Yesterday I attended a lively debate held by BAHA (the British Association of Hospitality Accountants) on the pros and cons of ‘Dynamic Pricing’. Dynamic Pricing is what you see airlines using with their fares. It is based on the principle that the right rate to charge for a room night is what the customer is able and willing to pay, and means that a hotel might change its room rates daily or even within a day if up-to-the-minute market information reveals a change in supply or demand.
By under pricing, the hotel potentially leaves money on table; by overpricing, it may price itself out of the market. The constant challenge, of course, is trying to determine the optimal price on a given day or afternoon. Prices may rise as occupancy increases (giving incentives for early booking), but might also drop again at the last minute if target occupancy levels look as if they wont be reached.
The debate was whether or not dynamic pricing is the only key to unlocking revenue potential and taking advantage of every revenue opportunity out there.
Whilst there were compelling arguments for dynamic pricing – primarily of the reminder that we are in business to make a profit – those against the motion reminded us of the following:
- The need to consider the lifetime value of the guest, not just the price they pay today
- The additional incremental revenue that may be generated by that guest. (Anyone who has staying in Las Vegas will know that this is a key driver on determining the room rate and the standard of room.)
- Does a lower price devalue your brand?
- Recognition of guest loyalty; will changing your pricing alienate your most valued guests and encourage them to go elsewhere?
- How can travel companies budget if prices are so variable?
- Can your distribution systems cope with the changes?
- How consistent are any price changes against advertised promotional rates?
- If focusing just on rooms on the book, does this take into account forecasted bookings?
- How do guest feel when they talk to someone who has paid half the price they paid?
- Is your offer suddenly worth any more (or less) today or this afternoon just because the market demand has shot up (or down)?
Should you be consistent or should you go with the flow and let the perceived market forces dictate your pricing levels? In other words should your hotel compete on price?
What’s your view on this? Do you flex your prices according to demand?
If you are analysing your sales you’ll know what your average customer spend. But do you know what percentage of your customers buy what products and services? Unless you do you wont know where you are losing out on sales opportunities.
For example of only 45% of your guests take breakfast, this leaves another 55% who go without or go elsewhere. Even if they don’t want a full blown breakfast are you missing out on sales of croissants, coffee or fruit?
If you know that only 25% of your guests eat in the restaurant, this means 75% find an alterative. If only 75% of diners order a side portion of vegetables, 25% just have the main dish; if 40% of conference organisers want coffee and pastries on arrival, 60% go without. And if only 10% of your restaurant diners have a dessert, that leaves 90% who don’t.
But before you can address this you need to understand why.
Sticking with the dessert example ask yourself, is it because:
- The order is being taken too soon and diners are too full
- The dessert menu is too boring or does nothing to sell itself
- It’s too expensive, not seen as value for money
- It’s too cheap, giving the perception of poor quality
- Main courses are so big diners don’t have room for a dessert
- Service is slow so people are in a rush to get home or back to work
- The ambiance is wrong and diners feel they don’t want to stay around
- Diners feel rushed don’t feel welcome to stay
- Dessert menus are slow to materialise so people have gone off the idea
- There is too little information so people don’t know what they are buying
- Not everyone wants a dessert so those that do go with the majority
- They simply aren’t offered dessert
Some potential solutions:
- Review your dessert menu and include one or two extra special items
- Add seasonal choices using in season produce to give variety and perception of freshness
- Ask customers what they’d like to see on the dessert menu
- Let customers see the dessert menu at the start of their meal to get the idea in their mind at the outset
- Offer non-sweet alternatives at the same time: port, cheese, more wine, specialist coffees for the non dessert lovers
- Make a point of dessert portions for sharing
- Offer take home desserts
- Give staff an incentive to upsell on desserts
- Ensure staff are confident to describe all the dishes on the menu
Whether you are a hotel, restaurant or conference facility, adopt the same approach with all your offers and services where you are potentially leaving sales on the table.