We live in the age of technology, a moment that does not stop, we continue moving towards a future to discover. The times where we looked for data are gone, analyzing reservation transactions to obtain patterns. Certainly, we invested a large part of our time analyzing the data that supported possible changes in strategies looking for opportunities, which continues today. However, one day they arrived, being now unthinkable that a hotel of a certain size does not have a RMS. Installed in the heart of systems, they have transformed the way we analyze the data. Thanks to them, we forgot the endless templates and spreadsheets, traveling in a more visual and intuitive environment, allowing us to play with graphs, and, therefore, increasing our operational efficiency.
However, the purpose of this article is not to talk about RMS, whose experience creating one I already shared in part in past articles, but to analyze one of its star functions, that is the “autopilot” option. First of all, let’s briefly explain what this autopilot does. Considering parameters such as demand, pick-up trends and competitors’ prices among other factors, the algorithms offer, including other options, a daily price recommendation. Well, if we have the RMS configured with the “autopilot” option, these price recommendations would be automatically implemented on the website and in the different channels based on a criterion that we can configure, which can give us opportunities, but also involves risks.
In the last Master I taught, after finishing a class, one of the attendees approached my table and asked me, do you think we should activate the autopilot function of the RMS? Apparently, their hotels were seriously considering this option. The answer is obviously much longer than a simple “yes” or “no.” Initially we must analyze what type of hotel we are talking about. Being in a tourist environment, we are talking about a Resort, and here the journey begins. It is not the same a corporate city hotel on “autopilot”, with stable demand and a coherent list of competitors based on a correct previous exercise of “product quality analysis”, as it is for a Resort. In an urban hotel where we have dynamic prices except for certain corporate contracts, we can see an opportunity in the “autopilot” option, especially due to its agility implementing changes when competitors are selling their last rooms, where we may have more opportunities. In addition, the configuration allows you to schedule the time when these price modifications are submitted. Until now, it seems that everything is an advantage for a corporate urban hotel, however, there are also risks. When we talk about “pricing” strategy, returning to the concept of global vision that I always insist, we are not only talking about the price on a specific day, we must go further and consider everything that a pricing strategy entails in capital letters, starting with the origin of the “pricing” strategy such as contracting strategy, channel strategy, positioning by channel, minimum stay restrictions, cancellation policies, release, etc. The final price is just the culmination of a thoughtful overall strategy. For this reason, even in an urban hotel, numerous factors must be considered together. It is a simplistic strategy to rely only on the price that travels through the channels, when today we should focus more on the net ADR and the return that we obtain from that price after considering the Mix per channel due to high distribution costs.
When we talk about a Resort, we have a totally different scenario, although it shares the same essence. However, the freedom to apply a different price each day based on the demand and competition parameters recommended by the RMS is limited by the impact of static FIT rates. Until the day where all tour operators are fully connected to our systems and apply dynamic rates or we can have the same agility as we have with direct prices, we will never be able to talk about the desired flexibility in pricing.
In my experience, although it may seem like a contradiction, raising the price can cause the hotel’s ADR to reduce. Let me explain, if, as recommended by the RMS, we increase direct prices and in connected channels in a specific period, we will produce disparities with the static FIT prices, reducing opportunities in the direct channel and therefore impacting the hotel’s ADR . Throughout my professional career I have done several real studies pushed by the hotel’s executive team where they requested to increase prices without thinking beyond the implications on distribution. Well, always following the principle that you must do different things to learn from mistakes, we got the expected result. I highlight the fact that any change in price also needs to involve changes in the channels, not in the dynamic connected ones, but in the static FIT contracts. But, also, let’s think for a moment about the behavior of a vacation customer, where after choosing the destination and hotel, at least 7 out of 10 customers search through metasearch engines to pay less for the same product. Considering the complex distribution and the much-feared cannibalization, adequate pricing in a vacation hotel is more complex than it may seem, even in hotels with a contracting strategy excluding bed banks.
Returning therefore to the question of applying the “autopilot” option in a Resort, a priori, as mentioned, it will reduce the opportunities of the direct channel when not adopting a global pricing strategy between channels. A different situation would be to apply price when we have done actions in those static FIT segments. Therefore, a price change in a vacation hotel must be made considering specific actions in non-dynamic segments, something that today an RMS on “autopilot” cannot do as it is an offline segment.
Another risk comes from the competition’s prices, where generally, the data considered is the lowest price offered by the competition, regardless of the room type available. Although there may also be comparisons by category, the configuration of the algorithms focuses their recommendations on the lowest price, which may impact competitiveness in the higher categories. Competitor inventory by category, prices between categories or changes in demand by groups are other factors to consider to determinate the correct positioning. As I always say, the foundation of a global pricing strategy began a long time ago.
In conclusion, each specific case must be studied to determine the opportunities and risks of the “autopilot” option based on existing resources. Personally, I prefer to monitor recommendations, emphasizing once again the importance of a global strategic vision, since it is very simplistic to analyze a hotel’s strategy only by its price for a specific moment or comparing only with the competitors. Being “pricing” an essential part, from my experience, I can say that the profitability in a hotel’s GOP is more optimized by a correct general distribution strategy that allows a controlled price increase, rather than larger price increases in the direct channel without considering the impact of the distribution.
