Revenue managers acknowledge the significance of optimizing value-perception-based scientific pricing in conjunction with demand analysis.
Between price transparency brought on by the advent of the OTAs and now value transparency with user-generated content available at the point of purchase, profitable pricing strategies now must have a component that measures price sensitivity, or the impact of consumer value perceptions, along with demand forecasts.
“Demand analysis is a key component in price determination if RevPAR growth is the objective, but value perception is a factor not to be underestimated,” said Stefan Wolf, senior vice president of revenue and distribution strategy, Onyx Hospitality Group, Bangkok.
Wolf noted if value perception is not considered, a property might discount too much in low demand hoping to drive volume, but in case the value perception is low, RevPAR might decline further as not enough demand can be stimulated. On the other hand, if value perception is high during a low demand period, too much discounting would similarly not optimize RevPAR as potential consumers are willing to pay a higher price.
In 2012, Onyx Hospitality Group started to track the ranking on TripAdvisor for one of its properties to determine if there is a correlation between ranking and price sensitivity.
“The results were quite astonishing,” Wolf said. While discounting the price during a period of low ranking (this property just opened) had either limited or no impact on demand, the same was true in the reverse — once the property reached the top spot in the city it increased the price gradually by 20% without negatively impacting demand.
Scope for improvement
Hotel organizations are trying to adjust and coordinate the efforts of social media with the objectives of revenue management to improve financial results. However, the transformation from awareness to actual implementation of coordinated strategies is still slow, Wolf said.
If one were to assess how hotel companies are correlating online guest satisfaction with financial performance of their properties, a senior executive mentioned this correlation has not entered mainstream hospitality as only a few companies have created metrics to track and analyze social-media-based financial impacts. Also, it should be noted that it is challenging to create direct correlation metrics such as how many more Facebook likes would increase web direct conversion by 1%.
Kelly McGuire, U.S.-based executive director of the Hospitality and Travel Global Practice at SAS Institute, said there are emerging techniques that can look at how consumers shop and what they buy to derive value perceptions. Then, hoteliers must tune pricing and product-positioning strategies accordingly.
McGuire said the real trick with all of this is to remember that not all hotel demand is “priceable,” and not all hotel demand comes through online channels or is influenced by social media. “Most hotels have negotiated rates, wholesaler agreements or group demand that needs to be yielded rather than priced,” she said.
According to McGuire, the “value perception” techniques do not solve this problem, but the amount of this business a hotel takes impacts how many “priceable” rooms it needs to sell, and vice versa. “Hotels must be able to consider price sensitivity/value perceptions with traditional yielding techniques simultaneously to truly optimize price,” she said. “The job today is not getting any easier, but we are getting better at identifying the right data and analytics to support RM decision-making.”
Coordination
McGuire sees potential for revenue management and marketing to work together on pricing and positioning using what is talked about in the reviews.
“Consider the statement, ‘My kids loved the pool.’ While the sentiment here is positive, this is a huge turnoff for a couple traveling without children or for a business traveler who is picturing the hotel filled with kids everywhere,” McGuire said. She added mining for content that suggests segmentation strategies and value propositions for these groups will help marketing position the hotel and work with revenue management to develop packages with appropriate pricing to attract more of the kind of demand that values the hotel’s offerings.
“Hotels are paying careful attention to how reputation is impacting performance,” McGuire said. “There have been several studies to date that have shown a positive association between reputation and performance, which have definitely made hotels pay attention to this relationship. There is also some anecdotal evidence that improvements in TripAdvisor ranking, for example, result in increased bookings.”
Clearly, a well-run hotel will perform well and generate high satisfaction, which will ensure continued good performance. The important point is consumers pay attention to reviews and ratings, and so hotels need to as well.
From a hotel organization’s perspective, Wolf said the coordination isn’t really there between the revenue management team and the social media team to improve upon the revenue-management-related decisions of a hotel company.
Wolf added there are still a lot of properties and companies in the hospitality sector that do not have dedicated social media teams. Sometimes this role is filled by the general manager, the communication team or even the revenue management team, but they may not have the time or training to optimize the usage of social media.
“If a dedicated team or person has been established, the objective of the social media team and revenue management team might be very different, and both of them unaware of the positive financial impact by improving coordination,” Wolf said.
Once a hotel has reached the point of closer coordination and the revenue management team creates packages based on consumer feedback as communicated by the social media team, who would then share these packages in return on social media, a cycle has been created, which will create a positive financial impact in addition to two very motivated teams.