In one of our latest posts, we have dealt with the identification of your hotel’s competitors but we have also underlined the fact that one of the crucial factors to define your competitive set is the price. Knowing your competitors’ rates definitely allows you to best adjust your pricing strategy.
Nevertheless, apart from the price, anytime a hotel manager needs to decide the room rates, he/she must take into account another relevant aspect which characterizes any revenue strategy, that is to say the brand value.
As concerns the price, under the same conditions (reputation, customer target and sales performance), once you have identified your competitors’ prices, there are three options:
- You can set a lower price
- You can set the same price
- You can set a higher price
Anyway, the challenge of hoteliers, hotel managers or sales representatives is the dynamic and flexible management of the rate policies so that the main goal of any Revenue strategy is achieved, that is to say guaranteeing the best profitability from the allocation of the available rooms.
Let’s analyze a situation in which a hotel has a great demand. Actually, it could even represent a big problem! Why?
- In a specific day, the hotel has sold all its rooms, but some customers might call to extend their stay
- People who are willing to pay a higher fare cannot book due to the hotel’s sold out
- The hotel is totally sold out but one or more clients cancel throught a last-minute call or do not show up
In any of the three cases, the hotel has some losses that it cannot handle immediately. Probably if the hotel manager had segmented its offer by setting, its rooms, a minimum stay or a higher price he/she would have managed to get a better allocation of its product and profitability would have increased.
The first step to find an optimum Revenue Strategy is therefore collecting data and making predictions about what your future performance may be, by comparing them with your competitors.
Whether you expect that in a certain time of year you will have more bookings or should you think in the next semester to go to a drop, by matching the historical data of your hotel with those of your destination you will probably be able to make approximate estimates of what your future demand will be.
However, those who are involved in revenue strategies must perfectly know the historical data of their facility, so that it is necessary to use support tools such as a rate checker and a business management that stores all the information about their customers.
This example clearly shows how the bearish trend is not always the best option. In many situations, it is far more convenient to turn your back on the less attractive guests, i.e. those who are not willing to pay beyond a certain threshold, to leave the field free to those who are willing to recognize the right value you have given to your hotel!
However, sometimes, such as in low season, keeping a price above that of competitors could adversely affect employment. But are we sure that selling your own rooms at a lower price will make your bookings increase, or will it only fall in revenue as you actually sell the same number of rooms but at a lower price? Even in this case, making predictions about the question could help identify the periods in which lowering prices is not only useless but also counter-productive.
However, a new question arises: can the Revenue influence the demand, namely the demand for rooms or the number of reservations? Based on the reasoning we have conducted so far, the answer is no: if, in fact, the Revenue Manager is the one who analyzes the past demand to understand what is the best pricing strategy to take to increase profitability, it’s fairly reasonable to think that it will not be able to change this factor.
It is partially true! The value plays a core role. Giving value to a structure means not only “justifying” higher prices than those of your competitors, but also making it clear to the customer that they are choosing a different and more complete stay, by firstly intercepting their needs and preferences. It means working for affirmation of its brand and improving its online reputation. It means differentiating from its competitors in terms of the type of services offered and the relationship developed with its guests.
So here we can state that for a proper management of a hotel, there’s the need to capture the competitors’ price trends by comparing them with yours and to monitor, by means of tools that conduct the Sentiment Analysis of customers, how your brand is perceived, and what are the strengths to count on (and those that need to be improved) to increase your brandcore and get a higher score in the user reviews.