In a simple world, one could assume that if demand for a product or service is high, prices would likely be on an upward trajectory as well. In a hotel scenario, if occupancies were high and climbing, ADRs, you might assume, would also be on the same trajectory.
But industry insiders know this is often not the case. In the complex world of multiple channels of distribution and intense competition, pricing based on simple principles of demand and supply may not always work.
In fact, industry figures for Asia Pacific provided by STR in August 2017 show that year-to-date figures compared to the same period in 2016 are mostly healthy – occupancy went from 68.5% to 70.5% and RevPAR went from $69.82 to $71.42. However, ADR went down marginally, from $102 to $101.31.
Looking at this, one may see an early warning sign that hotel companies need more discipline around their pricing strategies. It’s also the clearest indicator yet that the common practice of best available rate pricing with length of stay restrictions has far outlived its usefulness. When your hotel’s strategy is handcuffed to BAR, it can’t execute pricing or distribution tactics with the potential to increase rate and market share, like advanced pricing by room type, by booking channel, or in a loyalty programme that stands out from the commoditised, points-based offerings seen everywhere else.
With Open Pricing, yielding by room type and channel independently is possible today. More importantly, the strategies of the future will only be more sophisticated, so hospitality companies need to refine their pricing with more flexibility — starting now — in order to seize new opportunities.
Hoteliers may be reluctant or unable to back away from BAR, which is understandable — it’s uncomplicated and “the way we’ve always done it.” The industry has underinvested in revenue management talent capable of implementing dramatic new strategies. And most hotels don’t have a technology stack built for more open, flexible pricing and distribution.
There are a few good ways to get started moving beyond an outdated BAR strategy. If already yielding rates higher for your highest-demand days, you should also explore what else you can do beyond manipulating the price for your base room type. Set the differential of one in-demand room type higher than another — for instance, transient guests with families would pay more for the double-queen room on weekends and business travellers would pay more for the deluxe king room during the week. Or start flexing the discounts off the retail rate instead of using static modifiers all the time.
Experiment with marketing strategies to tout your best room rates, usually fenced and reserved for consumers who book directly on your website or call centre. Loyalty club members could get even more competitive offers, as long as they log in to your direct channels to book. That requires more heavy lifting with the tracking of customer spending and segmentation, but it’s worth it.
It is well documented that having the right revenue management tools and strategies will boost numbers. In a study of more than 1,000 hotels and casinos, Duetto’s fully deployed customers averaged a RevPAR Index increase of 6.5% year-over-year in 2016.
The way to stay ahead of the pack is to not be caught “swimming naked” when the tide goes out, as Warren Buffet would put it, and it is prudent to ensure all your pricing strategies are water tight.
