We talk a lot about Open Pricing and more specifically the value of yielding room types dynamically. We’ve written whitepapers, produced videos and created plenty of slides that illustrate these concepts, but last week I saw firsthand why this is so important and the revenue opportunities too many hotels are missing.
I was traveling south with my wife and daughter for a beach vacation in Surf City, NC, as I’ve done almost every year since I was a kid with my parents. We packed up the car Griswold-style and left Ohio on a Friday morning, aiming to break up the 11-hour drive into two days and time our beach arrival for Saturday afternoon right at check-in time at the cottage (optimizing vacation I call it).
I had booked a room with a leading limited-service hotel brand I like and frequently stay with when traveling for pleasure. I won’t mention any names (but it does rhyme with Schmampton Inn).
We arrived at the hotel around 6 p.m. and I was third in line at the front desk. I couldn’t remember what kind of room type I had booked or what was available, but I was hoping to get a room with two beds so I could avoid bringing in the inflatable bed we packed or using the sofa bed I never trust.
But I wasn’t alone. I overheard the family at the front of the line ask if they could have a room with two queen beds instead of a king, and not surprisingly on a summer weekend, the answer was none are available. The dad directly in front of me asked the same question and even asked if a suite was available for his family. Same answer.
When it was my turn, I was told I had a king room as well, and even though I knew the answer, I asked the same question. “Any queen rooms available?”
“Nope, all booked, I’m sorry. We’ve got a full house tonight,” the clerk said.
I casually mentioned to the clerk it was a shame they couldn’t price those queen rooms higher since there was so much demand for them.
“Oh no, we’d never do that to you,” she said.
Why not, I asked, and then politely (and very briefly) answered. If you had priced the queen rooms higher than the king, not only would you have generated more money, but you’d make more guests happy. I would have gladly paid an additional $25 for the room I really wanted and the more price conscious guests or those who didn’t have a strong preference could have booked the lesser priced king rooms.
Why not charge more for the room type with more demand? It’s a basic tenant of revenue management, but not something typically done at most hotels. It’s not because they don’t want to, it’s because they can’t. Limited integrations between the core technologies helping run a hotel won’t allow it. If single decision files like hurdle rates are being sent from the revenue management system to the property management system, yielding can’t be done independently at the segment and room type level.
Using the traditional BAR pricing approach still common today, hotels yield one or more primary best-available rates and all other segments and room types are priced at fixed discounts by percentage or dollar amount off those best available rates. For example, king rooms could be priced $25 more than base queen rooms and the suite $50 more than the king room. If BAR is $200 for the queen room, the king would be $225 and the suite $275. No matter what the main BAR is, the room types are priced at those fixed differentials. An approach like that may work well during the week or on days when demand is driven by guests who prefer the king, but on weekends with heavy leisure travel, there’s likely more demand for queen rooms, as I witnessed.
That also means more revenue opportunity for the hotel if they could price those room types to meet actual demand by day. By pricing queen rooms higher on those weekends, the hotel could sell king rooms to consumers who don’t want to pay more or don’t care how many beds they have. And for those of us who really want two beds, we’d have the opportunity to pay for them. During the week, when more demand may come from business travelers seeking a king room, the hotel could invert those prices or adjust them even more specifically based on the actual demand for that given day. It’s possible with Open Pricing and a big reason why our partners are driving such significant gains in RevPAR Index.
This wasn’t an isolated incident. The same thing happened on the drive home, in Charleston, W.V. the following Friday, not at the same brand, but a very similar one from the company’s biggest rival.
For an industry fighting tooth and nail for every dollar and often lamenting the inability to drive rate, it’s hard to imagine why more companies aren’t yielding all segments, channels and room types independently.