Oct
31
I like revenue management. It’s a fascinating discipline. At its most extreme it can get really, really complicated. Complicated is good, as long as complicated is getting the job done.
For most of us, true revenue management is something other people do. I know quite a few revenue managers and most of them, by their own admission, aren’t using all the bells and whistles they could be using. Mainly because they’re just too complicated to use and you get to a point where spending 10% more time and effort on more analysis won’t bring in any more business.
Today – not for the first time – I saw revenue management being abused. Someone set out to make things much more complicated than they should have been. The result was a hotel that pointed itself in completely the wrong direction. The hotel was pointing at its selling price, not the customers.
You see today I was talking to somebody about Rate Optimisation.
Rate Optimisation is making sure you charge enough to make the right amount of profit without sacrificing occupancy. It’s about making sure you take advantage of demand when it’s there and that you’re still able to attract bookings when it’s not.
This particular hotel (their whole management team in fact) has become so caught up in the Rate Optimisation loop that they’ve forgotten what a price is and what it’s for.
What is Price?
Price is only one aspect of the marketing mix. There are others: Product; Place and Promotion. If you’re a service business there are a further three: People; Process and Physical Evidence.
To be fair, Price is the only element of however many “P’s” you want to use, that actually means income for your business. The others all represent costs. My concern is that hotel managers now focus like lasers on fiddling with price and ignore the other critical elements of the marketing mix. Price is important to your customers, but it’s not the be all and end all. You see price looks at what the customer is going to do for you. The other elements of the marketing mix look at what you do for the customer.
It all conjures up an image of a marketplace where potential customers wheel around the sky like vultures looking for the “best rate”. The Rate Optimisation approach is intended to ensure that the “right” customers buy at the “right” rate at the “right” time. This is based on two fundamental assumptions:
Assumption 1 - That all those vultures are looking for a number with a currency symbol in front of it.
Are your potential customers really all looking for your price?
It seems to me that an awful lot of effort goes into micro managing hotel prices. Possibly more effort than necessary.
You see, there’s nothing unique about your price. Everybody has one.
Will your customers really book with a rival hotel because their price is £1 less than yours?
Customers who book on that basis aren’t what you’d call “keepers”. They’ll be off somewhere else for the next cheap deal next time.
What are people really buying?
Assumption 2 – That all hotels in your price bracket are offering exactly the same thing.
Of course you’re not are you? You’re different. You work hard to be different, to be reliable, comfortable, purveyors of “wow!” and so on… (fill in the rest with whatever it is you seek to offer your customers).
If you’re not different, you’re wandering into dangerous territory. Products that are all the same are called commodities. The only differentiating factor becomes price and when supply exceeds demand price goes down. When price goes down it doesn’t always mean demand goes back up.
The art and science of “optimising selling price” needs to embrace more than just price.
It needs to embrace the other elements of the marketing mix and it needs to concentrate especially hard on “Promotion”. You need to communicate what it is you do for the people who are going to pay the price you charge. And keep communicating it. And keep communicating it. And keep communicating it.
Put yourself in the buyers’ shoes. Which would you prefer?
£5.99
or
“grilled breast of corn-fed chicken drizzled with a delicate, creamy tarragon sauce”
£59.95
or
“the most comfortable bed you’ll sleep in this week”
The price might very well be optimised, but what about the offer?
Does the price do anything special for your customer? What is it your customer really wants? There is nothing that someone can’t make a little bit worse and sell for £1 cheaper. Also, think about this – are they buying £59.95 or are they buying a bed for the night?
Does your customer want to risk spending £1 less and not getting a good nights’ sleep?
A whole science has built up around fiddling with hotel room rates. Management teams delight in tweaking and playing with prices. There are even computer programs dedicated to making your selling price oscillate like a jelly in a high wind, depending on what your competitors are doing.
If only hoteliers paid as much attention to the other elements of the marketing mix.
You can’t improve demand with price alone.
For most of us, true revenue management is something other people do. I know quite a few revenue managers and most of them, by their own admission, aren’t using all the bells and whistles they could be using. Mainly because they’re just too complicated to use and you get to a point where spending 10% more time and effort on more analysis won’t bring in any more business.
Today – not for the first time – I saw revenue management being abused. Someone set out to make things much more complicated than they should have been. The result was a hotel that pointed itself in completely the wrong direction. The hotel was pointing at its selling price, not the customers.
You see today I was talking to somebody about Rate Optimisation.
Rate Optimisation is making sure you charge enough to make the right amount of profit without sacrificing occupancy. It’s about making sure you take advantage of demand when it’s there and that you’re still able to attract bookings when it’s not.
This particular hotel (their whole management team in fact) has become so caught up in the Rate Optimisation loop that they’ve forgotten what a price is and what it’s for.
What is Price?
Price is only one aspect of the marketing mix. There are others: Product; Place and Promotion. If you’re a service business there are a further three: People; Process and Physical Evidence.
To be fair, Price is the only element of however many “P’s” you want to use, that actually means income for your business. The others all represent costs. My concern is that hotel managers now focus like lasers on fiddling with price and ignore the other critical elements of the marketing mix. Price is important to your customers, but it’s not the be all and end all. You see price looks at what the customer is going to do for you. The other elements of the marketing mix look at what you do for the customer.
It all conjures up an image of a marketplace where potential customers wheel around the sky like vultures looking for the “best rate”. The Rate Optimisation approach is intended to ensure that the “right” customers buy at the “right” rate at the “right” time. This is based on two fundamental assumptions:
Assumption 1 - That all those vultures are looking for a number with a currency symbol in front of it.
Are your potential customers really all looking for your price?
It seems to me that an awful lot of effort goes into micro managing hotel prices. Possibly more effort than necessary.
You see, there’s nothing unique about your price. Everybody has one.
Will your customers really book with a rival hotel because their price is £1 less than yours?
Customers who book on that basis aren’t what you’d call “keepers”. They’ll be off somewhere else for the next cheap deal next time.
What are people really buying?
Assumption 2 – That all hotels in your price bracket are offering exactly the same thing.
Of course you’re not are you? You’re different. You work hard to be different, to be reliable, comfortable, purveyors of “wow!” and so on… (fill in the rest with whatever it is you seek to offer your customers).
If you’re not different, you’re wandering into dangerous territory. Products that are all the same are called commodities. The only differentiating factor becomes price and when supply exceeds demand price goes down. When price goes down it doesn’t always mean demand goes back up.
The art and science of “optimising selling price” needs to embrace more than just price.
It needs to embrace the other elements of the marketing mix and it needs to concentrate especially hard on “Promotion”. You need to communicate what it is you do for the people who are going to pay the price you charge. And keep communicating it. And keep communicating it. And keep communicating it.
Put yourself in the buyers’ shoes. Which would you prefer?
£5.99
or
“grilled breast of corn-fed chicken drizzled with a delicate, creamy tarragon sauce”
£59.95
or
“the most comfortable bed you’ll sleep in this week”
The price might very well be optimised, but what about the offer?
Does the price do anything special for your customer? What is it your customer really wants? There is nothing that someone can’t make a little bit worse and sell for £1 cheaper. Also, think about this – are they buying £59.95 or are they buying a bed for the night?
Does your customer want to risk spending £1 less and not getting a good nights’ sleep?
A whole science has built up around fiddling with hotel room rates. Management teams delight in tweaking and playing with prices. There are even computer programs dedicated to making your selling price oscillate like a jelly in a high wind, depending on what your competitors are doing.
If only hoteliers paid as much attention to the other elements of the marketing mix.
You can’t improve demand with price alone.
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