Rethinking Competitor Pricing: Why Revenue Managers Should Look Beyond the Neighbours
Introduction
In the ever-evolving landscape of hotel revenue management, the temptation to closely monitor and mirror competitor pricing strategies can be strong. After all, keeping an eye on the competition seems like a logical step to stay competitive. However, this approach may not always be the wisest course of action. In this blog post, we’ll explore why obsessing over competitor pricing and pricing yourself similarly to your competitors may not be the right way for hotel revenue managers. We’ll also highlight the importance of understanding that you’re not just competing with your neighbors; you’re competing against the entire market.
- Different Exposure, Different Strategy
One of the fundamental reasons why pricing yourself solely based on your competitors is problematic is that each hotel has its unique set of circumstances and market exposure. While your neighboring hotel may have similar amenities, room types, and even target demographics, their occupancy levels, customer profiles, and distribution channels can differ significantly from yours.
For instance, a neighboring hotel might have a higher corporate clientele, while your hotel relies more on leisure travelers. Their marketing efforts, partnerships, and brand reputation could also vary substantially. In such cases, blindly following their pricing decisions can lead to lost revenue opportunities or, conversely, pricing yourself out of the market.
- Market Dynamics vs. Neighborly Competition
Instead of viewing neighboring hotels as competitors, it’s essential to understand that you’re part of a larger market ecosystem. The dynamics of the market extend beyond your immediate vicinity. You’re competing not just with the hotel next door but with every other lodging option that appeals to your target audience.
Consider the broader factors that affect your pricing strategy, such as local events, seasonality, economic conditions, and global trends. These external factors can exert a more substantial influence on your pricing decisions than the rates set by your immediate competitors. By focusing on market dynamics, revenue managers can make pricing decisions that are more responsive and adaptive to changing conditions.
- Value-Based Pricing Over Price Matching
Rather than engaging in a price war with neighboring hotels, revenue managers should prioritize value-based pricing. This means pricing your rooms based on the unique value proposition your hotel offers, including service quality, amenities, location, and guest experience. By highlighting and enhancing your hotel’s distinct advantages, you can justify premium pricing, even when compared to nearby competitors.
Furthermore, a race to the bottom in pricing can erode profitability and damage a hotel’s brand image. It becomes a lose-lose situation for all parties involved. Instead, hotels should aim to differentiate themselves and cater to specific guest segments willing to pay for the value they offer.
Conclusion
In conclusion, while it’s essential to stay informed about competitor pricing and market trends, hotel revenue managers should refrain from making pricing decisions solely based on what their neighbors are doing. Competitor pricing is overrated because it fails to consider the unique exposure and circumstances of each property. To truly succeed, revenue managers should embrace a holistic approach that takes into account the broader market dynamics, differentiates their offerings, and focuses on delivering exceptional value to guests. In doing so, they can optimise revenue, maintain brand integrity, and ensure long-term profitability in the competitive world of hotel