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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How much are your rooms worth?

A long time ago, I witnessed a very memorable conversation between an experienced, seasoned revenue management executive and a brand general manager.  The general manager requested corporate assistance figuring out how to sell more suites, instead of constantly and only upgrading into them.  At the end of the day, after digging through data and spending time with the team, we met with the GM to debrief and share our findings.  We told the GM that the price needed to be lowered, and we presented data that solidly supported our recommendation. The GM listened, then pushed the stack of data back at us and snorted “I don’t care what you think I should charge for my suites.  They are worth $1,200 a night and I won’t accept a penny less!” to which my mentor replied…

“With all due respect, it doesn’t really matter what you think they are worth. The only thing that matters is how much your customers think they are worth.”

Customers perceive value based on comparing the room rate versus where they believe the product ranks against the competitive set.  Bottom line, if your suites aren’t selling and you believe they are at the top of the market, if you want to sell them you need to adjust the price (assuming people know they exist, and marketing is doing their job… if not, talk to them before making any price adjustment!).  If you decide a price adjustment is needed, we recommend you test it… try a short-term promo (weeks, not months) to test a lower price point.

Finally, always be aware how your price positions you in the market.  If you are tracking to sell out way in advance, you can price aggressively against the market… if not, and you need to move some volume, you can undercut the market and steal some share.  Just make sure you keep an eye on the market!

How much are your rooms worth?

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Set your price right and stop wasting time. Here’s how.

Piles of internal reports, competitive pricing reports, STR reports, emails from the sales team, all jamming your bandwidth and stealing your time.  Ok, usually all of these different sources of information have tidbits of valuable data, by the time you sort through it all and make sense of it valuable time has passed and now you’re late for the next item on your daily checklist.

Our team has practiced revenue management for years, and we have lived that scenario a thousand times.  It happens.  So how do you clear all that noise, save time, and make better informed pricing decisions?

You need a one-stop shop for pricing data, a tool that shows you the current published lowest daily rates, and right next to that the market fare forecast – what the competition will be charging, and what price you actually need to compete with.

If you price right at the lowest published competitive rates, you might feel good about that price today… until tomorrow when you see the competition raised their rates (or lowered them!). If only you had known that the market rates were trending up, or down, you could have been one step ahead with your pricing strategy.

Fare-1-1 delivers the Market Fare Forecast, Lowest Daily Rates, and published current Daily Hotel Rates.  Search through them with ease, see what specific hotels are priced at your rate, see who is priced higher and lower… with ease.  In seconds.

Your fancy, expensive RMS does not do that.  Fare-1-1 does.

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

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Announcing Daily Hotel Rates!

Fare-1-1 is excited to announce the completion of the Dashboard – the industry’s first, complete, one-stop hotel rates shop. The powerful addition of Daily Hotel Rates empowers you with the right tools to do the job right, powered with hotel rate data (updated nightly) like no one has ever done before… a comprehensive list of rates from every single hotel in your market organized for your analysis by star rating. The application is designed for search ease and rapid query support… simply start typing the name of the hotel you are curious about and it will appear. Or, type your rate and you will immediately see who else is charging the same rate. Instantly. Just like a jet fighter pilot, you deserve the right tools to navigate and push your business forward. This includes the right software, hotel software is important in order to manage and control your business to meet the needs of the customers.

The Fare-1-1 Dashboard equips you with the powerful Market Fare Forecast, Lowest Daily Rates, custom user Daily Email Alerts and now the Daily Hotel Rates… everything you need to make more informed hotel pricing decisions. Quickly study your market with Daily Hotel Rates and Lowest Daily Rates, set your rates against the Market Fare Forecast ensuring you are properly positioned amongst your competitive set, and set your Daily Email Alerts so you know the moment anything changes.

Your revenue management system doesn’t do any of that.

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

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Why your Revenue Management System is handicapped

Regardless how much revenue management systems (RMS) cost they all have a severe handicap… garbage in, garbage out. Booking data is collected nightly, data is ‘crunched’ and a predetermined set of rates act as a pricing guardrail. If you are currently at $149 and your system thinks you should raise rate, you will get a recommendation to go to your next higher rate level of $179, if that is what you have built into your pricing structure.  If you set the next rate at $189 that would be the recommendation and here we stumble across the reason why your revenue management system is handicapped.  Set your rates wrong, and while your system recommendation may be directionally accurate, your rate will never be truly right… and you will always leave money on the table.

You invest time daily reviewing your reports, pricing recommendations, then you override the rates. You know you do. The very system that is supposed to save you time actually eats your time while you correct its mistakes.  What should your system do differently?

In a perfect world, your RMS would serve as a single version of the truth… one combined view of everything you truly need to make well informed pricing decisions.  You need to see your rate, the lowest competitive rate in the market, which direction the pricing is heading in and what the market will actually be priced at.  With all that information and insight, your pricing decision would be made simple. Powerful. Market share stealing!

Today, Fare-1-1 serves as your single version of the truth. We offer the Lowest Daily Fare in your market (organized by hotel star rating and length of guest stay), a Market Fare Forecast (organized by same parameters) and the pricing trend (which way is the market pricing moving?).

If your rate is set at $149 and the Lowest Daily Fare in the market is $159 you might feel a sense of comfort undercutting the competition. What you probably don’t know is the market is trending up, and the Market Fare Forecast predicts your competition will be at $199. This means you are not leaving $10 on the table, rather you are actually leaving $50 on the table. Per room night. If you recover $50 on just 10 room nights per week (5 rooms sold Friday, 5 rooms sold Saturday) that translates into an incremental $24,000 per year for your property (pure profit). You can recover a lot more money than that.

Once you set your rates, you’ll need to focus on other things… you can’t spend all day obsessing on just rates. Set your rate Alert and when any piece of the equation changes you’ll be the first to know… just by glancing at your email.

Your RMS doesn’t do that. Fare-1-1 does that.

Stop wasting time, stop leaving profit on the table.

Please feel free to join the discussion by leaving your comments, or contact me directly at askjames@fare11.com. Sign up for a free trial at Fare11.com today, and visit us on Facebook.com/nopricegaps.

 

Situational Awareness

Situational awareness is critical to success.

A long time ago, someone very wise offered me great advice…

Situational awareness. Always be aware what is happening around you.

When setting your rates, this awareness is critical. Your price should always be set first and foremost based on your property’s own supply and demand situation, then adjusted to maintain your competitive edge and protect market share. This is where situational awareness plays a big role.

So you set your one night length of stay rate at $149. You then need to compare your new rate against the market, and upon checking the Lowest Daily Fares you see the lowest comparable rate in your market is $159. You also see that the Market Fare Forecast predicts your market will be priced at $189, as the rates in the market are trending up over the past week.

How does that new rate look now? Your new rate at $149 is leaving $10 on the table, and very likely actually $40. The opposite of this scenario also presents opportunity… if you are $40 higher than where the market is headed, you will want to adjust so you don’t lose occupancy for the sake of protecting rate.

Situational awareness is great, immediately helping you identify small opportunity… but when you gain insight and take action to properly position your hotel in the market based on what the competitive rate will actually be, you really unlock hidden revenue and profitability.

Don’t just rely upon a spreadsheet that regurgitates what rates are found online… don’t simply react to the competition! Gain insight with valuable data found in the Market Fare Forecast, take action and drive your business.

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

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Worst Decisions Ever – Eternal Sales

Eternal Sale.

Continuing our ‘worst decisions ever’ blog series, we share another valuable lesson learned by one of our clients… stop depending on the eternal sale to drive volume.

What is the ‘eternal sale’?

The eternal sale is when your hotel ALWAYS has a sale or promotion running, and we’re not talking industry standard promotions such as AAA/AARP (as one example)… we’re talking about sales and promotions that deeply discount your retail rate.  We’re talking about sales and promotions that once cut off, bookings immediately stop (or dramatically slow down).  This strategy might work for other business models, but has no place in your hotel or resort strategy.

Diagnosis?

Your retail rate strategy is wrong!  If you depend on sales to sell your property, not only are you dependent upon rates well below your published retail rate, but there are additional factors (whether you know it or not) including marketing/advertising expense pushing the sale/promotion, dilution of your brand image and value, education of customers (and potential customers) to simply wait to book until your next sale, and the time you personally invest into promotional setup and management.

Bottom line, you’re creating a lot of extra work for you and your team simply because your rates are wrong.

Do not repeat the worst decisions this client made – your property deserves better.  Studies have shown that it can take years to re-educate consumers on pricing, especially when dramatic reductions are published to chase volume.  We’re not saying sales and promotions are evil… what we are saying is that when sales and promotions run constantly, then effectively you do not have a retail rate. It’s difficult to trump the power of pricing!  Maintaining effective retail rates that position you properly against your competition and drives your business will be a critical part of your future success.

Please feel free to join the discussion by leaving your comments, or contact me directly at askjames@fare11.com. Sign up for a free trial at Fare11.com today, and visit us on Facebook.com/nopricegaps.

Worst Decisions Ever

Worst Decisions Ever

A client recently asked us what were the worst decisions ever we observed over the years. Revenue managers make a lot of decisions daily… everyone makes mistakes. The important thing is to learn from your mistakes, and not repeat. The next few posts present some lessons our clients have learned.

Blindly following the leader and dropping rates.

Don’t blindly match the new lowest rate in the market. This race to the bottom is a dangerous game, and not a sound hotel pricing strategy. First and foremost, you should always price your property based on its needs, its own supply and demand. If you are high on supply and short on demand and a competitor drops rate below your own, we recommend a couple things. First, run the numbers to see how many lower priced bookings you could take and still make forecast and budget… know the numbers. Second is there a way to drive demand without a ‘public’ rate drop? Can you run a package sale, drive opaque bookings, etc.? Do you really need to match that new low rate, or maybe just fine tuning your price by dropping it a small $10 will win?

If you run a package sale, or a room upgrade promotion, it will give you something to talk about (marketing!).

Where is your inventory need? If not in your lowest room category, and you drop your lead rate, you just diluted that demand and failed to target the actual need.

Tomorrow we will present another lesson learned and observed!

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