Hotel Revenue Management Isn’t a Zero Sum Game

A recent story in Tnooz made me think about a question I frequently get while talking to clients and customers about Duetto Edge: “What if my competitor is also using Duetto Edge, or if everyone is using a sophisticated revenue management tool like that?”

They worry once we achieve critical mass in the market they’ll no longer see the upside from using it. This is the wrong way to think about the issue. I don’t consider hotel pricing and revenue management to be a zero sum game.

Brian Chesky, co-founder and CEO of Airbnb, made a similar point during his keynote address at the PhoCusWright Conference last November and it was the starting point for the January Tnooz story. He said, in part:

“For us to win, nobody has to lose… I heard that there was this stupid thing on the screen that had Brian Chesky versus Brian Sharples [co-founder and CEO of rival HomeAway]. I think that’s the stupidest thing I’ve ever heard. This idea that there
has to be a battle between us and HomeAway, or between us and the hotel industry, is absurd.

“It’s not about us versus anyone else, the battle is about [all of us] versus the economic environment that is changing so fast… I hope to see us all back here in five years…for us to win, everyone else can win because ultimately the travel industry is
undervalued… it’s so much more than we ever thought.”

In the hotel revenue management game, an extra $1 of profit a hotel wins by optimizing their price is not taken from the pocket of a competitor, but from the undervalued, evolving and growing travel industry. If every hotel in a competitive
set were using the same sophisticated revenue management system, they would not all be acting in lockstep. Each hotel has unique demand every day based on its geography, branding, amenities, group business, corporate contracts, online reviews and more.

The information specific to a hotel is the most relevant of the data Duetto Edge uses to forecast demand and make pricing recommendations. One of the biggest mistakes within the hotel industry is pricing based on a hotel’s competitive set. Determining a hotel’s pricing on how it ranks amongst an arbitrarily created compset is not the right approach. Good revenue management should be based more on those idiosyncratic factors than what the competition is doing.

There doesn’t have to be a loser here, as Chesky suggests. If every hotel within a compset is pricing based on its unique demand, there will be pricing divergence, meaning more price points and more value propositions for the consumer. As Marco illustrated in his last post Time to Lower the BAR for Good, the more price points a hotel has, the closer it gets to capturing the entire opportunity for revenue.

The same would be true for an entire compset. More prices would be appealing to more consumers and could increase overall demand within that market.

To put it in another way: Ask any hotelier or revenue manager what their biggest frustration or challenge is within their compset as it relates to revenue management. The answer, 9 times out of 10, is about the hotel across the street that cuts rate at the first hint of trouble, raises it a day later and continually acts without reason.

When a competitor acts erratically it upsets the market, confuses decisions and causes customers to be more cautious in trying to time the market. If you own a hotel and run it well, the most advantageous thing would be for your least intelligent competitor to get smarter. It wouldn’t mean money out of your pocket, it would mean a more stable marketplace that allows for confident pricing to maximize revenue.

Patrick Bosworth, Co-Founder and Chief Executive Officer

As CEO, Patrick spearheads the firm’s strategy and vision, while also championing a new approach to revenue management. Under his leadership, Duetto has grown to nearly 100 employees supporting more than 1,000 hotel and casino properties around the world. Before founding Duetto, Patrick was Director of Yielding and Business Strategy for Wynn Las Vegas.

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