Tuesday, October 20. 2009Revenue management's next frontier? Rate rationalization.Trackbacks
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It's good thought, but I am afraid any system that takes "..competitor pricing, seasonality, market mix and shopping behavior" into account when setting prices will make prices wars worse, not better. Once discounting starts in a true downturn it has a snowballing effect and the more information about negative pricing trends will be fed into a system, the more that information would lead that system to price downwards as well, no?
Markus,
Thanks for the comment. Keep in mind that this rate rationalization exersize happens once a year, not on a systematic basis like pricing through a revenue management system. Rate rationalization happens first, then those rates are configured in the RMS and PMS. You need to take competitor rates, seasonality, market mix and shopping behavior into account when setting the rate plans because these elements help to determine how customers value the elements of your property. As I state in the article, and as you suggest, rate rationalization would not have saved companies during the current downturn because the rate plans were set under different market conditions. I like the "apples to apples" comparison theory. Up until recently I was a Director of Operations and support for an economy brand and it scared me to see how much ADR, as a result of the "knee jerk reaction" rate management, had dwindled from mid 08 until now. All brands (economy through luxury tier) alike have significantly decrease rates to optimize occupancy index. Truth of the matter is, and you bring it up in your article, that you have to know what your guests want and are willing to pay, what the market will bear and more importantly if your rates are in line with your comp set. You can be price sensitive but if you're an apple you need to compare yourself to other apples.
Great article Kelly. |
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