Hoteliers Take a Harder Look at How They Set Room Rates

Amateurs cut rates to fill hotel rooms. Pros take more sophisticated approaches, such as coordinating to stimulate demand from the most profitable customers. — Sean O'Neill

Some hotel operators — MGM Resorts, RLH, Omni, Radisson, and Melia — have been fine-tuning their efforts at setting rates for rooms, upgrades, and other services. They’ve been leveraging a growing prowess at automation and cross-department teamwork to set prices for maximum profit.

A case in point: MGM Resorts International has aimed to add tens of millions to its bottom line this year from enhanced revenue management.

MGM Resorts intends to focus more on reserving space for its most profitable customers —namely, gamblers, convention-goers, and leisure travelers who book directly. It can do that by targeting promotions to people who are more willing to spend on food, drink, and upgrades.

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A REVENUE STRATEGY APPROACH

Hotels are finding it’s not enough to get revenue managers and sales and marketing teams to talk and coordinate with each other more often. They need broader insights into the true cost of each method it uses to get a guest.

“Rate optimization alone will not be enough,” said Cindy Estis Green, CEO and co-founder of Kalibri Labs, another hotel vendor. “The legacy tools that have been in use for 20 or 30 years are not going to be adequate to meet the demands of today’s digitally dominated market.”

Green said her company focuses on the profit contribution of each method a hotel uses to draw guests. Earlier this year, Kalibri Labs launched a product called Hummingbird.

“We generate competitive sets for each rate category or each market segment, such as corporate, online travel agency, government, and group,” Green said.

“We look at the half-dozen or so hotels that have transactions that match most closely with your hotel,” Green said. “Then we generate ten market segments for weekends and ten market segments for weekdays.”

The company says hoteliers, owners, developers, brokers, appraisers, and major brands use its data and related tools, which go beyond Hummingbird. But it declined to give details.

“Rather than thinking about which hotels you compete with, we help you think about who has the business you want to go after and that could be gotten without inflating your bottom-line costs,” Green said.

The Hummingbird tool is unlike any traditional revenue management system. Whether the product will be a market success remains to be seen. But its approach represents a change in how hoteliers are thinking about broader issues.

“We point hotels to demand that is coming into the market and that looks like business that would be a match for your hotel,” Green said. “We show you which competitors are getting that business, how much it’s worth, what channel it’s coming through and when, and whether you need to dial up your sales effort or dial up your paid search or dial down your pricing to get it.”

In 2017, investors valued Kalibri Labs at $33 million during an investment round that included Shiji Group.

It’s difficult to judge how well Kalibri Labs’ tools work. Hotel chains like InterContinental Hotels Group that have worked with the company have been quiet about their views of its new Hummingbird product.

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