“ the hotel industry has been too conservative with changing pricing strategy .”
Technology : Revenue ManageMent
metrics and a lack of new supply entering operation should help hotels drive rate . However , ADR increases have lagged relative to previous recoveries , and the hotel companies ’ overall pricing strategies are a culprit .
“ While the catalysts may have not been present to support the mid- to highsingle-digit growth seen in the last cycle , we would like to think that we , as an industry , are getting close ,” Berry says . “ However , hotels are acutely aware of their competitors ’ prices and segment pace and , too often , that results in competitor-centric — not customer-centric — pricing . Furthermore , customers also have more tools available to them , from mobile same-day booking apps to group RFP platforms . Enhanced transparency for customers and between competitors is certainly having an influence on pricing .”
Metrics Matter
To help revenue managers get more granular , several metrics were discussed at the HSMAI Revenue Optimization Conference , including :
• ProPOR , profit per occupied room
• ProPAR , profit per available room
• COPE , contribution to operating expenses and profit
• Net RevPAR , room revenue minus sales / marketing expenses divided by number of available rooms
• Net RevPOR , room revenue minus sales / marketing expenses divided by number of occupied rooms
• COA , cost of acquisition Benchmarking these metrics will be a challenge , as some owners may balk at sharing their profitability data the way that operators share RevPAR . Until this occurs , understanding and improving a property ’ s profitability will be difficult .
“ the hotel industry has been too conservative with changing pricing strategy .”
– SuSan Weigel , Denihan hoSpitality group
Most hotels allow guests to cancel very close to their arrival date , and opaque and last-minute discount online travel agencies like Hotwire . com and Hotel Tonight have created a customer segment accustomed to steep discounts .
Despite the perennial griping at conferences , hotel companies accept online travel agencies are here to stay . However , to improve their position , hotels could adopt more airline industry practices such as requiring prepaid , non-refundable bookings .
“ The hotel industry has been too conservative with changing pricing strategy ,” says Susan Weigel , vice president of revenue management , Denihan Hospitality Group , New York City . “ The hotel industry has severely lagged behind other industries , including the airlines , in determining elasticities of various consumer segments and distribution channels along various points in the booking curve . Hotels often dilute revenue overall across a broad time frame versus truly stimulating additional demand and revenue . Many of the large brands compound the issue with paying higher amounts for loyalty-point redemptions when hotels are full , which often results in last-minute price discounting on customer segments that are less pricesensitive and willing to pay more .”
Emulating airlines ’ pricing strategies would not be an easy task for hotels , though , as ownership is much more
fragmented and supply cannot be reduced as easily . Also , revenue managers point to antitrust laws and the fact that room rate is sometimes only one factor in determining the profitability of a guest ’ s stay .
“ If someone were to blindfold you and place you on a plane , would you have any idea of the airline you were on ? They are all the same and their pricing reflects that ,” says Jim Struna , director of revenue management , Auberge Resorts , Mill Valley , California . “ As an industry we have managed not to fall into the same trap as the airlines in commoditizing our product and devaluing our brands . If a hotel has the means through CRM to understand that customer ’ s value , then they can create offerings that make sense to the guest and hotel alike . This should be the goal — not any one price .”
In addition to structural impediments , the personalities of the leaders of hotel companies may also be a factor in the industry ’ s eschewing of more aggressive pricing strategies . “ The hotel brands , in particular , are very conservative organizations ,” says Sloan Dean , vice president of revenue optimization at Ashford Hospitality Trust , Dallas . “ There ’ s not this risk-taking type of mentality . There is not a single major brand that will move toward a prepaid model , and we ’ ll still be giving inventory to people that we complain about .”
58 HOTELS September 2014 www . hotelsmag . com