The psychology of pricing - Insights

The psychology of pricing

Hotel Data ConferenceHuman beings are hard-wired to interpret and react to the world around them in certain ways, even if those reactions are often irrational and unpredictable.

This seems to hold especially true when it comes to buyer behavior and many have long sought to understand the psychology behind the interesting quirks of human behavior that drive how we make purchasing decisions.

Earlier this year, we conducted a study among attendees at our annual user conference, OPTIMIZE2017, to explore this further. The survey contained a series of ÒexperimentsÓ designed to prove certain theories regarding behavioral science based on our thesis that, in general, people tend to behave irrationally when it comes to their decision-making, especially as it relates to price and purchases. We wanted to see if this still held true when surveying a group of pricing and revenue management experts. The goal was to find results that could help hoteliers and revenue managers identify what drives these behaviors and choices psychologically, so they can tailor their pricing strategies to cater to the decision-making processes of their potential guests.

It’s commonly known that marketers, as well as pricing and revenue management professionals in the hotel industry, have long utilized various tactics that attempt to extract the greatest possible spending from customers. However, the extent to which customers may perceive these tactics as ÒfairÓ or ÒunfairÓ varies depending on the psychological and emotional response the customer has to any number of tactics used. This is a key driver in whether or not a customer, or hotel guest, will make the choice to spend more or less at your establishment.

The findings from this study are meant to help marketers and revenue managers identify the most effective tactics that are both perceived as ÒfairÓ by customers and convince them to spend more. For example, during the survey we found that respondents are actually willing to pay more for the same beverage when purchasing it from a five-star hotel as opposed to a dive bar. What this conveys about the hotel industry is that it can often be consumers’ÊperceptionÊof price and value, and the context of the purchase, rather than the price or product itself, that drives the intent to purchase.

I will be presenting this study and its findings at the Hotel Data Conference in Nashville, Tennessee this week at the Omni Nashville Hotel on Friday, August 11. For those in attendance, three specific outcomes will unfold from the presentation. First, I will deliver insight into the aspects of the human brain that drive our decision-making behavior. From there you will learn how to use these psychological phenomena to your advantage, while remaining in the customer’s good favor, and you will leave the presentation armed with specific tactics that you can start using immediately.

By Dan Skodol, VP of Revenue Analytics, The Rainmaker Group

Dan SkodolDan Skodol is Vice President of Analytics at The Rainmaker Group Holdings. The Rainmaker Group was co-founded in 1998 by Bruce Barfield and Tammy Farley Ð each bringing to the table more than 20 years of experience in revenue optimization and the successful deployment of revenue management solutions internationally. Over the years, Bruce and Tammy built a solid customer base and a management team that shares their passion for creating and nurturing customer relationships, and for delivering products that continue to deliver outstanding quantifiable returns for customers. In 2012, following an extended period of extraordinary growth for the company, Bruce and Tammy secured a $33.8 million equity investment from Norwest Venture Partners (NVP) to further accelerate growth.

 

 

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