Open Pricing: A New Strategy for Maximizing Revenue

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Open Pricing. If you haven’t heard of this revenue strategy yet, you’re likely to in the year ahead. Open Pricing is changing the way that accommodation providers set rates. For properties from large to small, it has the potential to increase revenue and forever change revenue management practices.

So, how does it work? Is it a good fit for you? If you wanted to try it, where would you start? Read on to find out more.

Though it can seem complicated, it’s possible to sum up Open Pricing in two sentences. It is a revolutionary pricing model for property owners that allows for more flexibility with rates. It means pricing all room types, channels, and dates independently of each other to maximize revenue, without ever closing any channels.

Yes, that’s right. If you apply an Open Pricing model, then all channels stay open, all the time.

How Is It Different?

 Open Pricing is different than the way that most properties currently manage rates. Many hoteliers follow a dynamic pricing model that’s based on a Best Available Rate. Here’s a quick recap of that strategy.

 

  • The property sets a BAR for the day. This changes according to demand.
  • All room types are set at certain intervals relative to each other, e.g. a king is always 20% more than a double.
  • All discounts and specials move according to the BAR. For example, a promotional rate is 10% less, an OTA rate is 20% less, and so on.
  • At times of high demand, the hotel will close the discounted channels, and may set restrictions, like minimum length-of-stay.

 

There’s a reason that accommodation providers like the dynamic pricing model. It has been effective at maximizing revenue for various channels, and helps hoteliers to balance their many sources of bookings. Open Pricing, however, has the potential to do this even better.

Let’s take a look at two different examples to see what Open Pricing looks like in practice.

 Reducing Discounts in Peak Season

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Imagine a fictional property, The Beachside Inn. They set prices according to their Best Available Rate. A promotional rate is 10% less than the BAR, and an online travel agency (OTA) package rate is 20% less. Therefore, if the BAR is $200, the promotional rate is $180 and the OTA package rate is $160.

In the height of the summer season, The Beachside Inn has more business than beds. Demand is strong, so they raise rates. The BAR is now $400. The other rates move in lockstep with it, so the promotional rate becomes $360, and the OTA package rate becomes $320.

However, because demand is so high, The Beachside Inn decides not to offer the OTA package rate at all. They close that channel. They do keep the promotional rate open.

There are two potential problems here. 1) By closing the OTA channel, they risk losing visibility to customers who only shop using OTAs. 2) By keeping the promotional rate at 10% less, they might be leaving revenue on the table. If demand is high, some guests looking for a promotional rate might be willing to pay more than the standard discount.

If The Beachside Inn used Open Pricing, they would keep the all rates open, including the OTA channel, but they would reduce the amount of the discounts to reflect demand.

No More Restrictions on New Year’s Eve

Downtown Phoenix, Arizona

Most accommodation providers apply restrictions to their revenue strategy. A good example is the minimum length-of-stay (MLOS) restriction around New Year’s Eve.

Traditional revenue management systems recognize the demand peak at NYE, and might recommend selling only three-night packages around that day. That way, you avoid being full on NYE but empty on the days around it. In theory, it means you make more money by capitalizing on seasonal demand to fill more nights. In practice, it turns away guests who can only stay one or two nights, but are willing to pay a premium for that stay.

This is where Open Pricing makes a big difference. Using this method, no MLOS restrictions are applied at New Year’s. Instead, rates significantly increase. Customers who are ready to pay that price can book, even if it’s just for the one night.

Getting Started

Fortunately, software solutions now exist to help properties use an Open Pricing model, which would be quite complicated to track and manage otherwise. Our own BookingSuite RateManager supports Open Pricing. Unlike other solutions, it also allows you to keep your established pricing strategy in place, if you prefer.

BookingSuite RateManager is a flexible option that lets you decide what makes sense for you and your business. No matter what pricing model you follow, it provides you with accurate, easy-to-read recommendations to optimize your rates, every day.

Open Pricing promises to grow in popularity this year. We’re excited about its potential, and the way that it’s changing the landscape of hotel revenue management.

 

About Irene Keliher

Irene Keliher specializes in planning and writing user-friendly content for the web, particularly for eCommerce and online travel.

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