January 09, 2013

Analytics of competitive pricing, and what it means for hotel marketers


Modern pricing and revenue management practices in the hospitality industry focus on competitive pricing analytics by analysing competitor pricing and the impact it has on a property's demand, including anticipating the amount and timing of competitor reactive price changes.

The most tell-tale evidence that you might be using competitive pricing information properly is your reaction to the condition where you are priced above your competition. If your reaction to this is “we’re not going to get any demand!” it is a virtual certainty that you are not using competitive information properly. If your reaction is “we’re going to see less demand,” then at least you are on the right track.

Customers are diverse, they make their decisions on a variety of factors – including price. Think of it as the value versus price scale – but just remember that different customers judge value and price differently. As a result, there’s a continuum that represents the “tipping point” for price versus value – this is what we’re talking about when we talk about price elasticity of demand.

In other words, analytics are not only capable of answering the question “What if we charge $99 instead of $119?”, but also “What if we charge $99 instead of $119, while our competitors are charging $119?” and other such variants. If we combine that sort of thinking, along with an analytical take on how demand compares to available inventory (i.e. “Given that we only have 50 rooms left to sell, and given that our competitors are charging $X, could we make more money by changing our rate”) – then we are really getting to what modern pricing and revenue management should be.

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