Imagine that we Revenue Managers had no data on our sales. Nothing. No historical data, no booking data for upcoming dates, nothing…
In this dystopia, how would you go about setting your selling prices? You would use the only information available to you: the positioning of your competitors.
But is it really possible to use your competitors’ pricing to deduce your own? We’ll explain.
Start with competitors' prices...
As we have to base our selling price on something, we’re going to use the only information available to us: our competitors’ prices. So we’re going to analyse their prices as well as the quality of their products.
Let’s take the case of a 3-star: it’s unlikely that its prices will be similar to those of a 4-star. Similarly, if the 3-star competitor’s photos show a better quality product, it’s better to position yourself €x cheaper.
In other words, we need to identify the price positioning that gives us the best value for money.
And that’s exactly what customers do: they buy the product that offers the best value for money. They’ll choose the best-quality product for their €100 budget, and perhaps be prepared to go up to €110 if the product above is significantly better quality.
So we position our prices in relation to those of our competitors…
So that we don’t end up in an inconsistent situation when it comes to setting our prices, I’m ruling out the possibility that our competitors might have different strategies:
- Different distribution strategies (Corpo, MICE, groups, which are invisible to us),
- Different pricing strategies (early booking, family offers, senior offers, cards, etc.),
- Different terms and conditions (cancellation conditions, prepayment conditions, etc.),
- Different offers (with or without a certain service).
So we have competitors with the same strategies, the same terms and conditions, the same offers, the same pricers… A totally unreal situation, but easier to manage.
... To create your own prices
Now you have to choose a gap with your competitors. I’m putting aside the choice of mark-up process: percentage (x% more/less), absolute value (€x more/less), variable (depending on the product or the period), that would become really complex to implement.
Now, how do we know if it’s the right variance? How do we know that this variance will enable us to maximise our sales? Without another source of data, it’s impossible. The ONLY way to know if our positioning is right is to analyse our sales or our « no-sales ». And to do that, you have to look at all the cases:
- Is January the right gap? And in July?
- For that product, is it the right gap?
- And what about a key event?
- Is a long lead time the right time?
To define whether it’s a good gap and enable us to adjust and refine it, we’re going to look at whether we’ve sold too little (Spoil), sold well (Perfect Kiss Landing) or sold too much (Spill). If I sold too little, then my gap is too wide. On the other hand, if I’ve oversold, my spread is too small. And since we’re using dynamic pricing, we’re also going to look at these sales in relation to an expected sales rate.
This means adjusting our mark-up by comparing our reservation portfolio with expected demand patterns. This means steering our rates by comparing our bookings portfolio with expected demand patterns.
Finally, is it really necessary to go through the « competitors’ stage » to define your pricing?
Setting our prices in relation to our competitors means we have to refer to our sales. So we might as well refer to our sales straight away… (unless we didn’t want to make any money…).
And in this real world, where every competitor has their own strategy, let’s save time and make life easier! Let’s steer our rates according to our booking portfolio and our track record:
- If I’m selling too quickly, I’ll be looking for the average price, and a pricing increase is not necessarily the most effective lever (think of min-stays, upgrades, closing offers, channels and yield classes).
- I’m selling too slowly, so I’m looking for volume. And then, by looking at my competitors, I might have an explanation for the slowdown in my sales. But I’m not sure. It could also be a general market trend. It’s up to us to anticipate it.
Looking at your own data is the most reliable way of maximising your sales. But don’t get us wrong. We’re not saying that there’s no point in looking at the competition, but that the competition is an explanatory variable (which helps us to understand more precisely why we perform or don’t perform on a given date, and even then…), so it comes at stage 2 of the analysis. It is not a decision-making variable.
Keywords: Competitors, Revenue Managers, Pricing, positioning, turnover
