REVENUE MANAGEMENT PRICING
Pricing strategies
EX : Disneyland fixed the price of water bottle depending on the temperature: Unfair feeling because
customers feel like the scale goes more towards Disney profit than on their value maximized. Balance
profit for the firm and customers value to be perceived fair.
Variable Pricing: charge different prices to different customers for essentially the same product
Due to different needs and perceived value of the product of service
How to do variable prices: segment customers, modify the price with the modifications of needs,
customers. Avoid transparency of prices, one segment can’t know we offer different prices to other
customers. Building fences: put restrictions that will fit one segment and not the other > they pay the
price the segment is willing to pay.
The relationship between price and demand is always negative but not linear. To set a fixed price
you have to calculate which point will bring you the most demand and the most revenue. At this
price how much revenue will I get?
Diluted revenue: people who buy at your fixed price but were willing to pay more for the same
product.
Unrealized revenue potential: People who wanted to buy your product but it was too expensive for
them.
We fix one price for one segment and open/close the price depending on our restrictions/needs…
To capture all demand, we have to set a price for each segment we identify so we can make more
revenue.
For a given product category, a segment Is willing to pay one price and another segment is willing to
pay another price.
If you can’t clearly separate two segment and put clear rate fences, you need to not do it.
If you go too much outside of your target with different prices, your brand value can decrease, your
regular customers can feel not good…
Build Fences to avoid people buying the lowest price. A rationally built in barrier to prevent
customers willing to pay higher rates from taking advantage of lower rates
Characteristics that distinguish one segment of customers from another
Types of rate fences: PHYSICAL You pay more for a suite, for bigger room, location, amenity (add
flexibility in your room, categories can change very easy) etc Physical aspects of the product you are
getting. NON-PHYSICAL Related to buyer, transaction (when they book and how ex: nonrefundable),
consumption (are they consuming one day, two, when?).
Price Sensitivity: change of demand in result from change in price
During high demand periods, we want our customer to not be price sensitive so that even if we
increase price, they still want to buy. During low demand periods, we want them to be sensitive
because we want them to react to our prices.
4 questions? At what price would it be expensive? Cheap? Too expensive and beyond consideration?
(This one is the most important because it BUY or NOT BUY) Too cheap, so that you question the
quality? (this one is not about price sensitivity but about quality sensitivity)
Sample size – too expensive = likely to buy
One survey goes for one segment. We need to select a price for this segment considering the people
who are likely to buy. But that’s only the demand side of it, you need to consider the capacity side
and how many people from this segment you want in your hotel.
Tools like Westerdorn will calculate the range of price that balance between too expensive and too
cheap. We don’t consider the expensive and cheap people because they are not sensitive enough.
Is my hotel priced right?
Regrets= No booking despite availability. You need to categorize regrets and only consider those that
are due to price. System will tell you why the client didn’t book.
Denials= Turning away dur to no availability.
Be aware of the garbage data.
Lot of regrets in low occupancy days means your price was probably too high
Denying a lot during high occupancy periods:
If it’s case with lower rates and undesirable LOS, it’s good
If it’s the case with highest rate and desirable LOS, you should have protected rooms for these
requests instead of selling them at lower rates or for undesirable LOS
