The Power of Personalization: Customer-Choice Pricing
By Paul Van Meerendonk, Director - Advisory Services at IDeaS Revenue Optimization
OTAs may help hotel-room shoppers find the best price, but at what cost? Sure, everyone loves a good deal, but let's not forget that people will pay more for the things they value. By instituting a personal, choice-driven approach to the sales process, hotels could see both guest satisfaction and their profits ascend to new heights.
A Win-Win Strategy
Personalizing the guest experience is all the rage right now, and hotels are eager to capitalize on opportunities to monetize. Loyalty programs are no longer just marketing initiatives but also revenue management strategies to control top- and bottom-line performance. As travelers demand more tailored accommodation experiences-blame the millennials, of course-a "customer-choice pricing" model may be the best way to deliver the ideal product to the ideal guest at the ideal price.
To understand how this works, let's shift industries a moment. Consumers are already used to customer-choice pricing from purchase scenarios like the car-buying process. Auto dealers enable shoppers to define their own value standards. Most vehicles include the basics: an engine, some seats, four tires, etc., and there's the obvious cost difference between luxury and economy. But beyond that, at a more granular level, the price can still vary quite a bit. Some may seek nice-to-haves like heated seats or built-in navigation. Others may not care for those frills but still want some automation like cruise control and anti-lock brakes. The minor differences from one customer to another become important factors in determining price.
It's not much of a stretch to see how this same value-decision framework could apply to hotel-room booking. A bed and bathroom is to be expected in most cases, and rooms with balconies or kitchenettes already come at a premium. But the sky is the limit in terms of other monetizable amenities and services. Some people may be willing to pay a higher rate for the assurance of a quieter room, away from the elevators and other busy areas. Leisure seekers may enjoy a comfortable lounge and TV space, whereas business travelers are fine with just a desk. Families with kids will see more value in a sofa-sleeper. A back-pain sufferer might be grateful for a pillow-top upgrade.
The car salesperson has the advantage of being on the showroom floor as the potential buyer peruses models. They can assess the shopper's likes and dislikes during a test drive and start to narrow in on the right price as they sit across the desk from their prospect. The promise of certain features can even be used as negotiation tactics. Ultimately, it comes down to how much they can squeeze out of the customer to make the most profit.
Hotel salespeople don't usually have this same level of face-to-face interaction with their potential guests, but through sophisticated data analytics and a more detail-oriented online booking experience, this next level of dynamic, bespoke pricing could become a tangible reality. Hotel guests will appreciate the choice to avoid paying for things they don't need while gaining more options that truly matter to them. In the process of providing greater personalization, hotels can introduce new opportunities to create more revenue. It's a win-win strategy.
Boost Your Brand
The personalized-pricing business model can also function as a major brand differentiator, allowing hotels to stand out in an overcrowded market. With little to distinguish one hotel's service values and rewards program from another, brand loyalty has fallen by the wayside. Most shoppers are simply searching for the lowest price, and hotel brands have become commoditized. OTAs are partially to blame, but hotels themselves are just as culpable. Finding the optimal price point for a room has been boiled down to a science, but in the process, hoteliers have lost sight of what really matters to their guests.
In the current model, rooms are priced as units, and rates are determined by demand and availability. OTAs then display these rooms in a side-by-side, competitive marketplace format where little information is provided about any of the distinguishing qualities each unique room may have to offer. For instance, if you're shopping for a king room at a five-star hotel in downtown Chicago and you come across three listings, you'll most likely opt for the lowest-priced option-or maybe the one that allows free cancellation. What the booking channel can't tell you is that there's an available room with stunning views of Millennium Park and Lake Michigan that would really make your Chicago vacation an unforgettable experience. If only you knew.
There's a major opportunity here to capitalize on a growing travel trend. Airbnb has already made this a key element for their brand. It's time for hotels to follow suit. Today's hotel guests may be fixated on price, but deep down, they want more than just a place to sleep, and whatever it is they desire, they want the highest quality version of it they can afford. Cost will always matter, of course, but hotels can start to reposition price as just one factor of the overall decision. In a customer-choice pricing model, each shopper would be given more options in the online booking environment. They can select the individual components of a room they want and leave off the ones they don't, either spending extra or getting a cheaper rate in the process.
Put Your Trust in Technology
Personalized pricing's ascent into a widespread industry practice will depend on the availability of new and advanced technologies. Human decision-making and revenue-management processes will still apply, but offering customer-choice pricing to guests is not a job for just one person or even a team of people. There's just far too much data to consider. As we've seen with the rise of dynamic pricing, automated forecasting and rate-setting software has been crucial for hotels to successfully drive up their revenue strategies. Now, as we near the third decade of the 21st century-can you believe it?-progress in machine learning is poised to unlock tremendous opportunities with significant business applications.
The crux of customer-choice pricing is its capability to achieve real-time functionality. Online shoppers want a quick and painless experience. They want to be convinced to click "Book" as fast as possible so they can get on with planning the rest of their trip. Mobile apps and voice technology help expedite the user experience, but the ultimate driver will be artificial intelligence equipped with the power to offer immediate, catered pricing at an individual consumer level of specificity.
Technology already exists to analytically predict consumer wants and needs and provide personalized products and services. The next giant leap will involve some intricate finetuning to deliver this level of sophisticated machine learning into a usable format for hotels. With technological breakthroughs and game-changing innovations happening at an exponential rate, customer-choice pricing is set to be the next generation of dynamic pricing for hotels, and probably a lot sooner than you may think.
Bring Power to the People
A new pricing practice could be just the industry shift needed to battle hotel-room commoditization. It would also give customers more freedom and control over their destiny, allowing them to define how they value the services and amenities available to them. By implementing customer-choice pricing, hotels can separate and categorize all their products and services into components of value. Features that are currently invisible during booking could now be brought to the surface as part of the decision-making process. This will help drive differentiation and minimize direct price comparison with competitor products being marketed as the same thing, despite their many differences.
Providing consumers with this level of choice can reveal scenarios for bonus revenue as guests choose more attributes, and by being empowered to make those selections on their own, they will be more appreciative of the value they receive for the money they pay. For the customer-choice pricing model to work successfully, hotels will need to determine the most distinctive and appealing elements of their assets. This will help the hotel's products rise above their current competitive landscape and allow them to be presented on their own merits and personal relevance to individual prospective guests.
Instead of customers scouring the Internet for the best possible price, hotels can bring their brand to the forefront by offering a tailored experience, using the right choices to arrive at the right price. Other consumer benefits include increased transparency into what they're getting and greater piece of mind that their stay will meet their expectations.
Customer-choice pricing could be just what hotels need to repair the booking process, rebuild their reputation and renew guest loyalty. In the process, hotels can provide a better shopping experience and an overall better stay by offering a wider variety of options. There's power in choice, both for the buyer and the seller. Your potential guests will tell you how much they're willing to pay, and you in turn can monetize more of your assets. Here's to hoping that booking a hotel room could someday provide as much personalized self-selection as the car-buying process-thankfully, without the pushy salesperson and cheap coffee.
IDeaS, a SAS company, is the world's leading provider of revenue management software and services. With 30 years of expertise, IDeaS drives better revenue for more than 10,000 clients in 124 countries. Combining industry knowledge with innovative, data-analytics technology, IDeaS creates sophisticated yet simple ways to empower revenue leaders with precise, automated decisions they can trust. Results delivered. Revenue transformed. Discover greater profitability at ideas.com.