Dynamic pricing has been a go-to strategy by hotel revenue managers. But as the business intelligence tools that collect market data and customer information become more sophisticated and more timely – coupled with the volatile conditions of the real world (like this year’s dramatic hurricanes) – setting a room rate is an increasingly complicated proposition.
“This is an evolving discipline,” says Micah Richins, chief commercial officer of MGM Resorts International. “The better data you can get, and the more quickly you can understand the data, the better you can price the market products.”
In Las Vegas, where demand is tied to events, MGM Resorts is “ever-measuring” its competitive set. “We look at pricing by room types and by segmentation, and we put all that together to help us make our own dynamic pricing that switches every day,” Richins says. “It’s a constant optimization process that we go through.”
Lots of variables
Aside from demand and segmentation, hotel revenue managers play around with other variables such as length of stay, room attributes like views and bed types, and booking channels, something that revenue managers couldn’t necessarily do before. “Time-based pricing on today compared to tomorrow, that’s been normal for a while,” says Johnathan Capps, vice president of revenue for hotel operator and manager Charlestowne Hotels, Mount Pleasant, South Carolina. “But now when you’re talking about setting a price for today with differentials that are different from tomorrow, then we’ve gone to another level.”
Pricing by room views and bed types are logical decisions to make to increase revenue, Capps says. “If you have demand behind something and there’s a premium on it, that’s in a sense revenue management.”
Dynamic pricing by booking channel does have some restrictions, Capps says, based on the contracts hotels sign, although typically independent properties have more flexibility and can turn on and off inventory at their discretion, such as turning off the low-rated opaque booking channel during a peak time. “If I know I can sell out ahead of time, I’m not going to open up rooms on an opaque channel,” he says.
Kaylene Riggs, corporate director of revenue management for Delaware North, Buffalo, New York, which operates 30 hotels worldwide, says her company is changing rates and yields based on daily pick-up pace versus last year, and booking window by market segment and room type.
“Instead of a junior suite always being priced US$20 higher than the deluxe room, on December 20 it may be US$50 higher but on December 21 it may be only US$30 higher,” she says. “You have to look at it all, including discounts and promotions in the market. You have to evaluate the ADR on the books by room type, compare it to your forecast and annual plan and then determine which discounted offers need to be closed, yielded with minimum-night stay requirements or, in some cases, re-opened.”
Custom solutions
Managing all these pricing decisions is not a one-person job. Riggs says Delaware North has hired a business analyst to run and distribute revenue management reports. The company also has increased its rate administration department, which applies rate and yield changes and pushes them out into all channels. That frees up the revenue managers to focus on the data analytics and pricing strategies, Riggs says.
While most revenue managers use a collection of revenue management systems to aid their work, Kokua Hospitality, a San Francisco-based resort and lodging management company, created its own revenue management system to better customize reports. According to Brian Bolf, vice president of profit optimization, the proprietary platform is just one of the RM tools being used, but this additional layer has strengthened relationships with ownership groups and on-property teams when it comes to utilizing the dynamic pricing model.
“Dynamic pricing is not new but in some of these markets, it is relatively new to have a different price on a Monday than on a Tuesday,” Bolf says. The custom RMS makes it easier for owners and hotel employees to understand why they need to charge US$20 more or less on a given day.
Bolf also touts the advantages of dynamic pricing when the economy is in a slower cycle. “You’re gonna fall,” he says. “But dynamic pricing can narrow that erosion.”
Still, dynamic pricing isn’t entirely about selling rooms. According to Richins of MGM Resorts, hotels also need to focus on bringing in the customers that fit the property. “It’s one thing to get the Bellagio full,” he says. “It’s a second thing to get the Bellagio full of the right customers that are comfortable in the environment and are capable on spending on the ancillary things that we do.”
To that end, at the Malibu Beach Inn, a Leading Hotels of the World property in Malibu, California, where temperatures rarely go to extremes and where every room has an ocean view, the hotel has focused more on developing relationships with travel agencies and less on looking solely at what drives rates.
“Building these foundational relationships helps attract the clientele that we truly want to experience our hotel and ultimately share with their friends and families,” says Laura Willens, reservations and sales manager. “We recognize that word of mouth is one of the best forms of advertising for our company, and also know that exceptional customer service is a huge contributor in allowing us to grow our rates year over year.”