Tuesday, 18 July 2017

Competition the biggest challenge to revenue management strategy

The effect of competitors is the biggest headache revenue managers face when creating their pricing and distribution strategies according to the new Aggregating Data Streams for More Effective Revenue Management report from EyeforTravel, which is free to download now.

Exactly half of the revenue managers surveyed for the research find that their competitors create difficulties when trying to set their own pricing, noticeably ahead of any other category EyeforTravel asked about. Unforeseen events are the next most important challenge at 43.8% of respondents, followed by attribution of sales channel, which has come up as an issue across previous EyeforTravel research.

The difficulty in measuring and predicting competition has only become harder over the last half decade as hotel comparison sites have widened the competitive pool and made product comparison easier for the consumer. Not only this but the rise of alternative accommodation sites have introduced a new stream of supply into many markets.

So, what can revenue managers do to understand their competitors better and maximize their property’s performance in competitive markets?

The report finds that revenue managers should build a comprehensive competitor set (compset) that looks at more than just proximity of other accommodation options. Instead, revenue managers should understand their own property’s attributes and the type of guests it attracts and build out to encompass rivals wo are fighting for the same customer.

When it comes to setting the prices themselves the report urges caution in the part of revenue managers. The report notes that numerous studies have found that reducing prices in order to compete has long-term damaging effects for properties. Overall, properties that maintained higher average daily rates performed better, with the effects of cutting price not boosting occupancy enough to make up for the shortfall in income. Furthermore, consumers do not view prices rationally, with an accommodation purchase asking them to consider a complex matrix of factors. Indeed, a lower price may even indicate lower quality to some consumers that a property is if lower quality.

Therefore, hotels need to consider the individual advantages that their property enjoys and only look at the very nearest competitors who are most likely to be vying for the same customer segments. If hotels are to try and win against their peers on price, then the report advises that hotels should not attempt to undercut the direct competition by more than 5%.

“It is natural, almost reflexive, for revenue managers to try and bring prices down to below their competitors, especially if their booking window is not where they want it to be,” says Alex Hadwick, Head of Research at EyeforTravel. “However, our findings suggest that this could make life even harder for revenue managers in the future as they look to raise prices again and hit bottom lines. This especially so as RM is shifting away from just setting rates to working across the business to measure profitability and sell ancillaries more effectively. We found 71% of revenue managers believe that the discipline should be recognised as revenue management. This is not to say that competitive pricing is not important but it seems that revenue managers need to be thinking about all of their property’s features and not just trying to be $10 cheaper per night than their rivals.”

Click here to download the research now and get the full report, including:
  • The effect of competitors on pricing, how to account for them and what strategies to take to get a competitive edge.
  • Understanding and constructing predictive analytics. 
  • Understanding the costs of a business’s channel mix and how to win direct bookings.
  • The state of the industry’s approach to ancillary revenues. 
  • The key metrics every revenue manager should be working toward. 
  • The future of a revenue manager’s role and the skills they will require.