allhotelsworldwidesince 2007 are sufferingboth in drop of occupancy (10-30%) and in ARR (10-30%), depending on the type of property, star rating, location and country. Signs of recovery in business bookings: + 3.59 in February 2010 (The PegasusView)
A study of the Cornell University summarizes the following issues:
customer rate resistance
contractrenegotiations
competition
price wars
the difficulty in maintaining pricing positioning, because the drop in
demand has shifted considerable pricing power to the customer

Forecastfor 2010
business travelrecovery in the works: + 3.59 bookings in Feb. (The Pegasusview)
shorter “Booking window”
more challengingpricingstrategies
quickreaction and adaptation
corporate clientsexpectingbetterrates or more benefits (Free Internet)
leisureclientslookingfor “big deals”
more attention on customersatisfaction, customerretention and loyalty
strategies, in onesimpleword… the GuestExperience(a Market Metrixstudy)
The importantrole of intermediation (OTAS) in the Pricing & Valueproposition
The mainplayers:
Expedia (1996): ownsalsoHotels.com, Hotwire, Egencia, Venere, etc.
Travelocity: ownsalso Last Minute - 1998, whichis part ofSabre holding (GDS)
Priceline: ownsBooking.com – 1996 and couldbecome the largesteuropean OTA
Orbitz
Expedia alsoowns the giantTripadvisor(30’000’0000 monthyvisitors)

Expedia - 25 displayed per page
147 hotels in Zürich @ 121 hotels in Geneva
Expedia, Inc. is the leading online travel company in the world. Since launching in 1996, the company's Expedia.com brand has grown to… includes 20 Expedia.com sites; more than 70 Hotels.com sites; Venere.com™; leading U.S. discount travel site Hotwire®; Egencia™, the world's fifth largest corporate travel management company; the world's largest travel community TripAdvisor® ®; and China's second largest booking site eLong™.
Our mission is to build the world's largest and most intelligent travel marketplace, …. to more than 110,000 hotels and hundreds of airlines, tour operators, car rental companies and destination services supply partners.
Booking - 20 displayed per page
101 hotel in Zürich @ 107 hotels in Geneva
Established in 1996, Booking.com offers competitive rates for any type of property, ranging from small
independent hotels to a five star luxury. The site is available in 24 languages and offers over 73000 hotels in 71 countries

Whatwehavetoconsiderwhenwe work with OTAS?
BAR - offer competitive rates
rate parity (not only on BAR rates, but also on other SRPs)
taking part to special offers and packages as (stay 3 nights and get ...% off)
consider allotment and inventory issues
BAC (best available content): nice pictures, an enticing description, good reviews... The
“value proposition”
The different criteriafor a good ranking: conversion, commission, constant availability,
content, CXL rate, competitive rates, correct payment @@@@@@@@@
the worldwide commercial strategies and distribution channel possibilities for individual hotels
the Billboard effect (a Cornell University study)
the enormous marketing and promotions investments - traditional and online
made by the OTA: the IT infrastructure and the growing “look to book ratio”,
pay per click, banners, commission recognised to the numerous other partners
and lead generators, etc.
commission levels between 12 and 35%

The benefits for the OTA customer
The customers, in only a few clicks, take advantage of very effective services: instant availability, hotel pricing comparison and features, easy booking, reviews and no reservation fees. Furthermore, they feel safe and stronger for their review possibilities…
Whoispayingforall of this?
it seems only one player: the hotel sector
What has happened?
Occupancy levels and load factors are way down across the travel industry. The temptation is to slash prices to stimulate demand – and some are doing this already.
Continued pressure to lower rates: is this another Case of the Stockholm Syndrome?

Haveyoueverheardof the “The Prisoners’ Dilemma”?
In its classical form, “The Prisoner’s Dilemma” is presented as follows (Concise Encyclopedia of Economics, Wikipedia, Britannica Concise Encyclopedia):
Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one confesses and the other does not, the one who confesses will be released immediately and the other will spend 20 years in prison. If neither confesses, each will be held only a few months. If both confess, they will each be jailed 15 years. Each one is assured that the other would not know about the betrayal before the end of the investigation. Prisoners cannot communicate with one another.
Given that neither prisoner knows whether the other has confessed, it is in the self-interest of each to confess himself. Paradoxically, when each prisoner pursues his self-interest, both end up worse off than they would have been had they acted otherwise.

Are youfamiliarwith the meaningofcommoditization?
A commodity is a product that is completely undifferentiated. If a product becomes less differentiated, so
that buyers care less about who they buy from, this change is called commoditisation. The key effect of
commoditisation is that it reduces the pricing power of the producer.
If products become more alike from a buyer's point of view they will tend to buy the cheapest.
Hoteliers, together with the pressure of OTAS, tried to stimulate the - weak - demand using mainly a low pricing model strategy, playing a great role in the guest value perception and its satisfaction.
Remember that the hotel product /service is intangible during the booking process?
Some examples of low pricing/discount communication model, opaque sites, meta search:
Shopping screen (all hotels look alike)
Expedia
Travelocity Top secret HotelsvideoTravelocity
Pricelinevideowhat people say
Hilton
Wyndham
Easyjet

Some other examples:
Mobissimo(Meta search)
Bookingbuddy (Meta search)
Getaroom.com
Uptake.com
Tripology.com
And the growing power of consumer generated content (travel advice sites, blogs, wikis, social media, etc.)?
The role ofTripadvisor(belongs to Expedia) Fact Sheet
Over 30’000’000 trusted traveller reviews & opinions
- New York cityOne single Hotel
2010 dirtiest Hotels
fake reviews
Tripadvisor partners with Yahoo! Travel
has introduced the “Business listings” feature
An interesting site Oyster.com(will it survive?)

What is value?
Valuehasseveraldifferentmeanings(Zeithaml’s research):
Valueislow price. For some customers the lowest price is the best value.
Valueisgettingwhat I wantfrom a product or service;
Valueisthe quality I getfor the price I pay;
Valueisall I getforall I sacrifice.
Is the relationshipbetweenevery benefit in the purchase, ownership, consumption and disposal of a product or service, and the varioussacrifices the maketoenjoythosebenfits.
Valueis the customer’s perception of the balancebetweenbenefitsreceived and sacrifices
madetoexperiencethosebenefits.
Value = Benefits
Sacrifices
Sacrifices:
Money (Price)
Searchcosts(prepurchase work in searchingforsolutions and comparingalternatives). Timeismoney…
Psycologicalcosts(purchasing can be a verystressful and frustartingexperience) & Perceivedrisk(performance, phisycalrisk)

The gap analysismodel of service quality - SERVQUAL(Parasuraman, Zeithaml, VA & Berry)

Evaluate the Valueproposition of ourcompetitors(fromXotels blog)
The SWOT model…
Identify the strenghts and weakness of our hotel
Developa checklisttoevaluateourcompetitors in terms of product & quality:
- quality of the tangibleproducts
- quality of the service deliveredby Staff: authenticfriendliness, exclusive service, exceptional
personal attention, warmth and tue hospitality

Competitorschecklist
Consideralso the Perceived service, using score from hotel reviewssites!
The Guestexperience

Doesour hotel price positioningmakesense?
The Price ValueMatrix…
Choosing a clearpositioningstrategyforour base rate will help strengthen the value
perceptiontoconsumers…

PenetrationPricingstrategy
The market accepts and understandourpositioningamong the cheapest in market. This can work ifthatpositioningdoesnot drive the market rates down.

EqualPricingstrategy
We sell at comparableprices.
The hotel valuepropositionwillmake the difference!

SurroindingPricingstrategy
The first roomtypewillbe the cheapest in the market or among the cheapestones. The superiorroomwillbe sold at a rate closeto the first availablerates of ourcompetitors. The Key success istoofferaddedvalue.

SkimmingPricingStrategy
We position ourselvesamongst the mostexpensive. And we are considered the Price leadersCan wereallyprovide more value? Will ourcustomersunderstand the reasonswhythey are paying more?

Strategies & Tacticstosurvive in an Economicdownturn
Basicallythere are twowaysto compete in a price war environment:
non-pricemethods
price relatedmethods
Report – Revenue Management in an EconomicDownturn. Cornell Nanyang Institute of Hospitality Management, March 2010

Report – Revenue Management in an EconomicDownturn. Cornell Nanyang Institute of Hospitality Management, March 2010

Conclusion
The 4 mostusedtactics in 2009
73 % Value addedpackages
72 % Lower Rates
52 % New marketsegments
50 % Free extra night
The 4 strategies to use in 2010
94 % Marketing Tactics
84 % Rate obscuringapproaches
68 % Costcuttingapproaches
66 % Discounting – the least likely tactic to be repeated!
Whendeveloping a strategy plan it‘simportanttofocus on a long-termgoal.
It‘snecessarytoconsider the impactthat the strategies will have on customersatisfaction, employeessatisfactionandlong-termimage of yourhotel…
Bepatient & don‘tpanic!

An interestingstudy of CornellUniversity(StrategicPricingin European Hotels 2006– 2009)
A four - yearstudy, based on 8026 hotel observations, revealthat – both in goodtimes and bad – hotelsthatofferaveragedailyrates (ADR) abovethose of theircompetitorshavelower comparative occupanciesbuthigher REVPAR!
Higherrevenueperformance isaccomplishedbyhotelsthatofferhigherratesthantheircompetitors;
RevPARisnotstimulatedbydroppingcompetiveprices!
@@@@@@
The temptation is to slash prices to stimulate demand – and some are doing this already.
However, history warns of the dangers of this strategy. The decisions you make today could affect
your profitability for years to come. So cutting prices may delay your ability to benefit when the
economy does bounce back. Revenue managers have a key role to play is deciding when, how and
where to discount, as well as looking for ways to add value without cutting prices. All this requires
creativity and focus from revenue management, CRM and marketing teams, as they work
together to create packages and promotions for specific customer segments.

So whathappensifwepromotepurely on price?
Price addict: we educate consumersthat the onlydifferencebetweenour hotel and the
competitionis the price;
Reference price:whencustomerassess price fairness, theyconsiderwhattheyhavepaidbefore;
Booking window: guestswillhave the temptationtowaitas long aspossiblebefore booking, in
the hopetofind a better deal;
Marginerosions:lashingpriceswill erode margins and thus service levels and standardshaveto
beadjusted;
itwillbe more and more difficulttofullfil and meetcustomerexpectations;
Public reviews(and complaints) will play a dramatic impact on the hotel valueperception and
willworsen the hotel occupancy – Brandreputationa Market Metrixstudy

Strategies & buzz words
Rate integrity.It’s really hard in tougheconomictimes, butweshouldtrysomehowtoavoid dumping ratestoanextentwhichcouldhurtourimage. Price accordingto the perceivedvalueand considering the competitive set, whichhasnotnecessarilytobefollowed.
Rate obscuring& Price fencingare importanttoprotectbrandintegrity
EvaluateyourLeadtimepricing
Channelconversionpricing: usestrategies in ordertostimulateyourrepeatguest booking directly. Movethemfromwherethey are towhereyouwantthemtobe…
Addedvalues: addadditionalservices or featuresto the offer.
Differentiate: create anofferwhichdifferentiatesusfrom the competitors. Be creative, sell anExperience!

Strategies & buzz words
Guestexperience: focus on the customer
- Train: ouremployeeshavetobetrainedtoexplainprospectswhywe are diffentfrom
the others
- Deliver: useanyoccasiontomeetdeliver a brandexperience
- Exceedcustomersexpectations: go that extra miles –
M.O.T. (moments of truth):
1. Hello, come on in.”
2. Welcome, what can I do for you?
3. I will do what it takes to make this experience WOW.
4. Thank you.
5. Good bye and come back soon.
Stimulateword of mouth
build a CRM strategy(CustomerRelationship Management) in orderto create a long – termrelationship
E_CRMisonly a small part of the relationship (haveyouheard of electronicConcierge?)

Oneexample of a E_CRMstrategy( made by us), a small family run hotel:
analysing the concept touchpoints
goinginto more details flowchart
a part of the relationship first flowchart& Iframes
(confirmation, prestay and post stay)
The newborn “My Lugano Dante”
- uploading the reservation in the PMS
- the platform
- send the confirmation: to the companyto the guest
- the Mypage

Grazie per l’attenzione!

Carlo Fontana - Pricing & Value Proposition

by Luca Preto on Jun 01, 2010

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