The article was published on the Diia.Business website.
Alina Radchenko, head of Booking and Marketing at Ribas Hotels.
Pricing in the service industry is a complex and dynamic process that is subject to a variety of external factors, including market supply and demand. Besides, pricing can also be affected by changes in consumer preferences, economic stability, seasonality, political events and currency fluctuations. All these factors must be taken into consideration to develop a flexible and efficient price-setting system. Here are the main methods we use to adapt to changes.
Flexible pricing strategies
Dynamic pricing is a key element of revenue management and effective business development. There is a view that when the goods are in limited quantities, it would make sense to set up promotions for quick sales. This can work, particularly in retail. However, in the case of an exclusive product, the demand for which can be increased, it is important to understand that with each new client, the service only becomes more expensive to deliver.
Competition monitoring
To analyze prices for goods or services effectively, it is important to consider the current market and competitors in similar industries. For example, can apartment rental be qualified as a competitor to hotel accommodation? Of course it can. So aparthotels offer guests short-term and long-term accommodation with all of the amenities of a regular flat and sometimes even more. The major advantages are service and infrastructure. There may be an in-house gym, a coworking space and a restaurant to make your stay comfortable. Some aparthotels even feature virtual reality clubs for guests looking for groundbreaking vacation experiences. These may be only a small percentage of people, but they can still become your potential customers. So sometimes competitors are more than just the outlets next door to yours.
Market demand analysis
Trend analysis helps you track changes in consumer preferences to respond adequately to market needs. For example, at the outbreak of the full-blown invasion, no one was interested in whether the hotel had a spa, because the main customers’ inquiries were about the price of the room and the convenience of the location. At that time, our priority was to ensure the safety of our guests, so we had to respond and temporarily change the product and its price.
Market segmentation
It is important to consider the needs of different guest segments and tailor offers to meet their preferences. We adopt different pricing strategies across all our hotels, because each of them is a distinct product with its own positioning and competitive advantages and is targeted at different audiences.
Proactive planning
This method involves predicting potential changes and generating a strategy to respond to these in advance in order to be ready to adapt quickly. Today, it is very difficult to build long-term strategies, so the best solution is to draw up a plan for the quarter and make daily adjustments according to the situation.
Flexible contracts
Consider making contracts with flexible pricing terms and conditions that can be adjusted in case of changes in the business environment. This approach enables businesses to respond promptly to changes in demand, market conditions, legislative updates and other factors that may affect the company's pricing strategy.
Our experience in adapting prices during the crisis
In March 2020, at the onset of the COVID-19 pandemic, we were forced to close two of our hotels for about 2 weeks. When we reopened, we started renting out our rooms at half the price but raised the price gradually in response to demand. Over all, the period of turbulence in the hotel business had lasted about three months, but in the summer of 2021, many international tourists came to the Ukrainian Carpathians.
At the outbreak of the full-scale war on February 24, 2022, we completely lost our understanding of the room category, the cost of an extra bed and the hotel class. We rented out rooms at prices that covered utility costs and the team's salaries. We even had to close some hotels for safety reasons.
That trend persisted until about the end of August 2022, as guests considered not returning home or moving elsewhere. It was only after the IDPs left the hotels and other people started going on vacation that the market got back to life, and we proceeded to gradually raise room rates based on our past experience.
Using the proposed pricing methods will enable your business to respond more quickly to changes and set the cost of services efficiently. However, you should first identify the cause of the crisis so that you can choose the right tool.
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