30Nov

What Other Industries Can Teach Hotels About Price Optimization

Author: Avanti Joglekar

The hospitality industry is unique.  However, it doesn’t exist in a vacuum.  The revenue management principles and strategies that we use are employed across disparate industries.  We may have inherited some or altered them to fit the specifics of our market, but the core concepts remain intact.  

When it comes to revenue management, there’s plenty that the hospitality industry can learn from other industries.  Pricing optimization is one of the more challenging aspects of revenue management, but by looking at the ways that other industries have approached it, we can use their methods to provide solutions to our pricing issues.  

plane.jpg

In fact, pricing optimization, where the price for an item or service is set to maximize revenue, was invented by the airline industry.  They were the first industry to set their prices for a certain ticket based on the demand.  For example, if the demand for a particular flight is high, the number of economy seats will decrease, whereas a flight that’s lower in demand would have more budget options.

Dan Skodol, Vice President of Revenue Analytics at Rainmaker, says that while the airline industry isn’t as differentiated as hospitality, “There are parallels with understanding your business segments.  For example, in both cases, leisure travelers are more concerned with price than business travelers.  Leisure travelers tend to have more flexibility with the dates and times that they book, so they tend to make their decisions based more on price than other factors.  Business travelers are the opposite, since they have to be in certain locations at specific points in time and will therefore pay a premium for that specific option.”

The retail industry employs several pricing optimization strategies across similar products that are easily translatable for hospitality.  This is particularly relevant to hospitality since hotel rooms in the same comp set are typically priced very similarly to each other.  What factors make a hotel room that’s priced slightly higher than those that are nearly identical more appealing to a potential guest?  

pexels-photo-264636.jpeg

In the grocery retail industry, which is notorious for its razor-thin margins, there’s a significant amount of research given to determine how much more a customer would be willing to pay for two very similar items.  For example, if a customer is debating between two nearly identical bottles of olive oil, but one has a slightly higher price, what would make the customer want to purchase the more expensive one? Skodol says that while price is an important factor in the consumer’s decision, value is the critical component.  “Customers are looking at price relative to their other options.  There’s a willingness to pay more if the guest feels like they’re getting a better value even for similar rooms.  It’s always relative to what your competition is doing.”

Price optimization is used pervasively throughout every industry, and current techniques are quite varied and sophisticated.  For the ultra-competitive hospitality industry, a comprehensive price optimization strategy is only possible with the right revenue management tools.  Talk to us today for a free demonstration on how Rainmaker’s revenue management solutions optimizes your pricing strategy for success.

Subscribe to Rainmaker's Hospitality & Gaming Blog

Join fellow Industry Professionals! Get Rainmaker's latest Hospitality & Gaming articles straight to your inbox. Enter your email address below: