Pricing strategies from five star hotels in Berlin. September-October update

Revenue Management and Pricing Management are very specific areas of the hotel business. According to 2019 Skift Revenue Management report, only 30% of hotels use some sophisticated technology to manage their pricing. This means 70% of other hotels, still manage pricing manually, strategically only or not at all.

According to the report “Yield management in small and medium-sized enterprises in the tourism industry” drawn up by Arthur Andersen, there are two main reasons why smaller hotels are not penetrated with revenue systems:

  1. Internal obstacles include insufficient management skills or expertise, lack of RM awareness, resilience to change, RMS cost;
  2. External obstacles include insufficient infrastructure to support market diversification and segmentation, insufficient information exchange, lack of appropriate data management software and the rigid seasonality of demand.

According to this, we can assume that pricing and revenue management are explored by wealthy five star properties. Therefore, this week, we have taken a look at the creme de la creme hotels from Berlin. We have looked at their lowest available on OTA prices for September and October. We have used HowsMyRate.com to get the prices and Google Data Studio to visualise them.

We have analysed sixteen 5 star hotels from the Berlin city center:

Visualisation by Google Data Studio, Data by HowsMyRate.com

The lowest price available on OTA in an outlook of next 60 days shows us price dynamics of the market in the 5 star segment.

Visualisation by Google Data Studio, Data by HowsMyRate.com

The graph that holds sixteen hotels looks quite blurry, therefore we have asked our analyst to unbundle some hotels and divide them into some noticeable price trends.

There are three major price tactics observed:

  1. Flat pricing

Flat pricing is simply put one price that is set for longer period of time or larger number of days. Usually hotels that have flat pricing do not use revenue systems. They set up their prices once a season and change them only in some very unusual events/situations.

Some hotels applying flat pricing consider such events an opportunity to increase prices. This is the list of hotels, that we have found to be flat in pricing with event identification:

Visualisation by Google Data Studio, Data by HowsMyRate.com

As you can notice, except some bumps on 25September 28-29September and October 19, all the lines lie flat. This means there is barely a movement between the prices or the price changes are minimal.

2. Seasonal pricing

Some hotels use date periods or days of the week to apply seasonal approach to their price strategies. The general expectation is that in highly demanded day or period fo time, the price could be higher. This very logic concept in Revenue Management is called constrained demand. There is so much demand, hotels can pick from it, those customers that have higher ability to pay. Raising the price up during constrained demand period is a good way to eliminate customers with lower spend. We have noticed two hotels with flat price, but with seasonality:

Visualisation by Google Data Studio, Data by HowsMyRate.com

You can notice each hotel has two levels of flat line. They also identify the 25Sep higher demand.

However most hotels will apply seasonality approach to days of the week, identifying weekends and weekdays:

Visualisation by Google Data Studio, Data by HowsMyRate.com

We can clearly see “waves” where price goes up for a weekend and drops down in weekdays. Hotels that apply seasonal pricing also react to event on the 25September. The most expensive hotel analysed in dark blue line, on two displayed days applies very high price of +-EUR1000 per night. This situation could appear when all standard rooms are sold out and apartments are only available. Quick look at price per room category on that day explains the situation. Hotel Adlon has only Suite category room available.

Visualisation by Google Data Studio, Data by HowsMyRate.com

3. Dynamic pricing

Surprisingly dynamic pricing is not as common as we might have expected from five star hotels. The ability to apply open pricing requires many price actions per day that depend on multiple factors. These are the hotels that we have identified with dynamic pricing:

Visualisation by Google Data Studio, Data by HowsMyRate.com

Dynamic pricing is hard to follow by competitors. Therefore hotels applying this strategy are the leaders. The price optimisation is based on several factors: internal and external. It requires ability to adapt to market conditions at every time. But the benefit is the extra revenue from guests during constrained periods, or extra sales during unconstrained periods.

The bottom line to all above pricing strategies is rate shopping. The ability to follow the market and competitive prices is key to start. Wether your property is in the 30% of lucky hotels enjoying revenue systems, or the 70% of the manual revenue ones, the shopper is a start to all revenue management.

It does not require integration, its simple to understand and is very affordable.

If you need more insight, please contact me at kris@howsmyrate

Kris

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