The key to successful revenue management is a dynamic pricing strategy

It’s been a rollercoaster ride of lockdowns, re-openings and restrictions, which have led to a period of acceleration, and growth.

And despite inflation, a shortage of trained staff and the possibility of a recession, this acceleration can be seen across the overall trends affecting the market, ranging from consumer behavior changes, including pent-up demand and the rise of revenge travel, to the fast-paced quickness with which competitors must adjust strategy, and demand fluctuations that can range shut downs to high demand  - almost without warning.

While the foundations of revenue management and the importance of having an accurate pricing strategy have not changed, the situation very much has. As we have now emerged from the pandemic, revenue managers need to continue to be more data-centric, whilst also focusing on an approach that can compress analysis, decision-making and implementation down into much shorter windows of time.

It’s now time to re-evaluate, reset, and be resurgent in this new dynamic and fiercely competitive landscape.

The fundamentals of traditional revenue management

Revenue management, at its heart, is finding the true level of supply and demand in a marketplace, and then directing a pricing strategy to maximize several metrics. The critical metric (KPI) has typically been Revenue Per Available Room (RevPAR).

Traditionally, the core of this has been to look at historical patterns of demand and compare the like-for-like demand levels in the current window to that of prior years. Revenue managers have tended to do this by looking at current On-The-Books (OTB) reservations, investigating whether this is up or down compared to previous years, accounting for the factors changing that demand and then adjusting pricing strategy depending on how they forecast the booking window developing.

This allows hoteliers to maximize the potential of their property by reducing periods of low occupancy and trying to generate the best possible Gross Operating Profit Per Available Room (GOPPAR).

Data points don’t exist in isolation

While this can seem simple in theory, the execution of a complete rate strategy is a world of many moving parts, and requires consistent adjustment up until the point of stay - with none of these data points existing in isolation. Instead, it is up to a revenue manager evaluate following factors and try to unpack how each of them is affecting demand levels:

Events

It is imperative that revenue managers take into account events that affect their properties, as the effect of these on demand can be drastic. These include:

• Major events on a national level, like the Superbowl in the United States or (in normal times) the Olympics

• Smaller events, like concerts and holidays (for your leisure business) and business conferences or government assemblies (for your corporate business)

• Unforeseen events e.g. the sudden announcements of lockdowns and international travel restrictions that have rolled out on the travel industry

• A revenue manager needs to be fully aware of the events affecting their business environment, and notice how these are shifting their customer mix and their overall pick-up rate.

Timing

Timing matters in travel. There are high and low seasons that need to be considered and these can vary wildly, especially in the current climate. For example, British brand Center Parcs recently ran into a degree of controversy for pricing accommodation over their peak summer at significantly higher rates than the off-season, with jumps of more than 150% noted in the media.

However, Center Parcs were dictating rates in the way a revenue manager should, taking into account the unusual circumstances of international travel restrictions, alongside the typical seasonal event of school holidays in the UK.

These served to create a major uplift in demand that could support such an aggressive pricing strategy, especially as they generally serve an upmarket target segment.

Trends

Travelers are regularly influenced in their travel decisions by trends. This could be due to a popular piece of media that has suddenly brought a location into the popular consciousness, creating an upturn in demand.

It is important to account for these trends, but the only way to be aware of them is to stay updated with your industry association and other educational resources.

Marketing and promotions

Revenue management and marketing teams should communicate constantly, as a major marketing push should stimulate demand, and revenue management should be informing marketing teams when pushes are needed and what effect they have.

Competition

Competition is complex to understand and hard to keep track of, but it remains a vital piece of the revenue management puzzle.

While it is important not to let competitor pricing have an outsized influence on your revenue strategy, a true understanding of a realistic and accurate competitive set will prevent you from losing out on critical bookings among consumers who are looking for and booking similar properties.

In order to have a direct comparison you need to consider the kind of filters and search terms that travelers will use to find your own hotels. These include:

• The type of accommodation

• Proximity of competing properties

• The hotel category and star rating

• Facilities available at the property

• The room types offered

• Additional benefits to travelers, such as breakfast offerings or flexible cancellation.

There is also the issue of competition within your own inventory between different distribution outlets and wholesalers operating in the market, which frequently promote prices different to your own outlets. Rate parity is important to police and maintain, alongside competitor analysis.

With tools now available to monitor the market, this task has become considerably easier in recent times. However, with more data even more analysis is required.

High complexity requires a simpler way to view data

As you can see, each pricing decision contains multiple data points that influence the end price. The pricing steps that each room should go through before the guest arrives need to be re-evaluated regularly, taking into account both the unique situation of the property and the timeframe in which it is offered.

Despite certain segments, including MICE and some international segments, recovering slower than others in many markets, the base level of complexity has not eased. Rather, the market is now highly volatile, prone to sudden changes as conditions shift.

We saw this with the outbreak of war in Ukraine, and when restrictions eased in Asia in 2022 rendering the traditional comparative way of understanding demand using historical data points limited or ineffective.

Standard patterns have been disrupted. Travelers in many cases have shifted to looking and booking at different locations and in different time windows. As accommodation providers fight hard for limited business, they are increasingly working within extremely short booking windows.

They are also having to work across multiple channels, and looking to win the booking over an enlarged competitive set that is now offering an increased range of conditions and discounts.

There is now greater variety in cancellation policies, ancillary bundles, length of stay discounts, and discounts for mobile bookers, adding an extra layer of complexity to a revenue manager’s day.

Uncover pricing and promotional trends in your market

The way properties in different markets are performing, and what kind of discounts and offers they may need to provide, can be highly divergent, underlining the difficulties for revenue managers in creating both long-term and reactive strategies.

Let’s take a look at the data from our Rate Strategy feature, within Rate Insight, which provides a high-level overview of pricing and promotional strategies and can show multiple insights regarding competitor, market and own-property information.

In this example, we have taken data from Rate Strategy to see how different markets react in relatively condensed geographic areas, such as the UK and Switzerland.

Analyzing first the UK for data taken in July 2021, we can see an obvious outlier in the hotels situated around London Heathrow Airport, typically Europe’s busiest passenger airport. Comparing this data with hotels situated just a dozen miles east in London itself, there is clearly a huge gulf in performance and approach.

Around Heathrow, the percentage of hotels that waive cancellation fees, have refundable rates and offer length-of-stay discounts is high, whereas in London proper, double the percentage of hotels are offering mobile discounts and there is a nearly 50-point disparity in cancellation policy approach.

This reflects the different situations and potential clientele, with London rebounding to some degree and looking to attract younger, more flexible travelers. Conversely, Heathrow hotels are experiencing a poor market right now without business and long-distance travelers.

The contrast is even more stark when looking at Liverpool, (currently one of the UK’s best performing city markets right now according to our data), which you can see the demand for in our Global Market Insight tool.

Liverpool saw an eightfold increase in hotel search queries since February 2021, indicating a surge in demand over the summer, with less than 50% of hotels still bookable in August 2021. This explains why just 4% of hotels in the city are offering length-of-stay discounts for two nights and 11% for three nights, by far the lowest in the sample.

Rate Strategy - UK destination insights - 12.07.21

Similarly in Switzerland, we can see high disparity in hoteliers’ approaches in different markets. Zermatt, a resort town in the mountains on the country’s southern border with Italy, looks quite different in the data to the major cities in Switzerland.

Zermatt has benefitted from people’s desires to escape the urban environment this summer and leave for remote/rural areas, leading to high demand and therefore a much more conservative approach to flexibility policies.

This looks quite different to Switzerland’s major tourist cities, which are typically highly reliant on international travel, and offer more generous discounts and terms and conditions for travelers particularly when it comes to mobile channels.

Rate Strategy - Swiss destination insights - 12.07.21

Further examples of low availability, relatively high-performance locations uncover similar trends to those of Liverpool and Zermatt. In our data Santorini, Greece and Ibiza and Benidorm, Spain have been able to attract local and domestic tourists back in reasonable numbers.

They all show 2% or less of hotels offering a free cancellation policy, very low percentages offering semi-flexible rates and limited discounting. This shows how trends in data at scale can also be important and inform your approach to different demand levels, especially at this uncertain time

The above examples, however, all emphasize how revenue managers will need to take deep dives into the data and consider properties based on market dynamics, current clientele, and the competitive climate to determine the right pricing strategy, at the right time. 

A long-term yet agile approach

In the current environment, the learnings for hoteliers are clear. Hoteliers now need to be able to attack the problem of revenue management with the right information and for that data to be at their fingertips in an easily accessible form.

This is especially true at a time when many teams are still working with fewer staff members and must do more with less.

Without analytical agility, the complexity of constructing a long-term pricing strategy that is also adaptable to market conditions is becoming highly challenging. Hoteliers need to be able to aggregate data, so that they can have a complete overview of the market.

This will allow them to genuinely understand what elements are affecting demand, rather than viewing elements in isolation and missing out on the true conditions shaping behavior, which will better inform strategic decision making.

By aggregating data from future arrival dates Rate Strategy - an enhancement available within Rate Insight (enterprise subscription) - you'll have a much more rounded view of your market and how it is evolving. With this actionable data at your fingertips, you can build a suitable long-term pricing strategy that optimizes revenue growth.

Additionally, with a range of key insights from median breakfast cost to the percentage of hotels with mobile discounts -  all in one dashboard - you are now able to immediately spot patterns to help your team make agile pricing and promotional decisions.