Monthly Archives: September 2015

AirBNB Shakes Up the Hotel Industry

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AirBNB has gained traction in the hotel industry for the last couple of years. In June of 2015, the popular alternative lodging platform has closed a $1.5 billion funding round with a valuation of $25.5 billion. It was one of the largest private capital funding rounds ever and galvanized its place as a “unicorn” in the startup world. What makes AirBNB unique in the hospitality industry is that it helps people rent out their homes or spare rooms for short stays. This year alone, the company is expected to earn at least $900 million in revenue. By the year 2020, the amount is estimated to increase to more than $10 billion.

At those amounts, hotels are trying to look for ways on how to deal with the lodging paradigm shift. AirBNB already supplies more inventory than all of the worlds largest hotel brands. InterContinental, Marriott, and Hilton maintain under 700,000 rooms each.

While AirBNB does have a lot of rooms to offer, the company doesn’t own them, and most of the listings are not available all throughout the year. And when it comes to actual bookings, AirBNB still has a lot of ground to cover. At present, their bookings are at 37 million room-nights a year, which is only 20 percent of IHG’s numbers. However, experts agree that AirBNB’s booking rates are expected to grow in the next couple of years. They are on track to outpace hotels in the near future.

While it is unlikely that AirBNB will manage to take over the hotel industry completely, the hotels should take the shift seriously. The company is going to offer more additional lodging rooms each year, and as the supply increases demand is likely to shift more slowly and room rates are likely to go down. Hotel general managers must use proper hotel revenue management to ensure that their bottom line is not affected by the influx of available rooms.

Another way hotels are coping with the growth of AirBNB is to keep their standards of cleanliness and service high. Most hotels were developed based on a price point, and they work hard to maintain that price point over time with the use of a comprehensive hotel rate strategy. Hoteliers agree that it is important to create a great value proposition in order to maintain the status quo.

With the right hotel yield management and hotel rate analysis, hotels will remain competitive even if AirBNB manages to attract more homeowners to offer their spare rooms for short stays. One advantage that hotels have over room rentals is that the former provide a holistic guest experience that is topped with great amenities and service. While AirBNB has attracted people looking for authentic local experience, there are still travelers who look for the services and comfort provided by hotels.

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Hotels Need Dynamic Rate Strategies Supported by Technology

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In order to succeed in the hospitality industry, it is a must to implement a revenue management strategy. General Managers should treat hotel rooms as perishable products since their number is limited. Factors such as pricing, amenities, and customer satisfaction are considered in order to come up with the right prices and at the same time balance with the actual demand. The hotel can maximize its assets by executing a dynamic versus static rate strategy.

Hotel revenue management has been around for decades but it was during the rise of the Internet when the process became more complex and at the same time provided hotels with tools to help them measure pricing and customer satisfaction in an objective and affordable manner. The development of Review Portals and Online Travel Agencies helped with the advancement of rate analysis technology as well by aggregating market information that is publicly accessible.

A good revenue manager will use this information to predict consumer demand in order to optimize their room inventory, which in turn maximizes their revenue growth. Hoteliers are able to become more proactive and not reactive. They are able to use the data available to them to adjust their products by distributing them to the right customer at the right price and time.  It means not booking a room today at a low price in order to sell it the next day at a much higher price or selling the room at a low price today if the demand is not that high in the next couple of days. Each day in the forecast can represent an opportunity or a setback if rates are dynamically managed appropriately.

This yield management concept actually came from the sales model of the airline industry in the 1990s. One of the first major hospitality companies that implemented the concept into their hotel rate strategy was Marriot International. They were able to earn large profits through it, which lead other major players to implement revenue management as well.   Fast forward to today and accessibility of both technology and data has allowed more than just the big players to implement dynamic rate strategies.  As with any other improvement in an industry, this wide spread adoption has created a landscape where hotels must be even more innovative to separate themselves from the competition.

In the past, data could only be evaluated manually, which was time consuming and error prone. But through time, hotel revenue management systems were designed that can automatically evaluate factors and aggregative competitive pricing data. And in the past decade alone, demand patterns have become more erratic, as consumers become more educated shoppers depending more on reviews and other internet based content to make their decisions. These new competitive landscapes coupled with the erratic demand fluctuations make the use of technology essential.  If you are still manually collecting competitive price information and relying on instinct or historic demand patterns, then you are simply not optimizing hotel revenue.

As markets change, the approach to hotel revenue managers must adapt to the changes. At present, hotel revenue management is a complex process requiring hotel general managers to use sophisticated tools to understand customer satisfaction, competitors’ prices, and other factors.   These sophisticated tools unfortunately often have large price tags making them inaccessible by single property owners, boutique hotels, VRBO, AirBNB etc.   This obviously gives big brands and multi-property companies a competitive advantage.

At RateShepherd, our mission is to provide automated rate shopping, analysis, and alerts to property owners at an affordable price.  We are leveling the playing field by providing our sophisticated technology to property owners and operators of all sizes for dollars a day.

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Hotel Revenue Management is a Fickle Beast Tamed Only With Technology

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If your hotel has been struggling to maintain a steady stream of revenue, it may be because your prices are not optimized to perform well against your competitors. Could it be that simple? There are many factors that affect successful hotel pricing – the location of the hotel, the type and size of the hotel, target clientele, market demand, and, of course, how many and what type of competitors are nearby……to name a few!

The first step to lucrative pricing is to understand the supply and demand of hotel rooms in your area. Certain times of the year and events create more demand than others, such as holiday weekends, conventions, festivals, etc. During these times of the year, customers will likely struggle to find a hotel due to high demand, and are more likely to pay higher prices in order to guarantee that they have a place to stay. By raising prices the proper amount during these peak times, you can significantly increase revenue. Obviously this requires that hoteliers be constantly aware of what’s going on in their ever-changing market to properly yield their rooms. The minute you look away demand changes and you could be missing out.

There will also be slower times of the year, when it is hard to fill all available rooms. This is a good time to hold promotions or lower prices on certain rooms, in order to attract more customers. Depending on your facilities and amenities it is also an excellent time to create demand for your hotel or amenities by hosting events such as weddings, conferences, etc. Do you have a conference room at your hotel? Businesses are constantly looking for additional space to have meetings and this need is usually year around. Be sure to reach out to all the businesses in your local area to ensure they are aware of the space you have available. Hard work and creativity during low demand times can really pay off assuming it doesn’t distract you from your high demand “bread and butter” strategies that must be executed simultaneously.

Next, make sure that you are aware of your guests’ needs, and why they might be choosing to stay at your hotel. Business travelers or travelers who tend to book last minute are probably more likely to pay a higher price than a family of four who plans their vacation six months in advance. Most hotels experience 15% of their sales within a 72 hour booking window. At the same time hotels may sell out on New Year’s Eve six months in advance. Trends in why and when people book should be reflected in your pricing strategy over the forecast and prices will likely change, if managed effectively, as dates approach. It’s time to roll up the sleeves and juggle…

Finally, it’s extremely important to know your competition. Make a list of competing hotels in the surrounding area, and periodically track their pricing and bookings if you can. Be sure to consider factors such as services and amenities offered as well as location when comparing prices. You may find that you compete more with a hotel that is thirty miles away than with one that is across the street because you offer similar services attracting similar clientele. Tracking competitor pricing also allows you to tap into the collective knowledge of your competitors. Competitors may be aware of an event that you are not and if they have all raised their prices when you have not, it is likely an opportunity to adjust. Let’s assume you have 5 legit competitors each having two room types competing against your two room types over a 365 day forecast. That is 5,475 competitive ever-changing rates to be constantly aware of so that you can perfectly adjust your 730 rates. Sigh….

Hotel revenue management is becoming an increasingly complicated task. Factors such as the ones mentioned here are too numerous to count and constantly changing so losing track means losing revenue. Hotel revenue management is a fickle beast that can only be tamed with technology. Using technology to help you find those revenue needles in the haystack is not just a “nice to have” but a must. RateShepherd’s rate shopping, analysis, and alerts can help you tame the beast without breaking the bank.

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