What are the top 3 pricing factors?

Triangulation is defined as a method of pin pointing a location by measuring the distance between two points whose exact location is known, and then measuring the angles between each point and a third unknown point. The process is used in land surveying, GPS technology, and commonly to locate cellular signals.

Hotel pricing, if we break it down to the basics, is very similar to triangulation… in fact nearly identical. In our balance of art and science, we evaluate three factors: 1) Demand, 2) Need, and 3) Market Pricing. You will find the right price at the intersect, ultimately positioned based on how you weight each of the three factors.

All three factors are critical. The demand for your property and your resulting need are fairly straightforward… you already know these two factors very well. Regarding market pricing, there is an ongoing (healthy) debate as to how much your competitive set should play a role in your pricing decisions. I will promise you this… if you are ignoring your competitive set, you are the only person ignoring them. I guarantee your potential customers are not ignoring them! Your true competitive set goes beyond the four or five properties you have selected for your competitive rate shopping reports… especially if your property is in a destination market or a busy city. In fact, your actual competitive set is slightly different for every potential customer, because today’s customers are extremely savvy. To truly price correctly, we need to shift this ‘competitive set’ focus away from a strategy born decades ago, to one that leverages all the data available today revealing what the market will bear.

If demand is strong, you have little inventory left to sell and the market pricing is strong, then you should obviously raise rates (see illustration).   As these factors shift, when viewed through this lens you’ll easily see where you need to adjust. You’ll want to jump on any opportunities to capture more revenue… don’t wait!

Avoid analysis paralysis… triangulation will help keep you focused on these critical three pricing factors.

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Which pricing solution is right for your hotel?

There are many different pricing solutions out there, most of which are off-the-shelf systems. A few of these solutions can produce great results, and they all focus on evaluating demand and setting the right price. They are also all very expensive. Some teams are attempting to introduce new data into pricing decisions and optimization, highlighting the efforts to evolve traditional revenue management. So where is the problem?

These solutions don’t fit the needs of a lot of hotels in the market. There are many hotels that are simply not ready to use ultra-advanced pricing systems, possibly due to current lack of bench strength, maybe simply lack of capital, possibly due to other reasons. I have personally stepped into organizations that actually had a system installed and discovered it was not even being used. There are many hotels that in fact might not ever install one of those systems. Important note: That does not mean they do not need help improving their pricing.

Regardless which solution a hotel uses, all benefit from improved pricing. All the big box hotels constantly effort to improve this process… trust me. Sales and marketing are critical to nearly all hotels’ success… yet absolutely nothing trumps the power of pricing.

So which pricing solution is right for your hotel?

To answer that, I’ll ask another question: On a scale of ‘1’ through ‘10’ (1 being non-existent and 10 being expert) where would you rank your hotel’s revenue management strength? If you were about to answer 8, 9, or 10 then by all means go buy an expensive solution and I sincerely wish you the very best. If the number 1, 2 or 3 just popped into your head there is no doubt you are not ready for an off-the-shelf ultra-advanced system.

Ask yourself some additional questions. When evaluating a system that looks great because it offers 17 really cool features, how much ‘bandwidth’ is dedicated to the actual pricing? If the pricing logic is flawed or naïve, the impact will bleed into all the fancy features and you will no doubt leave money on the table… more than you think.

The right pricing solution for your hotel is the one that meets your needs. My advice is take a look around, make sure you understand all your options and get what you actually need… no more, no less. If you simply need help ensuring your price is competitive, moving in the right direction at the right time, and not missing opportunity then you likely do not need an overly expensive off-the-shelf system. Fortunately, there are some great options that produce excellent results.

All the best in your efforts… and mind the gap along the way!

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Mind the Gap…

We have all worked with or simply met pricing professionals across the entire talent spectrum. What do they all have in common?  Unanimously, every single last one (even the greatest) leave money on the table.  It’s a simple fact. Some hotels leave little, others quite a bit – even the greatest hotels with advanced systems leave money on the table everyday.

Hospitality pricing professionals subscribe to at least a few different pricing techniques, with different strategies around property forecasts and pricing against what the market is demanding.  Unfortunately, today many pricing professionals are routinely in a reactive pricing position which always leaves money on the table.

The very intent and purpose of revenue management is to be proactive.

If you have great demand for a specific day, you might raise the price (usually up to the next higher price set in your system). You probably even spot check your rates against the comp set published pricing, to validate that you feel good about your new rate.  Set it and forget it (well, forget it for a few days anyway, then I’ll check it again… right?).

What if the market pricing is trending up?  What if people shopping you are comparing you against hotels not programmed into your STR report comp set (higher or lower ‘tier’ properties)? What if you are now priced at $159 yet the market will very soon be priced at $199? What if you knew that ahead of time – would you price at $179 instead of only $159? Maybe $189?  This is a Price Gap.

This is the definition of Price Gap: It’s not simply that you are priced lower than your comp set… it’s when your price point is lower than it should be… and you are leaving money on the table.

Mind the Gap. Identify your Price Gaps with the Market Fare Forecast and start capturing that Gap revenue today.

Now that’s being proactive!

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Three Easy Steps To Success

Memorize three easy steps to success in revenue management:

Identify your target.

Sound like a military operation? They do it for a reason, you should too. We all know the best way to accomplish something is to write it down, put it in on your fridge, stick it on your laptop monitor. The point is identifying exactly what you are targeting, and when/where you want to hit it. Need another five occupancy points next month? Want another three dollars in Best Available Rate this month? Target identified… now you know what you want and when you want it.

Track your progress.

Are you behind, or ahead of required pace to hit target? If behind pace, how much time do you have to correct? You need to understand your position every single day. Track it, record it, live it, breathe it.

Do something about it.

If you are behind pace go talk to marketing, call your third party (OTA) market manager, fix your price… do something! Don’t just accept missing your target… go knock on doors until you get some help if you have to, until you get what you need to hit the target.

Mission accomplished.

Please feel free to join the discussion by leaving your comments, or contact me directly at askjames@fare11.com.

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It’s Time To Sweat The Small Stuff!

We have all heard someone offer the cliché advice “Don’t sweat the small stuff!”  If you’re anything like me, that drives you crazy.  As a revenue manager, we live for the small stuff.  After all, it’s the small stuff, the 1-percent gains that translate into the BIG stuff… so, we sweat the small stuff, and justifiably so.

While we’re being honest with each other, there’s actually quite a bit of ‘stuff’ in our world.  Conference calls, reports, rate parity, inventory management, sales and marketing meetings, training, revenue meetings, group requests, contracts, competitive reviews, and so on.  This stuff is important, and deserves your attention… but it’s not the small stuff. 

Situational awareness of your competitive rate position is powerful small stuff.

Ok, I admit… it’s a bit of a love-hate relationship.  We love being the story tellers, after hours of digging through data and completing analysis that makes us smile as we find those tidbits of supporting evidence that add up to strategic insight.  There’s nothing that compares to persuading a board room audience to shift strategy based on your analysis and being proven correct… and we love it.  We hate when stuff pulls us in 17 different directions and we lose valuable time we’d rather spend on that analysis we were just about to finish… especially when it’s the fourth meeting in a row and the agenda includes reviewing the upcoming revisions to the cubicle floor plan.  Not something we love.

Managing your time is perhaps the most important job skill you can develop.  What this really means is not allowing other people to manage your time.  Ensuring analysis is based on the most recent data, improving accuracy and updating forecasts, refining analysis with improved segmentation, working with the sales team to make sure they understand the forecast changes; these are just a few examples of the small stuff that simply must be deeply integrated into your daily schedule.  Seriously… the small stuff should literally be scheduled on your daily calendar.  Assemble a daily and weekly checklist, and block time on your daily schedule.

Make sure you actually have access to and reference the right small stuff.  This speaks directly to your competitive rate analysis! Fare-1-1 provides daily updated views of the data you need… Market Fare Forecast pricing by length of stay and trend behavior, lowest daily fares, and more!  All conveniently located on our Dashboard.  Set alerts and you don’t even have to monitor reports… you’ll get an email alert!

It’s our professional duty to sweat the small stuff, and the first step is being the master of your own time – save time and increase revenue!

Time to sweat the small stuff.  Good luck!

Please feel free to join the discussion by leaving your comments, or contact me directly at askjames@fare11.com.

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Do You Need To Fix Your Rates?

At times as a child, I was overly-dramatic and often made exaggerated facial expressions to the point that my mother would often sternly tell me “Fix your face!” I can only imagine some of the ‘before and after’ expressions I made.

Today, revenue management (RM) has grown well beyond setting rates… we applaud the RM evolution. There’s one problem, however – as we spend more time on other things, we must not allow ourselves to forget the basics. If you find yourself in lots of meetings discussing how your property can drive demand, be more creative with marketing, how the sales team can be more aggressive and effective, re-tuning offers and incentives, maybe there is a more important question: Do you need to fix your rates?

Clarification: As a practice, revenue professionals will often defend rates suggesting rates should only be dropped as a last resort, after all marketing and sales efforts have been exhausted. In theory, this is true… however, it is also based on the assumption that your current rate is the right rate… I’m suggesting you stop and ask yourself if it is, in fact.

You can spend hours designing gorgeous, captivating campaigns, adjusting offer reinvestment, setting higher sales goals, but if the rate is wrong it will bleed into every part of your strategy. How do you know if your rate is wrong? If your rate is set solely based on the competitive set (are you chasing the lowest market rate?), based on the budget or forecast (setting your rates to support the last forecast?) or some other equally arbitrary guidance, you need to fix your rates.

As a revenue professional, whenever I found myself starting to look at ways to drive bookings, I always paused and asked myself this critical question: Do I need to fix my rates?

If the honest answer is yes, you’ll want to act fast. The first thing you need to do is assess what your goals are… how does your demand forecast compare to your available inventory? Are you trying to sell the hotel out (closer arrival dates) or are you trying to get your pace back on track (longer lead times)? Once you establish your goals, you need to understand what rate your inventory is actually selling for. If your rate is currently set at $100, and the rate you are achieving after promotions and discounts is $80 then your rate is probably 20% too high. Promotions, discounts, and the like require planning (and time and money!)… you will always be better off selling the inventory outright by setting the right price.

Understanding the trends in your market that impact your property are crucial, as well. Once you have your goals set and understand what rates will actually sell your inventory, you can take a look at what the competition is doing and fine tune your pricing decisions accordingly. Simply matching the lowest rate in town is never a good idea… you need to take a more analytical approach and make decisions based on the needs of your property. Perhaps you don’t have to beat the market by offering the lowest rate in town… especially if the market is moving rates up.

Fixing your rates is not always easy… but always necessary. Make sure you have the tools you need to make the best business decisions.

Please feel free to join the discussion by leaving your comments, or contact me directly at askjames@fare11.com.

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