December 01, 2017

What other industries can teach hotels about price optimization

Pricing optimization is one of the more challenging aspects of revenue management, but by looking at the ways that other industries have approached it, we can use their methods to provide solutions to our pricing issues.

In fact, pricing optimization, where the price for an item or service is set to maximize revenue, was invented by the airline industry. They were the first industry to set their prices for a certain ticket based on the demand. For example, if the demand for a particular flight is high, the number of economy seats will decrease, whereas a flight that’s lower in demand would have more budget options.

Dan Skodol, Vice President of Revenue Analytics at Rainmaker, says that while the airline industry isn’t as differentiated as hospitality, “There are parallels with understanding your business segments. For example, in both cases, leisure travelers are more concerned with price than business travelers. Leisure travelers tend to have more flexibility with the dates and times that they book, so they tend to make their decisions based more on price than other factors. Business travelers are the opposite, since they have to be in certain locations at specific points in time and will therefore pay a premium for that specific option.”

The retail industry employs several pricing optimization strategies across similar products that are easily translatable for hospitality. This is particularly relevant to hospitality since hotel rooms in the same comp set are typically priced very similarly to each other. What factors make a hotel room that’s priced slightly higher than those that are nearly identical more appealing to a potential guest?

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