Is offering differentiated hotel pricing based on the geographic location of the guest a viable revenue management approach?

This is not the first attempt for an ill-conceived differentiated pricing by the OTAs. 15 years ago Orbitz was caught jacking up prices for Apple computer and laptop users under the presumption that Apple users were more affluent than PC users.

Now comes a rather shallow attempt by the OTAs for "one-to-many personalized pricing", based on income levels in the geographic area where the customer resides.

As for the $500 discrepancy, it may be caused by cached ARI (availability, rates and inventory). Though the OTAs work with smart cache, the zillion APIs to CRS, Channel Managers and manually managed ARI via the OTAs extranets can create such pricing discrepancies. 

Luckily, with the help of AI, revenue management will be moving from the current "one-to-many" pricing approach to the "one-to-one" pricing, which will take RM to an entirely different level.

One-to-One Pricing, powered by AI and supported by CRM will allow hoteliers to automatically personalize pricing and product offering to the individual customer level and take into consideration dynamic factors such as customer's preferences, browsing behavior, influencer status, "intent to purchase" intensity, and of course the more mundane factors like RFM value, loyalty member status, past booking history and demographics

This research is indeed intriguing. As a product manager for Lighthouse's parity management solution, I've seen firsthand how hotels use extranet promotions to offer location-specific and platform-specific discounts. However, this study reveals a fundamentally different scenario.

Firstly, hotel revenue managers have a deep understanding of their product's value proposition and the optimal price range that maximizes revenue without compromising guest satisfaction. OTAs, on the other hand, lack this intimate product knowledge and market understanding.

Secondly, the price of a service should ideally reflect its intrinsic value. While guests from affluent areas with larger budgets may have more disposable income, it doesn't mean they're willing to pay inflated rates. The assumption that guests from affluent areas are willing to pay substantially higher rates for identical services could backfire.

In my view, a more ethical and effective strategy would be to establish  value-based pricing, then selectively offer potential discounts for specific groups. The current approach of implementing geographic price hikes based on assumed wealth could ultimately alienate guests and damage hotel reputations in the long term. This risks undermining the very trust that underpins successful hoteliers.

Why not?

There are many across industry examples where location and socio-demographics impact pricing for products and services. 

A few brief examples - 

Fuel - Drive around your own town and you will find vast differences. Not to mention long weekends.

Airlines - A long established program of pricing driven by the location the fare is being booked from. Think about it. Planes go there and back. You don't want the plane coming back empty because you can't price for the demographic in the destination.

Insurance - Entirely related to where you live and perceived risk factors in the location.

National/State boundaries - One location to another can impact the end price of a product. Whether that be cost to supply or the additional on costs to doing business in that location.

As personalization increases pricing won't only be driven by location. It will be based upon the subset of product and services that appeal to the individual and your past willingness and propensity to pay. Then all the other standard demand factors kick in.

Yes, and Certainly Not!  I'll take the liberty of rephrasing the question twice to explain... 

Question #1: Is geography an applicable fencing strategy? 

Properties in certain markets have been doing this offline for years. For example, Florida resident rates and Hawaii's Kama'aina offers are commonplace. 

Question #2: Is altering unqualified retail pricing through electronic channels based on geography a viable and sustainable strategy? 

I once encountered a US-based operator who would lower publicly available pricing at night to attract European travelers and raise it again in the early morning to appropriately reflect their competitive value proposition to the North American market. They were sensitive to currency exchange rates while taking advantage of booking activity by time of day. In this instance, someone based in the US could book at the same price as a European traveler if that person made a reservation at 2:00 a.m.   

So, here is my succinct answer: Ethical considerations aside, with the advent of VPN technology and contractual parity clauses, this approach is fraught with challenges and, therefore, neither viable nor sustainable. Sometimes, the juice just isn't worth the squeeze!

Differentiated pricing based on guest location is fair and aligns with existing segmentation practices in hospitality (corporate rates, travel agent discounts, wholesale pricing, etc.). Revenue management thrives on tailoring strategies to segments that reflect different purchasing powers, preferences, and booking behaviors.

Pricing adjusted to a guest's location can be viewed as another layer of segmentation. It leverages data and aligns rates with demand elasticity—where affluent areas might sustain higher prices due to purchasing power, and less affluent markets could be incentivized with competitive rates to boost demand. That is something airlines have been doing for a very long time. 

Ethical concerns could arise, especially if the practice lacks transparency. Clear communication and guest-centric strategies, such as offering unique value for premium rates, can mitigate negative perceptions.

The key lies in execution. Technology and analytics must support this strategy seamlessly, without alienating customers or raising fairness concerns.

Offering differentiated hotel pricing based on the geographic location of guests brings us to a timeless question: Can business practices be both profitable and ethical, or is that just a comforting fairy tale for capitalists with a conscience?

Differentiated pricing based on geographic location is nothing new—it's Price Discrimination 101, a cornerstone of both old and new revenue management. From a strictly revenue perspective, it makes total sense. If data shows that residents of San Francisco have deeper pockets than those in Kansas City, why not adjust prices accordingly?

But the issue isn't whether it works. Of course, it works. The real question is what this says about us as an industry...

The real question isn't whether geopricing works—it's whether it delivers results. And the market will always tell you. As a tool: For sure Geopricing is definitely a valuable tool in revenue management. The reason for this is simple: we live in a dynamic world, and revenue management is all about aligning supply with demand, pricing being one of the tools to optimize revenue.

At a high level, it's fine to have a single price point. But as we dive into more granular pricing, we should leverage different factors like geolocation and device type. For instance, someone using a Mac might be willing to pay more than someone using an Android device, someone in EU vs Australia might have a different perception because of currency, cost of goods, etc. - it is insights - and we should use those insights because we are here to drive revenue.

At the end it all comes down to value perception—a concept that"s inherently subjective. Two people might pay $300 and $200, respectively, for the same experience, but if both are equally satisfied, then their value-for-price perception is optimized. Similarly, someone with a million dollars to spend might find $10 options unappealing.

This is an intriguing topic. It's important to step back and consider the buying habits of people in specific regions. Generalizing—for instance, assuming everyone in a particular area is looking for discounts—can be misleading. Cultural differences and booking windows must also be factored in. Additionally, consider whether travelers from that region typically book your type of hotel or prefer alternative options. Savvy customers and metasearch platforms may catch on to location-based pricing, potentially leading to rate shopping from less expensive regions. This approach can quickly become complex and create parity issues, especially for branded properties. I would caution against adopting such a tactic.

Differentiating hotel pricing based on the guest's geographic location can be highly discriminative. This practice allows booking platforms to tailor prices according to what they believe different markets can afford; it may potentially maximise revenue generated from what is perceived as "higher-income areas" where guests are expected to have the ability to pay for "premium" facilities. 

However, this approach raises significant ethical and customer loyalty concerns. Rate disparities are one of the many factors that travellers research when choosing their preferred hotels. Price disparity based on the guest location can, therefore, lead to a brand being associated with geo-based discrimination and social stigma.  

The result would be consumers who discover these disparities feeling deceived or unfairly treated. This could not only damage the reputation of OTAs but also the hotels they represent. As the market becomes more price-sensitive and consumers become more informed through online reviews and price comparison tools, businesses may need to reconsider this practice to avoid alienating potential customers. Offering differentiated hotel pricing based on geographical location, in that case, may not be the most strategic approach in managing revenue.