Intelligent Pricing Automation: Learning from Satellite Navigation

In the mid-90s, when satellite navigation (sat-nav) starting to get popular, the navigation systems based their route recommendation on static data. The result: drivers often didn’t trust the sat nav because the recommended route was not the optimal one. Well, things have changed in the sat-nav landscape. In this article, sat-nav is used as a metaphor for revenue management: going from dated to advanced navigation systems by leveraging various data sources.

The Satellite Navigation as a Metaphor for Revenue Management

Early navigation systems based their route recommendation on static data. Once a route was set, the system wouldn’t change it, regardless of what lay ahead. If obstacles like traffic jams or diversions came up, it was up to the driver to find an alternative way.

In short, the sat-nav was little more than a digital version of the old paper map. It didn’t show what was around the next corner and left even the most carefully planned trip to be derailed by surprises.

Today those days are long gone and most of us have full confidence in our navigation apps’ suggested route. What made these apps good enough for us to trust? The answer is simple: real-time data.

From Using Static Data to a Broad Variety of Data Sources

Compared to their ancient ancestors, today’s navigation systems seem like super-computers. The vast amounts of live data offer real-time turn-by-turn directions, and much more. To do this, they collect data from various sources in real-time and determine the optimal route for every trip.

A lot of this data comes from the users themselves. They report dangers, closed roads, accidents and the like. The system evaluates this information and, if needed, calculates a new route and ETA.

For you as a revenue manager, the moral of the story is this: setting your rates based solely on historical trends and market knowledge is like going on a trip with a paper map or an old-school GPS. This works reasonably well when conditions are stable and there are no obstacles ahead. But what if something does come up? The same goes for revenue management because the truth is that even before the COVID-19 crisis market predictability was never guaranteed.

Dealing with Unpredicted Demand Spikes: The Ed Sheeran Example

A few years back, Ed Sheeran spontaneously announced an extra concert in Glasgow after the great response to his pre-scheduled show. You may think this was a boon for the hotels, especially since the new date fell on a Sunday, usually a low-demand day for the city.

However, since Sheeran’s team announced the new event on a Saturday, most hotels’ revenue managers were off and could not respond to the immediate surge in demand. Consequently, most hotels sold out at much lower rates than the market would have been willing to pay. To illustrate the difference: properties that failed to update their rates achieved an ADR of around £50. Their direct competitors who had detected the surge boosted their ADR to over £200 for the same date.

Had more hotels used live demand data to optimize their rates in real-time, they could have also lifted their ADR. Today and for the foreseeable future, the road ahead will have many unexpected twists and turns unlike any path before. In these conditions, you simply can’t afford to drive blind.

Historical data’s Shifted Role in Tactical Revenue Management

Contrary to what you may have heard, historical data still has a role to play. It’s an important and relevant aspect that helps you understand demand patterns and booking behaviour in normal times. If you think about it in sat nav terms, your historical data makes up the database of past trips that helps you plan your next journey.

The real-time performance of future arrival dates and competitor-set rates is another crucial set of data. This information validates assumed market conditions and is more relevant during unstable times. However, it only gives a snapshot of the current situation. Coming back to our sat nav example, this is like taking all current conditions on all routes into account to pick the best one.

Future Demand Data – The Core of Proactive Pricing Intelligence

The last missing element is future data which gives powerful insights into traveller intent. While it’s always important, future demand is crucial now since historical demand patterns are currently not reliable. If you can detect this recovering demand before it reaches your hotel, you can proactively get ahead of your competition. Think of this as the sat nav’s alerts that prompt you to correct course due to an unforeseen development. A good sat-nav, like an intelligent pricing system, checks its data sources in real-time to ensure you opt for the best route (and price) in every situation.

The Ed Sheeran event was an outlier that only resulted in revenue losses for a few hotels in a few days. Today, however, things are much more serious given the unpredictable markets and the challenges of the past year. Now, delayed rate updates can have disastrous consequences.

The surge of reservations right after the British Prime Minister’s announcement in February that hotels could reopen in mid-May is the perfect example for this. Properties in popular destinations around the UK sold out for weeks shortly after the news broke. Unfortunately, many hoteliers hadn’t foreseen this and filled up at low rates at a time when they needed the extra revenue more dearly than ever.

Intelligent Pricing Automation – The Time to Embrace it is Now!

Despite these examples that show the importance of real-time demand forecasting and pricing optimisation, many hoteliers resist embracing intelligent pricing automation. The reason: a lack of trust.

The best way to build this trust is to see results first-hand. Fully automated tactical pricing combined with sophisticated AI has helped many hotels outperform their competition in the past twelve months, despite the volatile situation. Bringing back the sat-nav metaphor once more, this equates to choosing the suggested route and following all of the system’s recommendations along the way to safely reach your destination.

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Only a short while ago, letting a revenue management system adjust your rates on autopilot used to be considered radical. Today, it’s the most prudent approach to successfully navigating recovery and the time beyond.