Use good judgement when using OTAs pricing or RM tools
Online Travel Agents’ Revenue Management Tools are changing the way independent and small Hotels that cannot afford an owned system or do not have a full-time resource to dedicate to Revenue Management, are approaching the discipline.
These tools provide market insights and competitive benchmark that can be valuable for Hotels missing on analytics. However, I would suggest handling these tools carefully and use a good amount of criticism before taking for granted every suggestion they provide.
As third-party systems, these tools are built to optimize the overall revenue return by increasing sales with the following simple equation: OTAs earning comes from room-nights selling – the more your Hotel sells, they more OTAs earn.
Before falling in love with the idea of increased sales, keep in mind that revenue optimization is not only about volumes and full house. It is a about a right balance between volumes and rate to get to the optimal RevPAR. As such, I would encourage you to consider the following before accepting any rate advice from these tools:
- How is your demand moving on that given day compared to previous year and expectations? How far are you from the arrival date? Would the speed of demand and room-nights pick up you are having bring you to the desired results without any rate change (most probably a suggestion to drop for competitive benchmark reasons)?
- What competitive set is the tool considering? Frequently indeed, you may find out that the competitive set defined by OTAs are based on a mix of Hotels you are losing booking for (on that specific OTA); that may be good because you unravel your potential enlarged competitive set, but can also be damaging as it may include your Hotel within a competitive set that your property does not belong to or that you do not want to be in, for positioning reasons.
- The market demand is based on the calculation of the room-nights sold. The room-nights sold are based on allotments. Allotments may not be representative of the market. Translated into: you probably do not provide all your inventory to OTAs but allocate a % amount of your Hotel’s inventory to keep your distribution under control. Assuming that on average the Hotels give OTAs 20% of their inventory, the market compression will be calculated based on that and as such provide a partial view of the reality.
- Linked to point number 3, in Leisure markets where the mix of room types is complex and there may be several eg. Suites and Premium rooms available; they probably won’t all be made available to OTAs anytime, thus impacting on the optimal ADR calculation advice and potential.
- Competitiveness is most times linked to rate. Positioning, reviews, room type, service and other should not be overcome by an easier and quicker price war.
Said that, I still support the value these tools may bring to small and independent Hotels but insist on using them wisely.
As any other tool – and having worked for a long time with a company’s owned RM tool – I believe that human experience and brain is key to success and Revenue management tools in general (especially if third party owned) should be alimented and managed with wisdom and criticism to make they work and support your revenue return in the best possible way.
[Originally posted on LinkedIn. October 3rd, 2017]
