By Warren T. Jahn, Jr., Ph.D., Manager, Revenue Systems Training AMER, IHG and Chair, HSMAI Revenue Management Advisory Board

From HSMAI's Revenue Management Advisory Board -- Have you ever asked yourself "How do I find the 'PERFECT' transient price?" and then become overwhelmed by the number of factors and data sources to consider? Know that you are not alone! All hoteliers struggle everyday with this conundrum. And let's be honest, finding the "perfect" transient price may only sometimes happen. The "perfect" price today may not be the "perfect" price tomorrow.

So, what is a "perfect" transient price? Well, it's the place where price and occupancy meet to maximize revenue. But remember that at any point in time, this place may shift due to a number of factors. Therefore, having a dynamic transient pricing strategy is a necessity to successfully achieve larger revenue gains.

I cannot tell you how many times I have seen transient pricing strategies where a hotel sets their prices at a proportionate amount above or below a competitor's price. When the competitor changes prices, they change prices following a similar pattern. We could call this the monkey-see, monkey-do transient pricing strategy (see Figure 1).

Then there are the hotels that follow transient pricing strategies where they have their weekday price and their weekend price. We could call this the business/leisure rollercoaster transient pricing strategy (see Figure 2).

Both of these strategies are flawed, because they only focus on one specific pricing variable. Monkey-See, Monkey-Do focuses only on what the competitors are charging, and Business/Leisure Rollercoaster focuses only on two main consumer types in the market (business and leisure travelers). While both of these factors are definitely important in determining price, you must consider them together.

In order to make the best transient pricing decision, consider basing your transient pricing analysis and strategy on three key factors: 1) demand forecasting, 2) market prices, and 3) the consumer.

Let's discuss the importance of each of these factors in determining the "perfect" transient price.

Demand Forecasting. Many people argue this is one of the most importance factors in a transient pricing strategy. However, a lot of hotels either do not have a demand forecast or only forecast up to the physical capacity of their hotel. Just focusing on the constrained demand forecast will limit the revenue potential for your property. Accurately anticipating the overall unconstrained demand provides a much clearer picture of the overall demand in the market (see Figure 3). In the end, you will have a better understanding of the additional opportunities you may have to drive your transient prices. Lucky for us, there are countless revenue management tools, systems, and services which can assist you in accurately determining your unconstrained demand forecast. But only focusing on the demand forecast is not enough. We need more information to make the best pricing decisions.

Market Prices. How many times have you compared the prices of similar products either at a store or online before making the purchase? We all do this, and guess what…so do our customers! With the Internet, it is easy for consumers to compare hotel prices. It would be irresponsible of us to not consider our competitiors' prices, but determining when too and when not too is very important. Not all consumers shop around. Many are loyal to a specific product for reasons like value, service, location, loyalty program, etc. Begin to track and analyze through which channels your consumers are booking your products and determine when they are comparing you against the competition. Consider utilizing a rate shopping product, so you have up-to-date market price intelligence. Combining market price analysis and an accurate demand forecast will get you closer to determining the best transient prices, but one more factor will further enhance your strategy.

The Consumer. This is the individual who purchases your products, but...when are the big spenders in the market? And when are the limited spenders in the market? Offering discounts to the big spenders can potentially lead to money left on the table, and offering elevated prices to the limited spenders can potentially lead to unrealized revenue. Tracking consumer spending patterns by lead time and day of week may assist you in determining when these different consumer groups are purchasing. There are also some emerging tools and systems that can do some of this work for you. Combined with demand forecasting and market price analysis, your transient pricing strategy will only be strengthened.

In this challenging environment, re-structuring your transient pricing strategy is a valuable process. Gone are the days of setting one price and letting it ride. The best formula is a dynamic strategy which encompasses an accurate demand forecast, consideration of market prices, and knowing what consumers are in your market at any given time.

The only way to know if a price will be successful in the market...is to try it!

About the Author

Warren T. Jahn, Jr., Ph.D. is manager of revenue systems training AMER in the Global Hotel Learning Division of InterContinental Hotels Group (IHG). Dr. Jahn leads a remote-based team of senior training consultants who conduct field-based and e-learning training workshops in the areas of revenue, sales, and systems for all IHG affiliated properties and brands in the US and Canada. Dr. Jahn is also an adjunct professor in the hospitality and tourism management program at Strayer and Devry Universities. He previously worked as revenue management training consultant in the IHG's Global Revenue Management Division. He is currently a member and chair of the HSMAI Revenue Management Special Interest Group and has served HSMAI as a member of the revenue management sub-committee assisting in the development of the Certified Revenue Management Executive (CRME) program. He earned both his undergraduate and masters degrees from the University of South Carolina, and doctorate from The University of Tennessee.

Dr. Jahn can be reached at (404) 428-8917 or warren.jahn(at)ihg.com.

About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board is responsible for providing leadership for HSMAI's Revenue Management Special Interest Group (SIG). The SIG is advancing the revenue management discipline by being its leading source for education, best practices exchange, thought leadership and networking for revenue management professionals, other sales and marketing professionals, and senior management in the hospitality industry. www.revmanagement.org

Members include:

• Chair: Warren Jahn, Ph.D., Manager, Revenue Systems Training AMER, IHG
• Vice-Chair: Scott Roby, Vice President, Revenue Management, Tarsadia Hotels
• Immediate Past Chair: Timothy Coleman, CRME, President, The Coleman Company
• Christopher Crenshaw, CRME, Director of Marketing Intelligence, Loews Hotels
• Jack Easdale, Corporate Director of Revenue Management, Gaylord Hotels
• Jon Eliot, CHA, CRME, Director, Revenue Optimization, Carlson Hotels Worldwide
• Bernard Ellis, CRME, Managing Director-Americas, IDeaS - A SAS COMPANY
• Tammy Farley, Principal, The Rainmaker Group
• Fred Heintz, CRME, Director of Group Strategy, Marriott & Renaissance Hotels of New York City
• Jay Hubbs, Director-Hotel Supplier Relations, Hotwire
• Burl Hutchison, CRME, Manager of Revenue Optimization, Sabre Hospitality Solutions
• Dan Kowalewski, Vice President Revenue Management Services, Wyndham Hotel Group
• Stowe Shoemaker, Associate Dean of Research, University of Houston/Conrad N. Hilton College
• Miguel Solis, CHA, CRME, VP Sr. Director Revenue Management, Hospitality Resource Group
• Trevor Stuart-Hill, CRME, President, Revenue Matters
• Paul Wood, CRME, CHBA, Senior Account Director, Sceptre Hospitality

Want to Learn More?
Topics like this one will be addressed as part of the 10-part Revenue Management Webinar Series produced by the HSMAI University, HotelNewsNow, and STR. Begun February 23, 2010, and going through December, each month a webinar will cover various aspects of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you're not able to attend a live program or the date has passed, archives are available. Also, these and other timely revenue management and Internet marketing topics will be the focus of the HSMAI Revenue Management & Internet Marketing Strategy Conference, co-located with HITEC, June 21 in Orlando, FL.