Preventing the commoditisation of hotel rooms

By Ritesh Gupta – EyeforTravel.com

SINGAPORE – Revenue managers acknowledge that customers have begun to understand the concept of rate parity across the channels, rate of the day and fluctuations in availability per rate type.

Consumers now have more power and are in a stronger position as buyers.

From revenue managers’ perspective, Maunik Thacker, Executive Director of Revenue Management, Venetian Macau Ltd, says one needs to have an “understanding of true costs of distribution across various channels”.

This includes consideration for the reach of these distribution channels and quantifying the same.

“Then we need to ensure that we push the consumer to book via the most cost effective, profitable channels. Rate parity should not be sacrificed and therefore different levels of added value for booking through certain channels is a preferable option,” said Thacker, a speaker for Revenue and Pricing Conference, being held as a part of Travel Distribution Summit Asia 2009 in Singapore.

According to RM professionals, consumer’s reaction to price strategy changes can vary a lot depending on the price sensitivity, demand situation and market segment.

Thacker says understanding the current political, economic and competitive environment is always a critical component of any revenue manager’s job. Different customer segments react differently to price changes. Some are very sensitive and others not so.

“Therefore, it is crucial to understand this dynamic when making changes to your strategies. Not all your markets will react in the same way. This is a fundamental truth,” he said.

Price integrity

Thacker firmly believes in price integrity.

“Price is a very important weapon in any business’ arsenal and if you cannot create confidence in the customer’s mind, then the battle is as good as lost,” he says.

He agrees that that there are segments of the market that can be stimulated by aggressive pricing over off-peak periods.

“Different customer segments react differently to price changes. Hence, smart pricing during off peak periods can stimulate demand from certain segments. For example, a lot of hotels have used local resident rates during off peak times to very good effect. I do believe that there is value in creating aggressive offers to certain segments (not a one size fits all offer) to stimulate demand.”

He also believes that packages should be tailored to suit different markets.

“However, geographic boundaries have been blurred with the advent of technology and therefore, one must bear this in mind when targeting packages to different geographic markets. As for different pricing, as long as the packages are different, package prices can be different too. However, similar packages with different prices will certainly confuse the customer.”

Selling different products through different channels

On how OTAs have contributed, positively and negatively, to a hotel’s distribution strategy in today’s environment, Thacker said, “I do not believe that OTAs have contributed negatively to a hotel product and its distribution strategy. Most OTAs understand a hotel’s distribution objective and they can certainly bring value to the table. They have a large customer base and profile that they can market to.”

“Hence, both parties need to work together in order to achieve these distribution objectives. I believe in selling different products through different channels, depending on what type of customer you are targeting through each of these channels. Sometime, you may need multiple channels to sell the same product and at other times, you may not. Working smartly with OTA partners, using multi product packaging strategies, can prevent the commoditisation of the room product. At the end of the day, let’s not forget that we are selling an experience…”

Last year, Thacker had mentioned that it was time to consider profit parity as opposed to price parity.

On the main challenges in doing so, he said a hotel must be able to distribute its products to the widest possible audience in the most profitable manner.

“A lot of people believe this to be different pricing through different channels. To a certain extent, this is true, but in order to overcome the rate disparity issue, I would recommend doing this by selling different products through different channels. Not all channels need to have the same products being sold through them.”

It is important to understand the true cost of each channel, and then selling products that appeal to the customers that can be reached through each of these channels, in order to drive maximum profitability from each channel.

“A particular channel may appear to be more expensive due to the margins, commissions, etc.

“However, if it requires minimal direct marketing spend and can drive large volumes in times of need, then I would actually rank it is a highly profitable channel… so again, its not just about the room rate, it is about overall value, both to the customer and to the business,” said Thacker.