01Feb

Loyalty-Based Pricing & Advances in Group: 2018 Revenue Management Best Practices, Part I

Author: Avanti Joglekar

As technology constantly evolves, so does revenue management (RM). Dan Skodol, VP of Revenue Analytics at Rainmaker, recently gave a presentation on the “Top Five Trends in Revenue Management and What You Should Be Doing About Them Now.” The trends he discussed were loyalty based pricing by the major chains, the impact of alternative accommodations, advances in group revenue management, opportunities for focusing on ancillary revenues, and personalization as a key to driving bookings.

These trends crystallized after a few years of looking at common themes that emerged from attending industry conferences, many discussions with Rainmaker’s customers, and conversations with industry experts. In this post we will touch on the topics of loyalty-based pricing and advances in group revenue management.

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Loyalty-Based Pricing by Major Chains

One of the primary purposes of loyalty-based pricing is to shift bookings away from OTAs and encourage direct bookings. Brands have launched initiatives to offer special discounts and offers for loyalty program members. A recent study done by Kalibri labs indicates these programs are working for the companies that have launched them. Truly loyal customers will be willing to book directly through a brand’s website when offered targeted, personalized offers. 

Hotel brands benefit from this by avoiding OTA commissions and having direct access to the guest. In most cases, this means the property will earn more on that booking, but it requires a thorough understanding of direct booking costs. You’ll want to compare OTA fees against your brand fees, marketing costs for the loyalty program, and the net dilution amount to truly understand whether the loyalty program is a profitable option for your property. The dynamics can be tricky: brands are ultimately benefitting from the loyalty effect but the transactional value for hotels, considering the brand fees and all your revenues net of all the costs associated, might not differ across these channels.

The cost/benefit comparisons of loyalty program discounts are never simple, because there are multiple channel options depending on the guest segment in question. For instance, negotiated corporate rates could be a better value for your customers and lead to more group bookings, but may require fees from a corporate travel agency. You’ll want to optimize your overall channel mix and understand the corresponding distribution costs at a very granular level.

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Advances in Group Revenue Management

Despite overall hotel RevPAR growth, group-based revenue has lagged in recent years. The science of revenue management has traditionally been focused on managing transient demand whereas group pricing has typically been less scientific. This has prompted recent technological advances in the field of group RM, and tools have emerged that help optimize group pricing decisions. These new systems help, in part, by streamlining the sales cycle for hotels and sales teams.

The latest advances include price optimization models, group forecasting algorithms, lead scoring mechanisms, tools that manage function space, as well as tools to administer catering free sell rules. If your hotel has a high or growing amount of group business, you’ll want to stay in tune with the rapidly developing technology in this field. If this is interesting, we'd love to continue the conversation with you, so contact us today!

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