I’d like to share a reflection I often discuss in my classes. Although a bit general, it’s quite realistic. About 40 years ago, the relationship between Demand (the tourism market) and Supply (Italian hotels) was very much in favor of the latter; this led hotels to consistently high occupancy and often high rates because, at the time, Supply was quantitatively and qualitatively undersized compared to Demand. The latter was always stimulated by the media, especially international cinema. But with the advent of the internet, everything changed.
Supply in the area multiplied, while Demand slowed, becoming fragmented, specialized, and segmented. It knows what it wants, where to find it, and how to look for it. The arrival of Brand Reputation further changed the landscape, and we must learn to accept its “democratic” nature.
Habits are constantly evolving, especially now. Yet, the average Italian hotel continues to operate as it did in the past. The result? It’s visible to all.
Why should customers choose our hotel?
This is a question we should frequently ask ourselves. It is crucial for the success of our property.
Many factors influence a hotel’s reputation, and they are highly varied. The geographical location is certainly important; it is one of the main determinants in a customer’s choice. However, it is relative and depends on the customer’s origin. The farther away the traveler, the less important the specific locality becomes. But geographic location, as well as weather and other variables, are beyond the hotel’s control.
So what can we focus on to attract clients? To be chosen?
The quickest lever in terms of impact is pricing, the only one we can adjust quickly to achieve immediate results. However, pricing changes are not always satisfying. It’s essential to remember that Revenue Management is not merely about raising or lowering prices. Pricing is just the lever that yields results fastest. But we must be very careful in using this lever, or we risk making gross errors, mistaking them for Revenue Management.
A good price-quality ratio is not an indication of a “low” rate, but rather one of the primary factors that leisure clients base their choice on. But the rate itself is not an absolute value; it could be €69 or €269.
This leads us to other fundamental considerations:
- The perception of a low or high rate is solely a function of the customer’s view.
- A good price-quality ratio relates to perceived benefits according to the customer’s needs, spending power, and habits.
- The quality of the product in terms of “hospitality” and Brand Reputation is paramount.
- The hotel’s star rating does not determine better or worse service and hospitality quality.
This, too, is Revenue Management: understanding when and how much the market is willing to pay for the quality of my product and hospitality service.
The market is the target, and understanding its needs is key to achieving good results both in terms of occupancy and reputation.
Adjusting prices based on market needs and demands is the solution.
An empty room is like a room sold at zero, so it only represents a cost for us. Therefore, selling at a “low” rate is often more effective than leaving it unsold. But “low” compared to what? Compared to your competitor? Who may have low occupancy during that period? Or would it be better to charge “higher” to increase revenue? But “higher” compared to what? Compared to last year, when market conditions, weather, and other variables were different, and perhaps you had lower occupancy?
These are not questions to bring to a fortune-teller but should be analyzed one by one.
A first answer to these questions lies in a dynamic, flexible pricing system and segmenting the offer. Satisfying all market segments and meeting various needs increases the conversion rate and, consequently, revenue.
This is where the value of an “initial rate” comes in, set well in advance and lower than your average rate from last year when occupancy wasn’t satisfactory. Remember that price sensitivity is very high when booking dates are far in advance.
Selling some rooms, maybe those unsold from last year, at this rate would bring some significant advantages, such as increased visibility, an increase in Length of Stay (LOS), and a longer Booking Window (the time between booking and stay).
Increased Online and Offline Visibility
The tourist often filters results by price on OTAs (Online Travel Agencies). They may also be intrigued by the advantageous rate, looking up your phone number and giving you the invaluable opportunity to secure a “direct booking.”
Increased Length of Stay
A favorable rate will encourage guests to stay for additional nights, which reduces your variable cost per booking, allowing for higher profit margins on each reservation.
Extended Booking Window
Publishing an advantageous offer online well in advance, given the high price sensitivity of the leisure segment, will bring bookings much earlier. Compared to a higher rate, this could double your average booking window, allowing for better activity planning, cost management (e.g., staff, laundry), and thus optimizing results.
Vito D’Amico, CEO MyForecast RMS