Pricing Strategy that Misses the Mark
|What does sin have to
do with Revenue Management? First, let’s look at a definition of
sin. Sin is defined as “a transgression of a religious or moral law,
especially when deliberate” or “to commit an offense or violation”.
Next, let’s look at the origin of the word sin. The Greek word hamartia
means "to miss the mark" or "to miss the target".
The Original Sin of Revenue Management is using an unscientific methodology to create a pricing strategy that “misses the mark” or to say it another way “misses the target”. All Revenue Management must begin with a scientific approach to developing a pricing strategy or all yielding will be done to inferior rates and less than optimum Revenue Management will be the result.
Before we go any further, let’s clarify the difference between a rate strategy and rates. A rate strategy is how a property positions its rates verses its competition and most often expressed as a range of rates. Rates are with in the rate strategy and are manipulated on a short term basis as demand dictates.
Let's examine what drives a hotel’s room rate strategies today. If we ask hoteliers, "How did you arrive at your current room rate strategy” we receive the following or similar answers:
Another answer we sometime receive is "demand determines our rates". If this is your answer, consider this. Demand really determines what rate you are quoting within your rate structure or strategy. The demand for your hotel will be determined by the attributes or features of your hotel and the appeal they have for a particular market segment traveler. If this is not true, then why does one hotel out-perform another in REVPAR? The answer is attributes or features. Attributes or features create the demand for a hotel which in turn drives the rate which is quoted within the rate strategy.
Hotels sin or “miss the mark” because they do
not address their pricing strategy in a scientific way. So, how should
you determine your rate strategy? The best approach is to compare
the attributes or features of your hotel with those of your competition.
When making the comparison, bear in mind that each attribute will have
a greater or lesser appeal to each segment. By using a scientific
methodology to do this comparison, you can develop a superior rate strategy
and not “sin”, but “hit the mark”.
Jay Delerno, President of Revenue Source One, founded the company in 1987 and has over 30 years of experience in hotel sales and marketing, including the Executive Vice President positions for two hotel companies. Revenue Source One is the only hospitality consulting company offering improved rooms pricing strategies via an attributes-based, computerized Rate and Competition Analysis Pricing Model (Rate Razor). The company also provides sales and marketing consultation and market research to the hospitality industry.