Hospitality industry pricing: Where is it heading?

revenue-managementThere is much debate within hospitality circles on the growing pressures on pricing and the problems revenue managers are having making decisions on when to sell a room, who to sell it to, and for what price it should be sold.

During a recent Executive Roundtable held in Sydney in late 2015, pricing issues emerged as a key theme that was being driven by the use of online travel agents and being compounded by data related issues. Skills shortages and changing skill requirements in the industry were also hot topics.

Online Travel Agents

First, some online travel agents forced hotels to standardise pricing by dictating rates and contract terms, across all channels including rates that appear on the hotelier’s own website. In addition, some online travel agents redistributed a hotel’s inventory to third party providers who then undercut the room rate, without the consent or knowledge of the hotel. This leaves hotels having to explain to their customers why they are not able to offer the cheapest rate on the market to customers directly.

Hoteliers facing this problem should analyse which geographical areas OTA’s are generating business from to determine if the OTA is cannibalising their existing markets, that is markets where they already have a strong presence. Where this is the case, hotels should take corrective action by ceasing to contract with that OTA. However, if the OTA is distributing inventory to new markets, markets they wish to expand into, or numerous thin markets (long tail effect) then they shouldn’t see the conditions as being onerous.

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Data related issues

Next, the issue with data is the lack of integration and access to real-time pricing by OTA’s and other distributors, making the management of rate distribution inefficient. Lack of accurate and complete data also makes it more difficult for revenue managers to accurately forecast and match customer demand with pricing decisions. Data is the key to efficient and effective decision making, so complacency shouldn’t be tolerated as a concerted effort to align business processes with distributors and suppliers is key to creating competitive advantage. Achieving the adoption of real-time data exchange and integrated systems can be achieved through pricing and contracting, industry training and promotion of best practice processes and technology.

Businesses through their contractual negotiations should give their distributors and suppliers advance notice that they require them to provide best practice data integration and technology to avoid duplication and incomplete data and to ensure that they can support their business practices and processes. Once agreed to, this should be enforced.

Skills shortage

It is a well-known and accepted fact that the hospitality sector suffers from skills shortages in all areas of the industry and revenue managers are no different. Anecdotal evidence suggests that revenue managers are headhunted and lured by other industries, especially supply chain and logistics sectors who offer higher pay and sometimes better conditions.

In the past, revenue management was viewed as a back office function and staff were hired predominantly for their analytical skills. However, as customers are more involved in the end-to-end sales and service delivery process, the skills required by revenue managers are a blend of technical and soft skills, including an understanding of the customer, the context and conditions in which they are travelling, and the effects this has on the room, the room rate and pricing.

Training, supporting, and up-skilling revenue managers is key to ensuring that their skills remain relevant and leading edge. A service culture is also important to ensure that the entire business is focused on the customer and that they are all working together to create value for customers and your business. For businesses located in high service areas, introductory skills training should be available online to minimise the cost of recruiting staff and lower the barriers to entry. This also applies to any area where there is high staff turnover.

About the author

Dr. Moira ScerriDr. Moira Scerri  is the Managing Director of  SEPIA Consultingg. The SEPIA Consulting team are highly experienced and have a wealth of knowledge and expertise in service transformation, service (re-) design, service innovation, service operations management and measuring service productivity.A Service Productivity expert, Dr. Scerri consults and coaches executives responsible for achieving organisational productivity improvement. Dr. Scerri has a PhD in measuring productivity in service and networked based firms and has authored in the areas of service innovation and service productivity. She has over 30 years experience in service transformation working in travel and tourism, information technology, payment processing and education sectors. More recently she has undertaken studies in the creative industries. Dr. Scerri regularly speaks at industry conferences and provides services to government and business service productivity and value creation.

Dr. Scerri has authored in the areas of service productivity, service innovation, supply chain management, dynamic capabilities and yield management in education. She is a casual academic at the University of Technology Sydney. She can be contacted at moira.scerri@sepiaconsulting.com.au

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