GauVendi

Before setting up your feature-based rate structure you may like to consider some relevant aspects in the distribution landscape as well.

Background

Hotel distribution strategy radically changed when rates started to get sold online through the internet. Prior to this, different strategies could easily be maintained next to each other without conflict, as all of them were managed offline and only a defined number of rates were disclosed to the public. 

• Rack Rate, Public Corporate, Promotional Rates => available to the “public” so generally to guests
• Contracted Corporate or Consortia rates => sold exclusively for corporate companies or consortia and through their closed sales channels (usually GDS dedicated rate codes or offline directly through the hotel)
• Tour Operators / Wholesaler => contracted allotments, that hotels negotiated with tour operators and that were fully managed offline and manually (both by hotel and in separate tour operator databases).

Suddenly, after September 11, 2001, a huge number of rates became available through the internet (e.g. Gulliver’s Travel a major wholesaler). Wholesales and Tour operators sold the contracted allotment inventory online, sometimes even without adding a margin! The principle of contracting a “net rate” and adding a margin became the base condition to sell hotel rooms through OTAs such as through Expedia, DOW and others. Priceline on the other hand sold rooms “opaque”, a model that did not convert well in the European market but was highly successful in other parts of the world.

And whilst over the years the static rate structure moved into a more dynamic rate approach, the share of online business became very relevant to the mix and as result hotel rooms became very comparable and transparent to the internet users. With OTA’s being a critical share of business for many hotels, the rate strategy focuses also moved towards these partners, and less effort was placed to the opportunities available through “closed user groups” or direct differentiation. 

Hotel Distribution Channels

1. Voice (telephone) direct 
2. Email direct
3. Hotel website booking engine
4. OTA’s (Expedia, booking.com, etc.)
5. GDS (Travel Agents, Consortia such as American Express, Carlson Wagonlit, etc.)
6. Call Center (Third party call centers connected to the hotel’s inventory through a CRS or other means)

Whilst contracted and confidential rates are a relevant segment for hotels with a strong business focus and GDS connectivity, a high number of hotels had less distribution channels available to distribute its inventory (covering channels no.1 to no.4).

Often the costs of the distribution channel are not properly calculated, particularly not when it comes to direct distribution. Hotels seem to forget that whilst the staff is reactively “administrating” reservations or reservation requests, they are unable to do pro-actively work on “revenue generating actions” instead. 

With the high turn-around in staff (and general scarcity of resources) particularly in the Reservations and Front Office teams, the shortfall of providing proper onboarding as well as the absence of product knowledge to new staff, there is a high impact in the lack of quality and capability to sell the hotel’s inventory to the satisfaction of the caller and best interest for the hotel.  

Evolution of market shares of distribution channels in Europe 2013 – 2019

Source: Hotrec European hotel distribution survey 2020

Almost 30% business of hotels today is still direct “offline” and another +30% are from OTA’s (charging up to 20% commission).

A differentiated room inventory offering is also something that is often being forgotten as a consideration point within the rate strategy. Hotels tend to sell “all” their clustered inventory through “all” channels – without considering target groups or impact to sell. And because of this, inventory often is being displayed without a purpose and with the result of “overloading” the sales display, as the distribution channels today are unable to “limit” the offer by themselves unless rate conditions (minimum length of stay, defined availability dates, etc.) “naturally” reduces the rooms available on the shelf.

With GauVendi you are able to stop “spamming” your potential bookers by offering a selection that is linked to the preference of the guest. 

Outcome Global Study IBE’s

Extract study about internet booking engines by h2c Consulting, year 2020

Poor customization and personalisation are major Internet Booking Engine (IBE) pain points 

Study was joined by hotel chains: 75 representing 9.575 properties and 1.361,214 rooms

Study was conducted by h2c consulting

• 71% say personalization functions are limited!
• 42% Customization functions are limited!
• 40% Groups and Block functionalities are missing!
• 31% Upselling functionalities are limited!

Exercise – Analytics 

If possible, analyze your statistics reviewing the following data points below. Data should cover a period of at least 12 months and break down by month (you may consider period prior to pandemic).

Always try to get KPIs covering: 

• Booking Lead Time
• Average length of stay
• Average Rate
• (Roomnights)
• Occupancy – general per week day, per month
  • Per Room Category
  • Amount of pax in room

If available, analytics should be pulled for the following sections

• Break down by room types
• Break down by rate segment
• Break down by source markets
• Break down Source Markets and booked room types
• Break down Rate segments and booked room types

Review your distribution channels (IBE, OTAs, GDS, Voice) based on the above KPIs looking at

• Which rooms types are booked through which distribution channel?
• Which origin destinations have booked through which distribution channel?

Compare the results and success of each of these channels under consideration of the KPIs. 

Adding the cost of sales to your consideration is of additional benefit. When calculating the cost of sale please consider the following

• Distribution Cost charged by the distribution partner per reservation
• Manual costs (after initial set up) managing the reservation, e.g. room assignment, corrections, payments, etc.
• Value of the distribution channel – is this business that you could “theoretically” also get through other channels (e. g. in the case of travel agent business from travel management companies it is business that you would not get otherwise).

If possible (and relevant), additional break down to be provided for contracted and non-contracted business

Room Type Break Down

• What is the occupancy of each of my room types and which room types provide most of my revenue (80/20 rule)?
• What opportunities do I have to shift business of currently highly occupied room categories to the less occupied ones (review of rate structure and price points, review of differentiators between categories)
• What is my occupancy of my room types per day (Mo, Tue, Wed, Thu, Fri, Sa, Su) and how does this break down compare when looking at demand patterns (high, medium, low demand) 

Considerations for your Distribution and Sales Strategy

When you revise your current distribution strategy you may come to the conclusion that differentiation by distribution channel and target group actually makes sense. Following questions may be of use for your future approach:

• Which room types are most relevant to be sold through which channel and target group?
  1. Not all room types fit all channels or target groups
  2. Not always the cheapest price is the best offering
• How do I differentiate my direct sales from third party sales?
  1. Better product offering?
  2. Better sales consultation during the voice reservation request?
  3. ….
• Which conditions should I apply per sales distribution channel? 
  1. More individualization based on a minimum length of stay
  2. Conditions linked to most requested rooms / limited room availability
  3. ….

Distribution Considerations using GauVendi   

GauVendi as your central inventory sales management system you have a new and different distribution opportunity available.

Setting up your inventory with a higher number of room differentiators gives you the opportunity to ask for a different pricing! At the same time, you are able to “reduce” the price jumps between rooms as you no longer have room types. 

Voice (Telephone or email) Bookings

Using GauVendi for your voice reservation requests allows you to sell the features proactively and naturally upsell based on the preferences of the guest. The price offered to the guest may be more expensive than if the guest would book through third but consider that the costs of sales for your “voice booking” is also higher and you are also allowing the guest to book based on their individual requirements. This justifies the final rate offered. 

Consider setting up a best practices’ sales workflow for your team as you start using the GauVendi solution for your voice bookings. As every hotel is individual, some of the 8 categories become more relevant to be prioritized during the sales conversation than others.

Email Bookings

A similar approach as for voice can be used for reservation requests coming through email. Based on the request, you can even pre-personalize the GauVendi booking link entering already the arrival and departure date, amount of pax and possibly some initial requests the guest made for it to complete the booking (or further personalize the booking).   Again, this is an offline-booking channel which is non-comparable to other distribution channels but allows the guest to personalize the stay based on their preferences. 

Additional considerations: Outside of working hours and on weekends you may integrate GauVendi booking link to your automated email response. If you have a dedicated email for reservation requests you may even integrate the link as a default response to confirm emails have been received.

Sales Engine

If you integrate GauVendi as your sales engine on your website (as exchange of your previous booking engine) following options can be considered (as result of your previous analytics).

Set up of a room cluster with a high number of rooms included and a selected (limited) number of different features (to be set up as ERFC)

Set up a minimum length of stay for your RFCs to allow personalization. Use this set up, 

• If you have a high amount of individualization (= many different RFCs and few room numbers linked to it) and a high demand
• If you have a high number of repeating / frequent guests or like to encourage early bookings to better manage your occupancy and demand.

12. For all of the above, consider adapting your price points respectively! 
13. High demand and request for personalization = higher price points! 
14. During your average occupancy period, the price point range is automatically increased due to the different features priced for every RFC and you may not be required to change price points on top.

Outcome Global Study IBE’s

Extract study about internet booking engines by h2c Consulting, year 2020

Hotel chains not maintaining a rate parity strategy have more success in driving conversion up. Non have reported dropping conversion as result of their strategy.

68% of chains would rather offer individual pricing per channel if their contractual OTA terms would allow for rate imparity (some of these chains have contractual OTA terms to maintain content parity).

NB. Maintaining a rate parity strategy can become complex. For two thirds of hotel chains the IBE does not fully support their revenue strategy

Final Remark

The feature-based sales approach is a very novel and disrupting approach for our industry. Guests will have less difficulties in adapting to an individualized sales approach – it is the industry that needs to change! 

As you get started and gain experience in the new approach, you will need to revise your distribution tech stack and potentially reconsider which will be your leading sales inventory system. 

Ensure that upon changing your approach you update your website and way of how you present your inventory. Provide sample room feature clusters for your different target audiences, making it easier to book already the rooms that potential fit them best. For more information, please read through our manual on website recommendations and set up of personalized URLs and Promo codes.

Feature based rate structure - Initial set up

To set up your hotel for the feature-based approach, we recommend that you start with an initial simple set up, particularly if you have an existing rate structure in place.

Hotels that have less dependency on third party business may be more radical in their change. In case of doubts please reach out to the GauVendi team and we will be happy to consult and support you in finding the best way to get started.

Introduction

Rate structure foundation – Initial Rate Level (similar to your Base Rate)

When working with traditional room categories, you usually define your base rates and the price jumps between the categories based on a limited number of differentiators. The core difference to a feature-based approach and your current pricing is that you do not price room categories, yet room features accumulating to Room Feature Combinations (RFCs). So subject to the features included in a room, the price points can change for each RFC. We recommend when starting with a feature-based pricing approach that you only start pricing those most common differentiators used traditionally as well. The features usually considered and included in most room categories comprise the following 4 GauVendi feature categories:

1. Layout 
2. Bedding
3. Size
4. (View)

To put it into practice we like to give the following example:

You currently sell a standard room for $100. The equivalent RFC might be priced as $70 for layout, $20 for size and $10 for bedding for example to get the same price point to get started.   

GauVendi is working with a total of 8 feature categories and we recommend that you start pricing all additional features in those categories with a value of 0 first. Once you have enough real guest booking data you can start pricing also your additional features subject to demand. This practice ensures that you start with fewer price points in the beginning and add gradually more price points with more knowledge and experience.

Which features are guests willing to pay for?

For some features this may be very subjective and hence you should decide only after evaluating the user behavior (which features have been clicked) where to set a price point or not. For some very obvious features you may however want to start adding a price point also earlier – especially the ones that guests have highlighted in their reviews could be a qualifier for you to set a small price point. Through this approach, you will have some initial price differentiators within your set of RFCS. Features that generally qualify for setting a price are for example:

1. Walk-in shower
2. High floors (where there is a great view)
3. Extra quite 
4. Balcony 
5. Connecting rooms 

We recommend that you also interview your reservations team for the most requested features, particularly from your frequent guests as they may value specific rooms because of the special features they have. In case of doubt, you may keep all these features on a 0 value and only add price points as you gain user behavior insights.

Different Price Levels

Having defined your feature rates comprising the base RFC rates, you are able to manage a number of different price levels based on your occupancy and demand. You can simply change the price levels of each RFC directly in the rate management section of the extranet and increase or decrease the 3-4 price points (Layout, Bedding, Size, View) that form part of your RFC (room) rate. 

You can change your pricing per day (so similar to what is known as your “Daily BAR”).

How to set up the initial price level

There are different ways of setting up your initial rate level. You can either fill out price points directly in the extranet under the section features or you can use one of our available support excel templates to make a first calculation and set up the pricing the extranet following your calculation. 

We recommend that you use the layout feature pricing as a base rate to adjust only, map and manage demand periods and seasonality's in the beginning just through layout pricing. Keep all other feature prices static at the beginning. Starting to manage all other feature prices by individual demand periods should be done at a later stage and using some automation and A.I. enhancements of our system to maximize yields.

Extranet set up –

 section Features

Sample Excel Templates

To ensure your pricing reflects (is similar) to your current structure you can cluster all your rooms that are part of the same category in your ERFCs and just add the 3-4 feature points. 

You will be able to cross check if pricing is correctly set in your feature set up.

Setup of the different rate levels

Based on your initial rate level you can now set up your different price levels and conditions (minimum length stay) per day, season and per RFC level under the section Rate Management.

To keep it simple for the initial set up, we recommend that you make the main price point changes on your initial features that are key to make up your price point (Layout, Bedding, Size, View) or even on Layout level only.

Strategy for third party sales

With the initial rate level set up and the clustering of your room numbers into ERFC clusters that reflect your “traditional” room types, you are already prepared and set up for third party sales. 

Depending on your business mix, dependencies on third party channels as well as your direct sales strategy you may apply the average or maximum rate range to be sold to your third parties, whilst you allow the individual sales and selection of your room features to guests that book direct (phone, email or your website). 

Pricing calculation example for third party channels:

Next to business mix and distribution share, make sure to consider average length of stay of your guests to define if you may restrict some of your most valuable RFCs or features and link this to minimum length of stay conditions.

Disclosure 

In future, GauVendi will be integrating to channel managers and push defined rate levels into the channel manager system. At the current stage, you will need to update your channel manager manually, unless GauVendi is interfaced to your PMS (and PMS to channel manager).