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Fireside with Pace Chief Scientist

Minna Vaisanen, VP Customer Success
Apr 8, 2019 - 4 min read

Let me start with a broad question: what do you think a revenue manager should focus on when it comes to pricing hotels and hostel in today’s fast-paced world?

Well, the world has always been changing. The difference today is how much faster we are at reacting to change.

Years ago it would be unthinkable that someone would make a reservation for your hotel in Australia from the US and within minutes Pace in London would be able to analyze that booking and all of your other bookings and decide that there is a better pricing strategy.

Today, that’s a reality, not only for big hotel groups but also for mid-sized groups and smaller hotels. So, that connectivity and other advances in the underlying technologies are giving hotels new capabilities at a speed never seen before.

You are definitely right that response times have become a greater focus in revenue management. It used to be enough to adapt to demand weekly, then daily, now hourly. But, let me dive in, how, as a hotel, do I know that I am selling at the right price?

You actually have a lot of information about how good your price is. Your inventory is out in a global market, with potential customers constantly looking at your price. If they buy the room at the price you set, that’s a signal of demand. If your room is sitting out there at that price and nobody is buying it, that’s also a signal that maybe your price is too high. This is common sense, and any revenue manager goes through this thought process many times a day. The tricky part is deciding by how much to increase or decrease your price, when to react and when to hold your horses.

Right, that is something that revenue management teams struggle with on a daily basis. How does Pace decide when to react and when to wait?

At Pace, we use a framework called Continuous Pricing. Within this framework there are four components necessary for optimal pricing:

  1. Real-time. The RMS runs continuously, updating its underlying assumptions as soon as bookings or cancellations happen.
  2. Price paths. The RMS computes optimal price paths for the future. In other words, you understand the uniquely optimal price path for every room-night.
  3. Probabilistic forecasts. This is a fancy way of saying that the RMS contains an understanding of uncertainty. This makes it possible to respond differently in a situation where you have high confidence compared to situations where you have low confidence.
  4. Open pricing. There are no scientific restrictions on what the optimal price can be (obviously they can still be set manually). In other words, if £34.50 is the optimal price that’s what you should use, not some other price.

Lots of new concepts there and probably a whole other conversation just on those four topics (but let’s keep that for another day). My question: how does #ContinuousPricing change the role of a revenue manager?

We all have parts of our jobs that we find harder to be certain about. Having a reliable system that uses continuous pricing means that you don’t need to worry about missing a surge in demand, or leaving some nights unattended and noticing later that you missed revenue there. And I am sure that combing through spreadsheets late at night or trying to set up some arbitrary pricing buckets for each of the rooms in your property has caused some grey hairs. However, at Pace, our aspiration is not only to make your life easier, but also help you increase the certainty in how much revenue you will get so that you can spend the extra cash investing in what matters to your customers: your property.

What about if I’m not using an RMS that does Continuous Pricing. How can I incorporate these insights into my work?

Well, the easy solution is to use Pace! But if you want to go the hard way I would suggest:

  1. Monitor your bookings as regularly as you can, maybe with alerts for unusual activity. Rate shoppers are not updated quickly enough, and even if they were, your competition might not update their prices regularly, so you need to react.
  2. Think about what you think you have achieved in the past in terms of occupancy, and how you achieved it. Did you lower prices at the end? Did you on average keep your prices flat? Maybe try increasing your prices ever slightly on nights that are going as expected towards the end of the booking period.
  3. Do forecasts! Even if it’s just looking at the same time last year. And equally important, keep a record of how well your forecast did in hindsight. If your forecast for Mondays is very good, you know where you’ll end up in occupancy, react if you’re not getting there. If your forecast for Tuesdays is bad, try to aim for somewhat higher occupancy than what your forecast says.
  4. Get rid of price buckets. Incrementally increase and decrease prices to see how they impact demand. After all, you are trying to hit a very fine balance, so best to tune price slowly.

These are some basic ways of getting a feeling for these concepts, but of course, there’s a lot more where that came from for our customers, and only embracing the four at the same time can you expect the best results.

Thank you so much for your insightful answers! We are very excited to see how Pace can assist the revenue management function in hospitality.

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