Webinar - The Science Behind Hotel Room Pricing
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In today’s challenging distribution environment with rising costs and complexities, there’s little room for error. If you’ve properly segmented your customers and are more accurately forecasting demand, you’re ready to take the next step with more advanced pricing strategies that will boost your bottom line. This webinar will take you from basic strategies to advanced pricing concepts and arm you with the information you need to begin optimizing your revenue.
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Webinar - The Science Behind Hotel Room Pricing
- 1. The Science Behind Hotel Room Pricing TUESDAY, June 30th - 9:00AM (PDT) Duetto Educational Series
- 2. Next Webinar – July 23rd – 9:00am PDT 2 Founded by Industry Leaders World-Class Technology Development Committed to Customer Success Advanced Tips From Revenue Management Professionals MEET THE EXPERTS Gayle Ehrean Senior Director, Customer Success Tim Kolman Senior Solutions Engineer Chris Knothe Senior Solutions Engineer
- 3. About Duetto 3 Founded by Industry Leaders World-Class Technology Development Committed to Customer Success
- 4. About: Our Team Nathaniel Estis Green Senior Global Solutions Engineer Vincent Cusma Senior Manager Customer Success, Asia Pacific
- 5. Agenda ▍ Why is pricing important? ▍ What are the most common pricing mistakes? ▍ What is “hotel pricing”? ▍ How to optimize pricing? ▍ Moving forward. 5
- 6. Revenue Management Introduction “The application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth. The primary aim of Revenue Management is selling the right product to the right customer at the right time for the right price and with the right pack. The essence of this discipline is in understanding customers' perception of product value and accurately aligning product prices, placement and availability with each customer segment.” Cross, R. (1997) Revenue Management: Hard-Core Tactics for Market Domination. New York, NY: Broadway Books. Inventory / Capacity Demand Price $
- 7. Refreshing Basic Terminology 7 Variance Year-over-Year (YoY) Compression Rolling Forecast Occupancy Forecast Accuracy Segmentation Booking Window Out-of-Order (OOO)
- 8. Ever Leave Money on the Table? 8 Hotel ABC Financial District, NYC 97% OTB @ 14 DBA
- 9. Hotel ABC Financial District, NYC 97% OTB @ 1 DBA 9 OTA: $300 | 25% Commission | Non-Loyal Customer; price sensitive | Minimal ancillary spend
- 10. Hotel ABC Financial District, NYC 97% OTB @ 1 DBA 10 Booking Engine, Loyalty: $350 | Repeat Guest | Marginal acquisition cost | Higher-potential ancillary spend OTA: $300 | 25% Commission | Non-Loyal Customer; price sensitive | Minimal ancillary spend
- 11. Booking Brands Now Dominate Consumer Point of Entry 11 Consumer Stay Brands v Booking Brands Courtesy
- 12. The Hospitality Distribution Landscape Group Referral & Booking Sites Online Tech Companies OTAs Consumer Websites Retail & Corporate Channel Management GDS Hotel’s PMS & CRS Transient Consumer Travel Agent Meeting Planners Business Traveler Courtesy of: Hotel Websites
- 13. Online Tech Companies* Hotel Chain Websites* OTAs* Consumer Websites* Retail & Corporate* Channel Management* GDS* (Global Distribution System) Cost: Variable Cost (Pay-Per-Click, other Ads) Cost: Variable % + Management Fees Cost: Variable % Cost: % or Fixed Cost: Variable % Cost: Variable per booking Cost: Variable per booking Hotels PMS & CRS* Cost: Fixed + Annual variable Group Referral and Consumer* Cost: Variable % * Notes costs that have been increasing at varying rates YoY
- 14. Commissions Rise at 2x the Rate of Revenue Growth 39%+ 2009 2010 2011 2012 % Increase Commission Increase 14 20% Total Acquisition Costs Room Revenue Sales & Marketing Expense Total Revenue Retail commissions only Source: HAMA Study 2013-2014 Courtesy
- 15. Common Mistakes in Pricing. Ways to curb common mistakes.
- 16. Top 7 Mistakes in Pricing 16 1 2 3 4 5 6 7 Selling out too soon Not changing rates Pricing by “gut feel” Reacting to sudden price changes by the competition Selling rooms on a first-come first-serve basis Linking your different price points together Shutting down price points at the end of the day (5pm)
- 17. What is Pricing? Evolution of Hotel Pricing.
- 18. Industry at a Crossroads 18 1970s 1980s 1990s 2000s 2010s 2015 Separation of ownership, brand, and management Product segmentation; financial engineering First online booking; enter Expedia Online distribution explodes complexity Crowded value chain Meta search; enter tech giants & new gatekeepers __Non-Dynamic__ _______Fully Dynamic_______
- 19. Pricing Strategies Competitor Driven Pricing Market Data Driven Pricing Price-to- Budget
- 20. 20 One-Rate Seasonal Weekday/Weekend BAR BAR by LOS Open Pricing Pricing Approaches
- 22. Pricing Types 22 Seasonal Best Available Rate (BAR)
- 23. Pricing Types 23 Seasonal Best Available Rate (BAR) BAR by LOS
- 24. BAR Pricing = Lost Opportunity 24 BAR 1 $100 Retail/ Transient Rate Code: BAR 15% With BAR Pricing comes static: - Room Type Differentials - Discounts/ Offers Occupancy45%
- 25. BAR Pricing = Lost Opportunity 25 BAR 2 $200 BAR 1 $100 Retail/ Transient Rate Code: BAR 15% With BAR Pricing comes static: - Room Type Differentials - Discounts/ Offers 45% Occupancy75%
- 26. BAR Pricing = Lost Opportunity 26 BAR 2 $200 BAR 1 $100 Retail/ Transient Rate Code: BAR 15% With BAR Pricing comes static: - Room Type Differentials - Discounts/ Offers 45% Occupancy75% BAR 3 $300
- 27. BAR Pricing = Lost Opportunity 27 BAR 2 $200 BAR 1 $100 Retail/ Transient Rate Code: BAR 15% With BAR Pricing comes static: - Room Type Differentials - Discounts/ Offers 45% Occupancy75% BAR 3 $300
- 28. Pricing Types 28 Seasonal Best Available Rate (BAR) Open Pricing BAR by LOS
- 29. Traditional Pricing Day 1 Day 2 Day 3 Day 4 CAPACITY AAA Promo Rate 10% 20% ✔ ✔ AAA Promo Rate 10% 20% ✔ ✔ ✖ AAA Promo Rate 10% 20%✖ AAA Promo Rate 10% 20% ✔ ✖
- 30. Open Pricing Day 1 Day 2 Day 3 Day 4 CAPACITY AAA Promo Rate 10% 20% ✔ ✔ AAA Promo Rate 10% 20% ✔ ✔ 10% 20% ✔ AAA Promo Rate✔ AAA Promo Rate 10% 20% ✔ ✔
- 31. Open Pricing More Important Than Ever ▍ Independently price every single segment, offer and room type ▍ Maximize revenue over high demand and need periods ▍ Keep all channels open and benefit from the “billboard effect”
- 32. How to Optimize Pricing? Evaluate data sources & system connectivity.
- 33. Big Data = Better Data Reviews & Social Media Competitor Pricing Data Booking & Reservation Data Web Shopping Regrets & Denials Weather Air Traffic Traditional Revenue Management Traditional Revenue Management
- 34. Which, again, begs the question… 34
- 35. Excel v.s Revenue Strategy Systems? 35 VS Excel
- 36. You Need Proper Connectivity 36 RMS PMS CM (Channel Manager) CRS (Central Reservation System) Rates, Reservations, Blocks, Restrictions
- 37. Key Things to Evaluate: Per Segment 37 Market Volatility Comp Set Index Comp Set Pricing Pace OtherPick-Up
- 38. Moving Forward. Things to keep in mind.
- 39. Highlights of Hotel Pricing ▍ Optimize pricing through having fully-dynamic Open Pricing abilities which is fully-enabled through system connectivity ▍ Managing the rising acquisition costs requires flexible pricing to optimize profits ▍ Effective yielding through keeping channels and discounts open maximizes revenue over high demand and need periods ▍ Understanding your segmentation is the most important thing for proper forecasting which impacts pricing and other decisions ▍ Pricing, especially per channel, can have long-term effects on consumer buying behaviors 39
- 40. Questions? TUESDAY, June 30th - 9:00AM (PDT) Duetto Educational Series
Editor's Notes
- Even though revenue management Is a broad topic the focus of the discussion will be price optimization.
- Formerly on initial CS team, managed APAC & EMEA sales at Duetto IHG RM internship got me into revenue management
- What is Forecasting? Types of Forecasting (Const. v Unconst., seasonal impacts, etc.) What are “rolling” forecasts Why Forecast? Pricing (Group v non-group business) Staffing Product Inventory Development work – maintenance schedules Performance evaluations: incentive structures Do macro and micro trends impact forecasts? Lost Business Air Travel Review Data How do you evaluate forecast accuracy? MSE MSPE MAD MAPE Budgeting Daily & Monthly The infamous “budget season” Questions
- Perishable inventory optimization Influences operations (housekeeping), S&M, finance, etc. rental cars, airlines, hotels, stadiums (tickets)
- Rolling Forecast (30-60-90)– forecast that updates each day or week following previous time periods pace and pick-up. Generally update the 30, 60, and 90 day forecasts. Compression – higher demand than capacity (unconstrained demand which exceeds capacity) Forecast-to-Budget – trying to hit budget numbers. See what ADR or Occ needs to be to hit revenue forecasts. If you’re behind budget and you are forecasting rates or occupancy to hit that budget – can be seen as a scrambling move; generally good to forecast without looking at budget to always keep a realistic perspective. Variance – comparison of data between time periods STLY – year over year; look at how you’ve improved on an annual basis Week-over-week – where you were last week for a given stay date and where you are this week for that same stay date; is there large variance? Why? To Budget – how far ahead or behind of budget are you? Forecast Accuracy – Best RMs hit 3% margin of error (90 DBA, 2 60 DBA, 1 30 DBA) for Mean Simple Error; remember to look into MAD, MAPE not just MSE Over – forecast too much occupancy or revenue; over promise under deliver. Overstaff and other expenses could run high while income will be low. Under – forecast too low for occupancy or revenue Segmentation Group Leisure Corporate Booking Window – time period which the first booking comes in on a stay date until the night audit of the stay date. Different segments have different booking windows. If you have a longer booking window you will need to forecast longer out. Vegas is short term and most forecasts are 90 days out – 90% of bookings come 0-90 DBA – and will want to do 30, 60, 90 day forecasts weekly. Resort Properties would want to forecast 6 months weekly – due to international bookings and very early bookings: at least 50% of bookings 90+ DBA. DBA - Days before arrival Occupancy Hard (with OOO) – occupancy % looking at rooms sold divided by total room count (with OOO rooms) Soft (subtract OOO) – occupancy % looking at room sold divided by rooms available to sell (total room count minus OOO rooms) Etc. To-Be-Booked (TBB) – forecasted rooms left to be sold (can be seem total or per segment) On-The-Books (OTB) – current rooms sold (can be total or per segment) Out-of-Order (OOO) – rooms out of order Commit (Group Block) – rooms committed or OTB for group blocks
- Scenario: hotel is in downtown NYC at 97% OTB 14 DBA. Incentive structure: GM wants to sell out early but RM gets paid on performance; sell out closer to stay date to increase revenues while being conscious of cost of acquisition. and the
- Remember OTAs are good at marketing so there is a happy medium with driving the right amount of distribution between OTA versus direct channel versus other customers. The issue with this current situation is that if the hotel sells out too soon there is lost opportunity in the hotel closing out channels, thus restricting by channel and not price, and also higher pricing through alternative channels dissuades loyal (higher total rev) customers to stay. if the hotel doesn't’t sell out (due to cancellations or slow of booking pace) then it will likely put cheapest rates on hotel tonight or other last minute channels giving the value perception of a cheaper hotel and also giving a large amount of commission to those channels and the same issue will occur with your loyalty customers.
- New curve ball thrown into the mix with hotel pricing: New class = booking brands that are the new middle man to hotel pricing The booking brands have become the dominant point of entry for the consumers Consumers pass through these brands before they decide where to stay And these booking brands are companies with massive power and high market caps – like Google, Expedia, Facebook. Hotels are paying to get traffic from the booking brands & while still paying to compete with the other stay brands on guest experience Competing with a new class of brands with larger budgets is why costs have risen so much In fact we looked at how much the costs have gone up…
- Online Tech Companies: Google, FB, Yahoo, Kayak, Bing, RoomKey Hotel & Chain Sites: Hilton, Marriott, Leading Hotels, Starwood OTA: Orbitz, Expedia, Hotwire, Priceline Other Consumer Sites: TripAdvisor for Business, United.com (Luxury Collection), AA.com, UpTake Retail & Corporate: American Express Business, Opodo Channel Management: EZYIeld, Rate Tiger, Siteminder GDS: Gallileo, Amadeus, Sabre PMS & CRS: Micros, Synxis, Brand CRS
- Are people looking at true metrics? What are good forecast accuracy metrics – based on DBA? Is there one?
- 1. Selling Out too Soon: If a 100-room hotel sells out with every room sold for $100 on average, it has generated $10,000 in revenue. If instead you increased rates $10 for every 10 rooms you sold, and you still sell out, you’d generate an additional $4,500 with an average daily rate of $145 (instead of $100). If you increased rates $5 instead of $10, you’d generate an extra $2,250 with an average daily rate of $122.50. In both circumstances, even if you didn’t sell those last 10 rooms, you’d come out with more revenue than if you sold all 100 rooms at $100. 2. Not Changing Rates: If your room rate is always $100, no matter the day, time of year or amount of bookings you’ve already got on the books, you’re missing revenue opportunities. If your rate is $100 on a busy day—let’s say there’s a big sporting event in town and every hotel is sold out or soon to be— and you’ve only got 10 rooms left a month out, your rates should have been much higher up to that point, meaning you have underpriced your hotel and lost potential revenue. And those last 10 rooms could and should sell for much higher than $100, because you want to make sure you have rooms left up until the final day. 3 Gut Feel: If you’re relying solely on “gut feel” with no analytics behind the hunch, you’re bound to make mistakes and miss revenue opportunities. If you find yourself saying, “I remember this weekend last year and it was crazy busy, so I’m going to set the rates really high this year,” you’re risking an empty hotel and huge revenue losses. Especially if you continue to ignore a lack of bookings and hold your rates based on that gut feel. Perhaps there was an outside influence the year before that created the surge in demand—a concert or a convention that filled rooms—that isn’t on the calendar this year. 4. Sudden Pricing Changes: When a competitor makes a sudden and dramatic price move you can’t explain based on your own information, it doesn’t necessarily mean you should follow suit. If your competitor jumps the rate from $100 to $150 and you follow suit, without that huge wedding at your property and a block of 50 rooms already sold, you may end up pricing yourself out of the remaining business coming to town. You still have to price your rooms based on the quality of your product and the supply and demand specific to your property. 5. Selling on First-Come Basis: If you don’t have a true forecast or sense of how much demand you have for specific dates, you’re probably taking hotel reservations as they come and leaving plenty of potential revenue on the table. Not all reservations and customers are created equal. Someone booking a night on Expedia is probably not as profitable for you as someone calling your hotel directly. A customer may be paying the same exact rate for a night as the guest next door, but if that guest is staying three additional nights, which one is more valuable? If you sell out in advance for a future date and another customer later wants to book a week- long stay during that time, you’ve just lost a week’s worth of revenue because your hotel is no longer available to that shopper. Or if you close certain lower-cost channels like online travel agencies during higher demand periods, you may miss out on the guest who is only shopping that channel and doesn’t see availability at your hotel. 6. Linking Different Price Points: As illustrated earlier, the more frequently you can change your rates based on supply and demand, the more revenue you can capture. It’s also imperative to have as many different rates and price points available, and have your hotel available for booking in any and all channels where consumers may be shopping. You should provide special loyalty rates and other discount pricing for seniors, AAA and other promotions, as well as have rooms available for sale on the various online and mobile bookings sites. You should also have different prices for different room types. Fluctuating rates across all these different channels can be a complicated web of numbers and rate codes. Many hotels group and link some of these together to make pricing changes because it’s much easier to manage. This approach is called Best Available Rate (BAR) pricing and is very popular because of its simplicity, but with the advent of new technologies it has become antiquated and doesn’t maximize profit potential. 7. Shutting Down Prices: If at 6 p.m. you call it a day and hand over any pricing decisions to the overworked front desk staff, or worse yet, to no one at all, you’re missing out on potential revenue opportunities. No one likes to think hotel management has to be a 24-hour job, but it really is, and that’s especially true with pricing your property. This is extremely detrimental for hotels with heavy weekend business or purchasing.
- Managing booking curves and setting appropriate prices 2. Managing distribution channels
- BAR – derived rates
- BAR – derived rates
- -Open Pricing: Duetto enables fully dynamic, open pricing, which means you have the flexibility to independently price every single segment, channel, room type, and offer to maximize revenue. -Open Pricing enables you to keep all your OTA channels open instead of closing them off at certain occupancy levels. This allows hotels to continue to have offerings show up through various channels regardless of occupancy or price. REMEMEBER EARLIER I MENTIONED UNCONTRAINED DEMAND which again means….” “
- wont hire a full time person to aggregate these data sources but having a system helps aggregate that data
- Managing booking curves and setting appropriate prices 2. Managing distribution channels
- Even though revenue management Is a broad topic the focus of the discussion will be price optimization.