Hospitality

You expect to pay more for a hotel when a city is full of conventioneers and to pay less at a resort during the off season. Thats what dynamic pricing is all about.

Most people understand that the prices for hotel rooms and airline tickets change all the time. We accept it without asking too many questions. Travel and hospitality companies have learned to tailor their pricing to the current supply and demand. PriceGain can help these companies improve profits further by optimizing their pricing systems.

The travel and hospitality industry presents many pricing challenges. It is very competitive. Demand changes constantly based on economic conditions and other external factors. They offer wide ranges of products and services that customers may value or devalue according to whim and fashion.

Airlines, hotels, tour operators, cruise lines, and car rental companies have implemented some of the most sophisticated decision support tools available to price their services. In fact, they have lead the way and have been working to optimize prices based on supply and demand since the 1970s. They have become very good at not only adapting prices but also at predicting demand; its quite an art.

Travel and hospitality companies are past masters at dynamic pricing. But how can they improve?

The basic approach is fairly straightforward and easy to understand. Typically, these companies use predefined price points in their demand forecasts and then have several price optimization models to choose from. One major challenge is to make sure that the predefined price points are the right ones for the situation.

For example, a hotel might have a standard room with six different standard price points ranging from $200 to $325. One question they must answer is, are those the right price points for a standard room in relationship to their premium room prices? How do we know that the price points they use in their models are the correct ones?

Do you truly understand your customers willingness to pay?

PriceGain has examined pricing practices in the travel and hospitality industry very carefully. One common finding is that managers often do not fully understand the price elasticity in their pricing models, nor how customers assign value to their varied offerings. These models are excellent tools that work extremely well when properly used. We help hospitality and transportation companies optimize their pricing models in order to ensure maximum profitability.

You must understand your customers willingness to pay in order to determine the right differentials between all the variations in your product offering. We do price optimization projects to determine very exactly where the right price points should be in order to optimize revenue and profits.

PriceGains approach to optimizing prices provides improved, more reliable information to drive existing pricing models.

Finding the optimal price given the guests willingness to pay is exactly the purpose of Price Optimization.

To get started, we define a set of products that we want to test. In terms of a hotel, this includes many different factors, including:

  • Brand
  • Location
  • Specific property
  • Type of rooms (standard, premium, luxury, double, single, and so on)
  • Payment conditions (cancellation policies, refund policies, advance payment, and so on)
  • Time of year

We work with our client to define the products being tested very carefully. We do this for the clients properties as well as for the competition. This is critical, since the resulting optimization model will allow the client to adjust pricing based on competitive responses in a variety of situations.

We often find that the companys loyalty program is an excellent source of customer information for the survey, although we use other data sources as well. The important thing is to survey relevant customer populations in large enough numbers to provide statistically significant and reliable results. It is easy to get people to participate, since we normally offer an incentive like loyalty points or a discount on a future stay that customers find attractive.

After we complete the survey, we apply statistical analysis to the data in order derive useful information on willingness to pay for different customer groups, times of year, and so on. With this information, we then work with the company management to implement improvements in their pricing models. The trick is in implementing it properly and tweaking it to obtain maximum profitability over the long haul. We then train the companys pricing people to continue managing the system for maximum profits based on competitive responses, changing economic conditions and other factors.