Should your hotel use open pricing?

Posted under Interviews & Features.
by Patrick Ryan | Published 3 years ago

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Michael McCartan, managing director, EMEA, Duetto Research, talks about open pricing and how it enables hotels to be free to sell all year round.

McCartan.jpgOpen pricing is a way of pricing and distributing hotel rooms that enables a property to always be on sale at the best price for the customer and the most profitable price for the property. It’s a departure from a best available rate, BAR, strategy, which is used by most hotels. You could even call it the next generation of revenue strategy.

How open pricing works is simple. It’s about ensuring that your hotel never unnecessarily closes off an offer or distribution channel if a room remains open for booking. How does that work?

The BAR concept was created in the 1990s as an evolution of seasonal rates. All prices in a BAR concept are fixed modifiers of each other, either at a dollar or dirham mark or as a percentage discount. For example, if your BAR rate is $200 dollars on a particular night and your fixed modifier for a certain promotion is 10% you can only sell that rate at $180, or shut it off with an availability restriction.

Most hotels set their BAR rate as the optimal price for a room with no or few conditions attached and then offer promotions and special rates  to build a base of business. Great? No, because this rigid structure means you will be diluting your revenue on days with high demand.

A fixed-tier strategy limits your revenue potential. You can’t incrementally reduce or increase the prices on promotions and other restricted rates based on demand for those particular products. What’s more, if you are closing out rates with availability restrictions on certain dates, then you are losing business. Your customer simply cannot find your most attractive offer.

Open pricing enables you to have as many incremental price points on a demand curve as you can regardless of the BAR price. So now you can charge $185, or $186 or $187, or even $216.

It also enables you to be open and selling even during peak periods. For example, using a BAR method many hotels might close off channels for a busy Friday night. This means that a guest looking to book for a longer stay, say Thursday to Monday, will not even find your hotel. You are effectively turning down three extra nights of business, by closing off one night.

Open pricing enables you to stay open and competitive on all channels. Price your busy Friday night at a low discount, say 5%, or even equal to BAR. Price your other nights at an attractive discounted rate to optimise on lower demand periods. The guest looking to stay with you Thursday to Monday will book, happy to receive a discount on three nights of their four-night stay.

With open pricing, you’re never saying ‘no’ to the guest.

Open pricing enables hotel revenue managers to be surgical about their pricing strategy. It enables you to set independent rates for each channel segment and room type by the day, putting both you and the guest in control. You control the price and are always open. Guests will decide if they want to book at that rate. You never turn business away unnecessarily.

With the right technology, open pricing is easy to manage. You can automate much of the process, getting more granular and scientific with your pricing strategy.

It is a new way of thinking about hotel distribution. It is the evolution of BAR and once you adopt it you will see higher revenues and occupancy and gain further revenue control of your business.

About the author: Michael McCartan joined Duetto as managing director for Europe, the Middle East and Africa in 2014 to spearhead the rollout of the revenue strategy technology company throughout the region. Before joining Duetto, he served as CEO of eRevMax. Michael has an engineering degree from the University of Cape Town and a business degree from the Open University.

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