Be aware of the pitfalls of overpricing in the current market

Tim Davis, founder and managing director of travel advisory firm Pace Dimensions, stresses why it’s vital that travel companies keep innovating, adapting, and improving.

With hopes high for a period ahead with stability restored across the markets, businesses are beginning to move back into planning for the winter and 2023.  

The travel and hospitality industries are no less effected, with rising costs coming thick and fast from utilities, labour, fuel, and food.  Construction of new hotel/resort developments are also being impacted dramatically.  

It’s a natural first response for business leaders to simply pass these growing costs on to the end customer. At PACE Dimensions we advise global, national, and local businesses across hospitality and travel, and have extensive experience and knowledge of advising our clients on pricing strategies. These are daily topics of discussion in boardrooms everywhere around the world right now. Our advice to all clients is for careful consideration before making any ‘knee jerk’ moves. An impulsive move now can undo years of strong investment and performance and will take a long time to turn around if actioned incorrectly.

Below are PACE Dimension’s thought starters for consideration before acting when it comes to setting a pricing strategy.

1. Short term gain – long term pain

It’s all too easy in the current cost of living crisis to pass on increases and adopt a price driven sales and marketing strategy. If the general trend then becomes to increase prices the risk is that this may stem the flow of demand across the whole sector and the consequence will be to force price reductions. Sector wide falling prices help no one long term and can result in the sector becoming commoditised and the traditional supply and demand curve altered forever.

2. Don’t devalue the brand

Counter intuitively, a price sensitive market is a good time to continue to reinforce brand led marketing. By dialling up brand differentiators and messaging, you can remind people of the value and service you offer, with the focus on VALUE and not price alone.

A price driven market can loosen the hard-earned loyalty in which you have invested to create sustained growth, with customers seeking the best prices and not necessarily the best value. It’s all about optics and the hard bottom line and a squeezed bottom line typically erodes good business practices and erodes the customer experience mid-term. It’s not a place that’s easy to return from.

Automation, artificial intelligence and yield management allows for more dynamic pricing, but if analytics alone are used to adjust pricing, brands are at risk of undermining trust, and creating a very negative experience.  Frequent flyers and hotel guests, often feel fleeced by over aggressive yield management. Few airlines or hotel groups recognise the Customer Lifetime Value of their highest frequency guests as their value seldom gives them a price advantage.  The value of points/miles have also significantly eroded.  Short term brands may see a tempting improvement in short term results, but failure to recognise the value of high frequency travellers and guests, will leave them feeling abandoned and treated as a commodity.  Treat them as a commodity, and they will buy you like a commodity.  

3. Focus on the benefit

We’d also urge that careful consideration is given to how to communicate a price increase, positioning the increase as beneficial to the customer – be it retaining customer service standards, competing with talent attraction, adopting better and more sustainable business practices or improving F&B experience. There is always a customer benefit and its key to position this as a cause and effect to retain trust and loyalty.


4. Disparity between price and experience

Whilst all businesses need to address cost savings, this shouldn’t impact the quality of the guest experience. Addressing ways to reduce cost that do not reduce service is not just important, it’s critical.  Efficiencies can be sourced through automation and digitisation, centralising some functions, or clustering them for similar or geographically close properties. Some cost saving initiatives can radically improve and enhance the guest experience whilst driving down costs. 

5. Sustainable talent pool

Cost cutting and price hiking is a complex balance to get right. The industry is facing significant challenges in talent acquisition and retention, with a deep shortfall in the number of people returning to work in hospitality post pandemic. Whilst we aren’t alone in this we are amongst the hardest hit.   Long term this will result in a better talent pool across the board, with people working in our industries that are passionate about service and hospitality but who are better paid and prepared to commit longer term to their employers.  Short term, however, as hospitality businesses continue to trade out of post COVID deficit financially and professional labour currently available isn’t increasing, improving the employment terms and packages of your workforces is likely to result in greater loyalty – especially as we face the coming Winter.

6. Don’t forget what we already know and have learned through COVID

In the wake of the pandemic, tried and tested methods that generate revenue in the hospitality business have drastically changed to increase revenue.  Businesses must now adapt to the post-Covid market, defined by five key trends and factors:

  • Flexibility is regarded higher than ever, with guests seeking hotels that offer on-trend booking terms and pricing. 
  • Digital maturity and adoption to the ever-growing online world helps businesses stay competitive and relevant, maximising benefits and remaining at the forefront of the competition. 
  • Personalisation to each different customer offers customer empowerment – pricing structures need to be dynamic and adaptive to appeal to different customers and cater to their needs.
  • Monitoring and responding to real-time market data allows businesses to adapt and change as demand does. A fast market sensitive pricing strategy will keep you in the mix competitively – whereas slow responses lose a customer no matter how loyal they have been.
  • Sustainability is at the forefront of both geo-political and consumer demands. The environmental guarantee is no longer an expectation, but a base value. Consumers will be attracted to hotels that reflect what they find important, and sustainability is one of these trends. 

In summary keep innovating, adapting, and improving. Embrace more sustainable good business practices for the long term, and don’t forget what we have learned already from the post pandemic world.

A version of this article was first published by Travel Weekly: 

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