4 Keys to Price Optimization

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4 Keys to Price Optimization

By Eric Harari, Principal, Bel Air Resort - 09/11/2017

Founded in 2015, Bel Air Resort & Residences is a contemporary community of environmentally friendly, freestanding units or “Minilofts” that effectively bridge vacation rentals with hotel units. Because apartment hotels of different sizes and bedrooms could not be compared to traditional hotel rooms finding a software tool to help maximize revenue proved difficult. After reviewing existing software, nothing addressed Bel Air’s specific concerns, so the company co-developed its own yield management software with a French software engineering company. 

Yield management is an art and a science that takes times and energy. Having the right tools for a property’s unique needs makes a world of difference. To date, we have experienced significant revenue increases with this software.

The goal of creating software specifically for Bel Air was to understand how to effectively price rooms. The yield management process can be quite tedious if it is not performed using some kind of automation. To maximize revenue, it is crucial to understand the price structure that applies to all seasons throughout the year. 

In a nutshell, the operator should:

1. Understand current and upcoming bookings compared to past
data as a guideline for how the hotel should charge.

2. Understand its competitive environment to make sure that its inventory is well-priced compared to direct
competitors.

3. Analyze past data to understand clients’ booking behavior during the whole year. The booking window may be either short during low season or long during special events. This past data and projection data should be managed on a daily or weekly basis to ensure price optimization. If the booking pace is too quick, say for Christmas, this might sound good, but it  probably indicates that prices are too low and should be adjusted to ensure that maximum revenue is generated. If the booking pace is too slow, this could indicate that prices are too high and should be reduced to attract new customers. This analysis is quite static since it compares activity of the present year to past years in absence of the current prevailing trend. The current trend should be analyzed by analyzing the competitive environment. 

4. Scan the competition and the overall market; it is crucial to ensure that all trends are identified and acted on before it is too late. Bel Air’s software scans the market by sending robots that analyze competing room rates as well as available inventory. If we witness room rate tension in the market 45 days from now, we would raise our prices to adjust to the market and to ensure that rooms are not being sold  too cheaply. 

Similarly, if we see that in 80 days our competition has a large amount of inventory and low prices, we may have to lower prices to remain competitive.

Understanding the booking window is crucial in pricing a room and identifying when to adjust price. Reducing room rates one week before arrival date may not have any effect if the guest’s booking window is 30 days.

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