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Transparent pricing key in fragmented market
May 30 2013

As consumers become more savvy, they can quickly decipher what platforms and channels offer the best hotel prices and to whom.

Highlights
  • Consumers can quickly decipher what platforms offer the best prices and to whom, said IHG’s Brian Hicks.
  • IHG has found tremendous success with its Best Rate Guarantee on brand.com.
  • The role of revenue management extends into other disciplines and departments within a hotel.

LONDON—Transparency is an absolute necessity when pricing hotel rooms in this increasingly fragmented marketplace, said heads from two of the largest hotel companies in the world during last week’s EyeforTravel Travel Distribution Summit Europe 2013.

As consumers become more savvy, they can quickly decipher what platforms and channels offer the best prices and to whom, said Brian Hicks, VP of revenue management at InterContinental Hotels Group. 

“Customers are searching more than ever, and the bottom line is this is going to change the way that we price,” he said. “The transparency issue is not going away, so we need to embrace it. It’s not only on our rates but also about our company and who we do business with—corporate responsibility. These are all things people do their research about, and believe it or not, it all comes back to pricing.”

Chinmai Sharma
Louvre Hotel Group

 

Further complicating matters is the plethora of third-party booking platforms that have sprung up in recent years, said Chinmai Sharma, VP of revenue management and distribution at Louvre Hotel Group.

“(Online travel agencies) and third-party partners are growing at a faster pace than brand.com and direct channels. Search-engine marketing and affiliate marketing are getting increasingly expensive,” he said. “Anything you now want to do at a direct level costs more, and the entry of new disruptive technologies and channels has greatly changed things.

“A lot of hotels don’t really know anything about pricing in such a climate,” Sharma said.

It comes down to control—or the lack thereof, Hicks said. In this fragmented distribution landscape, revenue managers are finding it more difficult to know which rates are being displayed and where. 

“It’s a big challenge to keep on top of that,” Hicks said. “Going back 10 to 15 years, revenue management was all about tiers based on customer segmentation. That is pretty much out of the window now. From a pricing perspective, it has basically crushed that ability of revenue managers to use this model.”

Better forecasting can help, Sharma said.

“Everyone needs to get better at forecasting,” he said. “You need to fence your promotions and advance purchase rates to minimize the risk of losing business. I don’t see cancellation policies changing overnight, so at least ring fence promotions. It’s also become really important to monitor cancellations and last-minute bookings to see if these are people who are coming back to you. Cancellation rates can reach as much as 20% with certain booking sites, so it is a significant revenue loss.”

The best rate, guaranteed
To regain control and drive more direct business in such a transparent landscape, IHG years ago introduced its Best Rate Guarantee on brand.com.

“In my opinion, this is the most powerful offering we have,” Hicks said.

Brian Hicks
InterContinental Hotels Group

 

“Customers are obviously price sensitive if they are shopping on multiple sites,” he later added. “No one wants to feel that they didn’t get the best price possible. How can we use this to our advantage?”

The group’s Best Rate Guarantee is almost an insurance policy, letting consumers know they will always get the best price on brand.com, Hicks said.

“Customers are seeing us all over the other sites, so we also need to take that transparency and track the data to our advantage. We hope a price-optimization strategy using a bit of this transparency will help us understand what is important to our customers from a pricing perspective,” he said.

Those efforts have yielded repeat guests, Hicks said.

“Over 80% of the customers on our website said the price guarantee was going to bring them back,” he said. Knowing they were going to get the best price was a stronger influencer than social media, comparison sites and packaging, he added.

“Transparency means being consistent with logical, rational pricing so our customers can understand why they can get a discount and what they would be giving up in return,” Hicks said.

Cross-pollination
The reach of revenue management extends beyond the individual roles and responsibilities of the revenue managers, the panelists agreed. Often it requires the input of GMs and sales directors, communication between whom can provide further challenges.

“Revenue managers can be indifferent to other departments. They are chiefly concerned about (key performance indicators), (revenue per available room) and (the room revenue generator index). ... Given the different types of characters involved in different hotel departments, it is hard for everyone to be on the same page,” Sharma said.

“What I’ve seen working very well is bringing down the hierarchies a couple of levels, involving the departments more ... Cross-pollinate resources in teams. Things change so fast that you need to communicate and educate frequently on changing trends,” he said.

It helps to align different teams with common goals and incentives, Sharma added. “Develop goals and incentive plans based on common elements like RGI market penetration, RevPAR growth, cost of sale and brand contribution percentage.”

Hicks shared a similar viewpoint.

“Our sales and commercial line and revenue management are almost becoming blurred and they are going to basically become one. We have a future leaders program to help find high-performing individuals that are interested in revenue management and help them develop. I absolutely encourage all hoteliers to find people from different aspects and disciplines of the business to come into revenue management and become revenue-management wizards.”

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