Micro-Targeted Pricing is the Future

These days every revenue management solution vendor has an algorithm. And everybody also claims to have Artificial Intelligence under their hoods. In some ways, they do…but there's a big difference between the myriad approaches.

The Evolution of Revenue Management Pricing

What we used to do in revenue management twenty or thirty years ago was to take demand – or take inventory and demand – and create segments from it. First segmenting the fixed contract rates and the dynamic public rates. Then we would effectively segment that public demand, make forecasts and then create buckets and once those buckets were filled we would close them. The airline industry invented it back in the seventies.

Over the last twenty years, we've gradually moved towards open pricing. Duetto did some great work in the early 2010s by pushing that old bucket model out and showing that we shouldn't have just five price points and simply shift between them – we should use open pricing.

The Flaws of Open Pricing

But if you scratch beneath the surface of open pricing, it's flawed. With open pricing you may be able to set any price point, which is certainly better than the old rigid buckets, but there is still little science underpinning those price points. Open pricing relies on the operator and the rules they set. Where do they want to position themselves in the market? How did they forecast things historically?

The Next Leap: Micro-Targeted Pricing

It's time to take another big leap into the future of pricing. With modern data science, we can now see what those price points should really be. And not just at the room night level…we can also see what the price should be for different lead times.

Hospitality likes to pride itself that it's shifted from property-wide pricing to room-level pricing but the reality is that not all of us are there yet. For example, some solutions are still baselining things from a property level and not by inventory.

Solutions like IDeaS G3 Continuous Pricing can now look at individual, bespoke room-level pricing, which is better. But we think there's a step further to go. The final frontier is to have a bespoke strategy for each room night and lead time. It's called micro-targeted pricing.