Perishability and limited inventory are the two most important aspects of hotel business, and thus, pricing of a room becomes one of the most important KPIs for a Revenue Manager (RM). Developing effective pricing strategies remains a complex issue. Increasingly, hotels are turning to specialist revenue managers to maximize revenue and profits. With the ever increasing dynamics that impact hotels and their business, hotel RMs are looking to adopt technology and tools which can run numerous calculations and factor in multiple variables and come up with stronger scientific pricing recommendations.

The features that make up an effective rate optimization analysis are central to a fruitful and lucrative revenue management program.

  • A price optimiser must factor in hotel’s current business on books in its calculation of price recommendation. As clearly a price recommendation at 90% occupancy cannot be same as at 40% occupancy.
  • Similarly forecasted occupancy for that date needs to be considered too so should be the case when a date is identified as part of an event which the hotel identifies as an impact on their occupancies.
  • With the advent of review sites and customers searching for their desired hotels on these review sites, it is imperative that how a hotel is perceived by its guests in comparison to its competitive set should be factored, while making a price recommendation. In fact, an increase in review ratings strengthens a hotel pricing strategy. Study from Cornell University suggested that 1-point rise in review point scale & the hotel can increase its price by 11.2 percent and still maintain the same occupancy or market share.
  • The next factor that a price optimisation tool needs to look at is competitor pricing. It’s no secret that hotels offer multiple rates combined with multiple room options and to track the competition multiply that to number of competitor hotels one has to do pursue on every single date that pricing is getting optimised. The rate optimisation tool should be sophisticated enough to consider all these data points and then come up with a recommendation; while seeing to the fact that each competitor that hotel tracks will not be same as each one puts a different pressure on hotel’s business thus their individual offering too should have that weightage attached.
  • Like mentioned before, hotels have multiple room/rate combinations which are offered on various distribution channels, giving a prospective guest various options to choose from to make a reservation. Thus keeping this availability in consideration and the options a customer has for a given check-in date should be a factor for the price optimisation tool in its price recommendation.
  • Lastly the tool should understand the individuality of each hotel and provide the flexibility of setting up seasons, creating rules etc by the hotel user to ensure that price recommendations are keeping the hotel’s individual seasonal aspect as a factor and coming up with a relevant and optimum recommendation.

Rate optimization keeps intelligent hotels from being dragged into constant price wars with their less analytically-savvy competitors. This enhanced pricing strategy represents the next opportunity for incremental revenue growth.

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