Carlson Gains Competitive Edge in Online Pricing War
Market transparency and the rapid growth of Internet bookings have led to a new price war in the hospitality industry, creating significant challenges for hotel operators. Even with Carlson Hotels’ worldwide reputation for service and quality, the company is constantly looking for ways to differentiate itself — and maximize its revenue — in this competitive, price-driven environment.
“In 2008 and 2009, we began to realize that the traditional market segmentation
in our industry had collapsed with the move online, at the same time occupancy rates were plummeting as the economy tanked,” says Frederic Deschamps, vice president of global revenue optimization at Carlson Hotels. “Consumers were using the Internet and other distribution channels to evaluate their hotel options based solely on price, and not on quality. Every purchase was starting to gravitate toward the lowest available rate, with fierce competition across an industry with half-empty hotels. We knew that we had a pricing problem during the downturn — but we also wanted the capability to price better when a high-demand period presented itself.”
in our industry had collapsed with the move online, at the same time occupancy rates were plummeting as the economy tanked,” says Frederic Deschamps, vice president of global revenue optimization at Carlson Hotels. “Consumers were using the Internet and other distribution channels to evaluate their hotel options based solely on price, and not on quality. Every purchase was starting to gravitate toward the lowest available rate, with fierce competition across an industry with half-empty hotels. We knew that we had a pricing problem during the downturn — but we also wanted the capability to price better when a high-demand period presented itself.”When market conditions lead to fewer sold-out nights, traditional yield management is only sporadically effective. For Carlson Hotels, that signaled an opportunity for positive change. “We needed a more sophisticated method of matching rates to actual demand so we could measure our success based not only on occupancy rates, but also on the revenues generated by individual bookings — and the value of missed opportunities caused by quoting higher prices during a low-demand cycle,” says Deschamps.
Adjusting to the market
After determining that its hoteliers needed to understand the price at which their hotels would make the most money on all future booking nights, Carlson Hotels turned to JDA Software for a radically different approach. They embarked on a new revenue optimization project called SNAP (which stands for stay night automated pricing) to drive higher revenue for its hoteliers using JDA Demand and JDA Travel Price Optimizer. Carlson Hotels is now able to quantify price elasticity and use that output to generate optimal prices, bringing competitor data into its revenue management system and forecasting how customers will respond to price changes.
“As a brand that is looking to expand globally and grow profits, our goal in adopting JDA’s solutions was to bring a very elegant yet deeply sophisticated solution to the complex pricing issues our hotel properties face,” says Deschamps. “JDA’s innovation in price optimization helps insulate individual hotel properties from the effects of irrational competitor pricing, allowing them to price to demand during low and high occupancy periods.”
JDA Demand delivers a powerful forecasting capability, allowing Carlson Hotels to react more quickly to shifts in demand or competitive rates. With shorter booking curves, reacting a day or two before the competition can give Carlson Hotels a RevPAR index performance advantage. By combining JDA Demand with JDA Travel Price Optimizer, Carlson Hotels is able to shift from pricing based on the product and guesses about competitive impacts to pricing based on a demand forecast and price elasticity compared to real-time competitor prices. “We chose this additional JDA solution based on its ability to set prices at a rational level based on the elasticity measured with JDA Demand,” says Deschamps.
Together, JDA’s demand management and price optimization solutions not only alert Carlson Hotels to upcoming demand changes, but also enable the company to maximize occupancy and revenues by setting optimal rates based directly on local market demand and room availability.
“The key benefit is that JDA’s solutions provide us with the ability to raise or drop rates ahead of when the hotel might otherwise have, which provides us with a critical head start on the competition,” says Deschamps.