[MUSIC] Hello and welcome back. Pricing refers to how a hotel sets prices for its inventory, and it's the third fundamental piece of the revenue management puzzle. It is the output after the application of segmentation and forecasting to current market conditions. Pricing for a hotel room can vary due to the four factors we discussed in module one that impacting yieldable products. Namely fix supply, perishable inventory, different customers willing to pay different prices and some ability to predict future demand. In this module, we'll discuss a variety of topics within the ever changing world of hotel pricing. First, let's start off by explaining why pricing is important. I'll go through a true story regarding poor pricing decisions experienced by a loyal customer while booking a hotel room. Next we'll discuss the difference between common pricing approaches. Third, we'll go through the seven most common pricing mistakes found in the hotel industry. Fourth, I'll explain common pricing strategies, which are how a hotel tactically implements prices into their systems. After that, we'll bring back up the topic of big data, automated systems, and system connectivity as it relates to pricing. Moving forward, I will introduce the concept of revenue strategy, which is the future of revenue management. This module should help tie together concepts from the previous three modules to provide you with an understanding of the fundamentals of revenue management. As mentioned in module two, introduction to segmentation, understanding segmentation is the most important precursor for proper forecasting, which in turn then impacts pricing and other decisions. [BLANK AUDIO] Something I've mentioned in the previous three modules has been Robert Cross' quote. The primary aim of revenue management is selling the right product to the right customer at the right time for the right price, which is a great representation of the goals of revenue management. In module two, introduction to segmentation, we discussed the right customer. And in module three, introduction of forecasting and budgeting, we discussed the right time. It's now time for us to discuss how to get that right price. To refresh some basic terminology, I want to review some hotel vocabulary that we discussed about in module three. Variance is a term that we will be using without this module. Remember that it's a comparison between time periods. Same time last year, week over week or to budget. These are all variances that you will hear me speak about in this presentation. Year over year variance, for example, is looking at differences in a metric from one year to the next. Compression means that you have higher demand than capacity. Rolling forecasts are live, updated forecasts that update each day or week. Occupancy is the amount of rooms sold, divided by the number of rooms the property has available. You'll have your forecast accuracy, which is done either through a mean simple error or a mean absolute deviation, depending on how you look at it from a statistical standpoint. Then we have our booking window, meaning the gap between when bookings occur and the arrival date, usually measured in d b a or days before arrival. DBA is generally a reference in regards to how you pace or your pick up. You have the OOO, or out of order rooms, a commonly used acronym. You also have TBB, which is your forecasted rooms to be sold or to be booked. You have your OTB, or on the books, which is your current number of rooms sold. Lastly, you have your commit or group block, that is the number of group rooms sold. Additionally, restrictions or closing out a rate, is when a hotel closes out availability for a certain rate to a customer. An example of restriction, would be a hotel closing off selling on Expedia for this upcoming Wednesday. Revpar, is a metric commonly used in the hotel industry, which means revenue per available room. It shows the efficiency of the revenue versus the number of customers who stay at the property. ADR means average daily rate and is the mean rate charged by the hotel. Getting into our example of a hotel losing potential profit from poor execution of pricing strategy, let's take hotel ABC. They're in the financial district of New York City and they're sitting 14 days before arrival, at 97% occupancy. Jim, a loyal customer to hotel ABC, signs into their booking engine and finds a rate of $350. Believing this rate is a little higher than what he's used to paying in the market hotel ABC is located in, decides to go to Expedia to see if there's a better deal, even if it means not going to hotel ABC. To Jim's surprise, Expedia shows hotel ABC charging $300 for the same room. Keep in mind that with Expedia, hotel ABC pays a 25% commission. Generally speaking, customers that come through the OTAs are non-loyal, they're mostly price sensitive, and you'll generally see the least amount of spend in other revenue outlets for a hotel, such as food and beverage, spa, or other revenue streams. A customer booking through a hotels booking engine has a lower marginal acquisition cost because you don’t have to pay a commission to attract the customer to your hotel. And in this case, you’re also getting a lower net rate after the commission is paid to Expedia. With loyal customers, also comes the potential of ancillary spend, because they anticipate and understand the value perception of the hotel or hotel brand. So they're typically willing to spend additional money. You can see that in our example, Jim, a loyal customer, will likely be turned off from booking direct, and instead book with the OTA. As mentioned in module one, the OTAs are great marketing engines. So as they become more visible, they condition the consumer to think they have the best prices on their website. High OTA reliance results in lower profits since you pay commission for a customer buying a cheaper rate. OTAs and booking engines only make up a small piece of the distribution landscape. As I also discussed in module two, the hospitality distribution landscape has become increasingly complex over the last 15 years. There are now many different pieces all plugged in together. It starts with different points of entry for the customer, be it search engines, or social media for example. Then, the consumer typically moves to the OTAs, GDSs, hotel sites, and other consumer specialty sites. With groups, you may find intermediary booking companies as well. All of these layers that the consumer passes through are effectively toll booths which, when aggregated, ends up being extremely costly. Someone has to pay and it ends up being the hotel. All these different connectivities vary depending on the type of property you have and the type of consumers that you primarily focus on. You could see that each of these different round circles represents the different consumer types and the reservation journey within your distribution systems. You can of course completely ignore certain channels, especially if they drive new prospective customers. But having a healthy mix, which results in operational profitability is the end goal for appropriate segmentation. It is important to be wary of your OTA and other contract negotiations to try to keep those costs down. 1% off of your OTA contract will drop directly to the bottom line. When thinking about pricing and when thinking about different consumers coming in through different channels, you also have to think about the different cost associated with each channel. Something to note is that different consumers come in through all these different channels, and that each of these different touch points or toll booths where you'll have an intermediary whether it's a vendor or a marketing company such as Expedia or Google cost money. As you go through each of these different touch points you need to be thinking about cost and pricing as dynamically as possible to help better mange each of these different cost. As I mentioned before in module one, hotel commissions has been rising at twice the rate of that a revenue of hotels, and these costs continue to be increasing. Pricing needs to be as dynamic as possible to manage all the different consumers and distribution channels. We'll get into some of the different pricing approaches hotels commonly follow, in the next video.
