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Managing Price Sensitivity in Hotels: Lastminute Deals vs. Early Bird Offers

hotel_price_sensitivityDon’t forget that the price is a Selling TOOL. Price lets us segment and attract different target markets with the objective of maximizing Revenue. But we have to be careful our revenue management strategies based on price sensitivity don’t turn against us.

Every week when talking to hoteliers we hear the comment that consumers are booking more last minute every year. The online travel agencies are the favorite scapegoat for causing this development.

Of course with the rising of the internet over the last 10 years it has become easier to book a hotel room online. It has become more readily accessible. I would like to argue though that this is merely an advantage to the worldwide hotel industry.

But the making of hotel reservations more last minute is partly caused by the social economic developments of our society. Consumers make more mini-trips to various destinations throughout the year, instead of extended vacations to one location. The shorter trips leave them more flexible in picking dates allowing them to search for the best experience and value.

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Should we not also ask ourselves if we are not part to blame for this decrease in booking window. Many of you surely remember Biology class in the first years of high school. We were taught about a Russian scientist, Pavlov, studying the behavior of dogs. The conditioning of the behavior, called the Pavlov effect, is exactly what we are doing with consumers.

We are conditioning, or teaching, consumers to wait with booking by offering aggressive last minute hotel deals. We are not make slight adjustments to our prices, but significantly repositioning our rates when forecasts, or rather expectations, are not met.

A classic example of one day where this categorically applies is New Years Eve. Every year we hoteliers put out high rates, MLOS restrictions and non-refundable fences, and we wait. But so do the consumers, who usually win, as hotels have to open up the gates with no solid base business on the books.

We have found it much more effective to accurately forecast the occupancy each day and plan in advance how many rooms we can and want to sell at each rate level. We start with offering the more moderate rates as an early bird offer, and systematically work our way up according to the booking pace, demand, we register.

Price sensitive client are incentivized to book early, outside of our regular booking window. By the time non-price sensitive consumers start shopping and making reservations, we already have built a healthy base.

price_sensitivity_in_hotels
We have to manage price sensitivity more effectively. And teach consumers to book early if they want a deal. Start selling from lower rates and keep increasing the rates until the arrival date, in order to reach a larger clientele base.

Of course we need to get our forecasts right, to be able to do this.

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