Common Revenue Management Pricing Mistakes & Their Solutions

Hotel revenue management is a strategic approach focused on maximizing revenue. It ensures that the right room is sold to the right customer at the right time and for the right price via the appropriate sales channel. It involves an in-depth analysis of multiple data points and market trends to forecast demand and set prices accordingly. The ultimate goal is to optimize revenue by considering factors such as seasonality, demand, competitor pricing, and customer segmentation while avoiding common hotel revenue management pricing mistakes.

Let's dig deeper.

1. Over-reliance on historical data

Explanation: 

Depending solely on past data to determine future prices may not always be the most effective revenue management strategy. This is because historical data may not account for current market trends, changes in customer preferences, or unforeseen events like pandemics or economic fluctuations. Therefore, it's important to consider a variety of factors when setting room rates, rather than relying solely on historical data.

The Solution: 

Combining historical data with real-time market intelligence is crucial. Incorporate various data elements like web traffic, booking pace, and competitor rates for better forecasting. In addition, predictive analytics can help anticipate future trends, allowing for more proactive decision-making rather than relying solely on past results.

2. Ignoring competitor pricing

Explanation: 

Neglecting competitor pricing can lead to misaligned rates, resulting in missed revenue opportunities. Your hotel could be perceived as overpriced or underpriced compared to similar accommodations in the area. Simply put, if you don't know what rates your competitors are offering, you can't sell your rooms at a competitive rate.

The Solution: 

Implement a robust rate shopping tool to monitor competitor rates continuously. Utilize this data to dynamically adjust your pricing, ensuring competitiveness without compromising profitability. Conduct regular competitive set analysis to gain insights into your position in the market. Most importantly, research and carefully select your compset, keeping your location, rates, service levels, star ratings, etc., in mind.

Read Also: Boost Hotel Revenue with Pricing Intelligence & Rate Mixing

3. Failing to segment customers

Explanation:

 It's essential to consider that using the same pricing strategy for all customer segments may not be the most effective approach for maximizing revenue. This is because different customer segments have various levels of willingness to pay. Understanding the specific needs, booking behaviors, and preferences of each customer segment is essential in order to tailor pricing strategies and offerings effectively. By doing so, you can optimize your hotel's revenue potential and better meet the diverse needs of its customer base.

The Solution: 

Segment your customer base based on demographics, booking channels, stay patterns, and travel purposes. Tailor your pricing strategy for each segment, offering targeted promotions and personalized rates. Additionally, utilizing CRM systems can provide a deeper understanding of guest behaviors and preferences, which can help you with efficient segmentation and pricing strategies.

4. Relying on static pricing

Explanation: 

Setting static prices can result in missed revenue opportunities as market conditions evolve and static pricing fails to adapt to these changes. For example, your region has heavy demand due to a big ticket event, and all your competitors have increased their rates. But you are not in a position to raise your rates. Aren't you leaving money on the table? This means that you must be flexible with your pricing strategy to take advantage of lucrative opportunities when they arise.

The Solution: 

Embrace dynamic pricing models that adjust real-time rates based on demand, occupancy levels, and market conditions. Implement revenue management systems (RMS) to automate price adjustments, ensuring your rates remain competitive and optimized for revenue maximization. You can also implement a smart cloud-based hotel property management system with a dynamic pricing feature. This enables you to act quickly to market changes and set optimal room rates to maximize your earnings.

5. Overlooking distribution channel costs

Explanation: 

Focusing solely on maximizing occupancy without considering the associated costs of different distribution channels can negatively impact profitability. You must carefully evaluate the costs and benefits of each distribution channel, such as online travel agencies, direct bookings, and traditional travel agents. Doing so lets you make informed decisions that balance occupancy rates with profitability. 

Relying too heavily on expensive distribution channels could eat into the revenue generated from high occupancy rates, ultimately affecting your hotel's bottom line. Therefore, a comprehensive approach considering occupancy and distribution costs is crucial for sustainable profitability in the hospitality sector.

The Solution: 

To effectively analyze the costs and profitability of each distribution channel, it's essential to dive into metrics such as customer acquisition costs, lifetime value of a customer, and the associated costs of maintaining each channel. By understanding these key numbers, you can optimize your channel mix by prioritizing direct bookings through your website and leveraging cost-effective channels. Utilizing channel manager software can streamline distribution, minimize costs, and maximize reach and occupancy by providing real-time data and automating various aspects of managing multiple distribution channels.

6. Not having efficient guaranteed Total Demand (GTD) and cancellation (CXL) policies

Explanation:

Not having well-thought-out GTD and CXL policies can impact your ability to boost your hotel's revenue. Consider this scenario - if a guest is planning to attend a major event in your area in six months, chances are high that he will opt for the refundable rate, say Rs 3000 than the non-refundable Rs 1500. Booking the refundable rate increases the likelihood of cancellation, as the guest could keep an eye out for better deals.

The Solution:

Conduct a thorough pricing analysis during high- and low-demand periods. To encourage bookings from serious guests, you need to balance the sell rate with reasonable cancellation policies throughout the booking curve. Setting a market-appropriate rate with slightly more restrictive policies can be a winning combination for high-demand dates, stabilizing forecasts, and securing more guaranteed revenue. For example, offer discounted rates that are non-refundable. These attract budget-conscious travelers. You can also implement stricter policies during high-demand periods such as holidays, special events, or peak seasons to minimize losses from cancellations.

Apart from the five mistakes mentioned, simply inflating your rates, selling rooms at lower rates to attract more guests, or accepting overbookings without a proper strategy are a few other revenue management pricing mistakes you need to address efficiently. It is advisable to take the guesswork out of the whole hotel revenue management efforts and make data-driven decisions.