This week I would like to address another great topic of revenue management: the price positioning strategies. I usually take the subjects from interesting articles on hospitality magazines, today I would like to be a little bit more academic and mention an article published by Bill Carroll on the eCornell blog.
We know that the OTAs offer an endless range of prices, however hotels and restaurants still need to come up with the best price strategies. A price decision is influenced by many different factors like competitors’ rates, events and different markets. Here Bill Carroll offers a price-value matrix to help us to position our product or service. This is possible when we know the targets we would like to achieve. Those could be short term revenues, higher profit margins as well as to stand out from the competitors or just to survive.
Here the five different price positioning strategies to apply:
- Skim – we position ourselves higher than the competitors, to attract the crowd who is willing to pay more, however high price is equal to extremely high value and guests are still wondering why they should pay more in our property.
- March – we sell one of our rates like our competitors and the others slightly higher, in this way we can be competitive without beating the other players.
- Surround – we get one rate lower than the competitors and bring in the market who has a limited budget, but at the same time have higher rates with great products / services and added values for guests who are willing to spend way more.
- Undercut – we can potentially get more guests, if we offer the same rate like our competitors and one even lower, personally I am not a fan of this one.
- Penetrate – we stay lower than the competitors, cutting prices and increment offers, but this can take to a price war, depress the price market, lower margins and reflect bad on our property reputation.
Pricing strategies are more complicated than that, however it can be a really good start.