In this next section we're going to be going over how pricing has evolved in the industry as well as what is the future of pricing. There are two main topics that I'm going to cover. Pricing approaches and pricing strategies. A pricing approach is the methodology around which you want to structure your pricing plan. The pricing strategy is the philosophy by which to execute said pricing plan. This can be made up of multiple pricing approaches. Selecting the most dynamic pricing strategy and approach will enable a hotel to maximize its potential and fight against the ever growing complex distribution landscape. If we look at the evolution of the hotel industry, we can see that over the past 40 years, there have been many changes influencing how hotels get their rooms to market. Historically, hotels may have just had one or two prices that they normally charged, possibly additionally setting prices for holidays or special events. As the industry evolved, and as we saw distribution grow in complexity with the rise of the Internet, pricing followed suit. First from semi dynamic to now in 2015 which has become much more dynamic and sophisticated. Many hotels often don't think from a strategic standpoint when offering pricing through promotional channels. Many people offer better promotions on last minute discount platforms than through their own brand.com site, which is not ideal for the health of their hotel. Like the example of Jim in the beginning of this module, customers searching hotel direct websites should always be getting the best rate available. Offering best offer discount pricing on third party public channels is a huge problem. Hotels need to make sure consumers, especially their most loyal and most profitable customers, know that they are getting the best rate and thus are benefiting more from booking directly. Driving customers to alternative channels can permanently change their buying behavior, and ultimately lose the hotel a significant amount of direct business. Before revenue management, and the evolution of pricing strategies as a result of modern day distribution complexity, there were six major ways hotels priced. Single rate, weekday weekend, and seasonal are all approaches introduced in module one. And now I'm going to introduce to you a few new approaches as well. Budget driven, competition based, and length of stay pricing. In addition to the six most recently developed pricing approaches, brought on through the rise of access to data has been a data driven approach. As a refresher from module one, let's look at the first three that I mentioned. First, the single rate approach. A single rate was the original pricing approach for hotels before revenue management was introduced. There was one rate that was charged the entire year, with fixed supplements for higher categories of rooms. Next, we have our weekday and weekend pricing approach. Slightly better than single-rate was weekday and weekend rates. Hotels used to have a two rate structure where throughout the entire year, there was one rate for weekdays, Monday through Thursday, and one for weekends, Friday through Sunday. When corporate travelers became more apparent in certain markets, hotels began to introduce weekday rates versus weekend rates to capitalize on that traveler's willingness to pay more during the weekday. Next, we have the seasonal pricing approach. Seasonal pricing is simply breaking down the calendar year by certain peak and in need times, and pricing based on those times. Most hotels have a high peak and a low season and you adjust your rates accordingly based on the demand for that market. When seasonal pricing was first introduced, there would have typically been two to four rates to change annually in most markets. Using the ski location weather example from module three, you remember that you can determine seasonality in a variety of ways. Most commonly being weather or air traffic patterns. In that example there is a high, middle, and a low season where a hotel in that ski destination may have had three rates which you would follow based on time of year. As you have had an opportunity to better understand some of the fundamentals of the hotel industry, we can dive deeper into the next three pricing approaches. Next we have budget-driven pricing approach. This is an unfortunately common used but detrimental way to price a hotel. When a hotel prices to budget, it's not actually looking at the market nor looking at the demand for the hotel. This is a very dangerous habit to get into. The dangers of pricing to budget is that you make a budget a year in advance. With certain financial goals which are often linked to incentives. If a hotel is pricing to a pre-determined financial goal, that means that it is not looking at the market, so there's a good chance that it is under or over selling its products. Often times if a hotel is under budget and begins to price higher to hit budget, It'll only throw off demand even further. The goal of pricing is to be responsive and dynamic. So if you're pricing to a previously decided on endpoint, particularly one decided upon the year prior, this is not a good strategy. While all of these were, and even today often are, commonly used pricing approaches, as I mentioned previously, things have evolved. With modern day abilities to collect and aggregate data, the optimal pricing strategy is now one which is data driven. Next we have the competition-based pricing approach. The competition-based pricing approach means a hotel's price is based off a single competitive hotel or mix of competitive hotels pricing. Many hoteliers drive pricing by wanting to be priced off a specific competitor. This is not the best methodology as a hotel will find itself the market follower. Next we have length-of-stay pricing. Length-of-stay pricing means that they give structured discounts based on the amount of time a guests stays at a property. A guest staying one night may pay $500, whereas a guest staying two nights might pay $450 a night, and someone else who's staying three nights might pay $400 a night. While this is great for covering shoulder days, it can restrict a hotels business and if used should be more of a restriction capacity than pricing. This falls into the bar strategy, which I will discuss later on in this presentation. Dynamic-data driven pricing approach uses a variety of historical and forward looking data to determine a price for a hotel in a more granular level, such as by segment. This data could be as simple as pace or pick up or market data utilizing big data sources to analyze macro and micro trends. The data is used to develop an unconstrained forecast, which should be something a hotel looks at on a day-to-day basis and should trigger it to focus on key constrained dates. If a hotel has an accurate forecast and there is high compression, then it should track pace, meaning number of customers booking in a time period. It should raise its rates, yield up any discounts, and perspectively change the room type pricing differentials, meaning changing the pricing amounts between the different room types to help balance out the forecast to hit sell out on the stay date and not before. In compression situations, a hotel should adjust pricing so as to control pace. Anticipating sell outs city wide or local and keeping inventory available to sell at a premium after other hotels are full can only be achieved through accurate forecasting. Macro data trends can also help drive pricing decisions. A hotel anticipating high demand can confirm this with booking engine or airport arrival data before increasing rates. This approach towards analytics driven pricing is becoming standard practice in the industry and as more relevant data sets become available, it makes pricing based off of extensive data even more important. In lower demand periods, both the basic and big data analytics approaches can help drive suggested rates, even if it means not yielding as heavily. This dynamic-data-driven approach has helped better improve booking curve management. Improving booking curve management is key to increasing rates, something I will get into in the next video.
