sha533: pricing strategy and distribution channels in hotel revenue … · 2016-06-27 · sha533:...

SHA533: Pricing Strategy and Distribution Channels in Hotel Revenue Management

This course includes

• Five self-check quizzes• Two discussions • Two Ask the Expert interactives• An action plan to apply what you learn• One video transcript file

Completing all of the coursework should take about five to seven hours.

What you'll learn

• Establish or recommend approaches to making price more variable• Set appropriate rate fences to create appropriate customer segments• Analyze the implications to revenue management of using various distribution channels• Assess and manage customer perceptions of fairness

Course Description

A smart pricing strategy is the best way to increase revenue. This course, produced in partnership with the Cornell School of Hotel Administration, teaches you how to set prices, develop rate fences (differentiate prices by customer type), and how to use multiple distribution channels to manage price more effectively.

You'll learn about the impact of variable pricing and discounting on revenue management in the context of price elasticity, optimal price mix, perceived fairness, and

congruence with positioning and sales strategies.

You'll also learn about channel management, an essential tool for controlling differentiated pricing, maintaining rate fences, and increasing revenue. You will explore approaches to

managing distribution channels, including direct sales, agencies, the Internet, and opaque pricing channels.

Sheryl Kimes Professor of Operations Management, School of Hotel Administration, Cornell University

Sheryl E. Kimes is a professor of operations management at the School of Hotel Administration. From 2005–2006, she served as interim dean of the School, and from 2001-2005, she served as the school’s director of graduate studies. Kimes teaches restaurant revenue management, yield management, and food and beverage management. She has been named the school’s graduate teacher of the year three times. Her research interests

include revenue management and forecasting in the restaurant, hotel, and golf industries. She has published over 50 articles in leading journals such as Interfaces, Journal of Operations Management, Journal of Service Research, Decision Sciences, and the Cornell Hospitality Quarterly. She has served as a consultant to many hospitality enterprises around the world, including Chevys Fresh Mex Restaurants, Walt Disney World Resorts, Ruby’s Diner, Starwood Asia Pacific, and Troon Golf. Kimes earned her doctorate in Operations Management in 1987 from the University of Texas at Austin.

Table of Contents

Course Modules

Module 1: Why Price Matters

1. Module Introduction: Why Price Matters2. Watch: Pricing in Revenue Management3. Read: Discounting in the Hotel Industry4. Multiple Rates5. Multiple Rates6. Get Started on an Action Plan7. Module Wrap-up: Why Price Matters

Module 2: The Optimal Price Mix

1. Module Introduction: The Optimal Price Mix2. Watch: Price Elasticity3. Watch: Setting Prices4. Watch: Positioning Strategies5. Read: Positioning Your Price6. Watch: Selling Strategies7. Ask the Expert: Marco Benvenuti on Discounting and Trends8. Price and Sell9. Reflect on the Optimal Price Mix

10. Module Wrap-up: The Optimal Price Mix

Module 3: Rate Fences

1. Module Introduction: Rate Fences2. Watch: Introduction to Rate Fences3. Read: Rate Fence Mistakes4. Read: Benefits of Rate Fences5. Fill the Stadium6. Recommend Rate Fences7. Reflect on Rate Fences

© 2016 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

8. Module Wrap-up: Rate Fences

Module 4: Managing Perceptions of Price

1. Module Introduction: Managing Perceptions of Price2. Watch: Reference Transactions3. Read: Perceived Fairness4. Watch: Customer Reactions5. Watch: How to Change Price6. Ask the Expert: Dave Roberts on Innovative Pricing

Practices7. Change Prices8. Reflect on Managing Perceptions9. Module Wrap-up: Managing Perceptions of Price

Module 5: Distribution Channel Management

1. Module Introduction: Distribution ChannelManagement

2. Watch: Distribution Channels3. Read: Distribution-Management Issues and Trends4. Watch: Distribution-Channel Intermediaries5. Manage the Channels6. Module Wrap-up: Distribution Channel Management7. Complete and Submit Your Action Plan8. Watch: Thank You and Farewell


Module 1: Why Price Matters1. Module Introduction: Why Price Matters2. Watch: Pricing in Revenue Management3. Read: Discounting in the Hotel Industry4. Multiple Rates5. Multiple Rates6. Get Started on an Action Plan7. Module Wrap-up: Why Price Matters

Back to Table of Contents


Module Introduction: Why Price Matters

Why Price Matters

Price is one of the two strategic levers of revenue management. Therevenue management approach requires that hotels make their prices morevariable. The flexibility of a variable-price approach enables managers tooffer the right room at the right price.

In this module, learn why price matters. Find out why and how to makeprices more variable. Get an in-depth understanding of the role of price so

you can use price strategically.

When you have completed this module, you will be able to describe the role of price inrevenue management and compare and contrast a one-price approach to a variable-priceapproach.

Back to Module 1: Why Price Matters



Watch: Pricing in Revenue Management

Pricing in Revenue Management

The multi-price approach is essential to revenue management. Businesses that offer justone rate miss opportunities with at least two important segments, those who would havespent more and those who will only spend less. Professor Kimes discusses this issue andother elements of pricing in this video.




Read: Discounting in the Hotel Industry

Discounting in the Hotel Industry

"Regardless of how hotels set their rates, they need to put an end to haggling."

"Discounting in the Hotel Industry: A New Approach" by Richard D. Hanks et al.,published originally in the Cornell Hotel and Restaurant Administration Quarterly in 1992,was reprinted in 2002 as a classic in the field of revenue management. The authors presentan approach to discounting that is a favorable alternative to haggling. This approach wasconsidered new in the early 1990s but is widely accepted today.

The article examines several approaches to setting rates, including offering a single price,setting rates by room type, and using rate fences. In particular, it looks at industry reactionto rate-fence tests by Marriott in the 1990s. Find out about Marriott's test results and aboutthe authors' recommendations for setting rates.

View the article

"It behooves a hotel (or, for that matter, any business) to design its rate fences carefully."

In "A Retrospective Commentary on 'Discounting in the Hotel Industry: A NewApproach'," Professor Kimes looks back at the article by Richard D. Hanks et al. andargues that (ten years later) the hotel industry is gradually catching on to Hanks's revenue-enhancing technique.

Read more of what Professor Kimes has to say about the increasing use of discounting inthe hotel industry.

View the article


Back to Table of Contents© 2016 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_discounting.pdf

https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_discounting.pdf

https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_rtrspctvcmntry.pdf

https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_rtrspctvcmntry.pdf

Multiple Rates

Instructions:

You are required to participate meaningfully in at least two discussions in this course.

Discussion topic:

Consider the fictional Listed Price Hotel. All the rooms at the Listed Price are available atthe same rate, which is listed everywhere the hotel advertises. Some consumers seem toconsider their rate too high, but no one has said it's too low. Year after year, the hotelcontinues to be moderately profitable, and no one on the management team has questionedthe rationale behind having just one room rate. What do you think—is it time to revisit therate structure at the Listed Price?

Your success as a practitioner of hotel revenue management depends on your ability to setand select rates wisely. Join this discussion of pricing approaches: should the Listed PriceHotel switch from a one-price to a variable-price approach? What challenges might theyexpect if they do? Does your hotel practice variable pricing? If so, what pricing challenges,if any, have you encountered?

To participate in this discussion:

Click Reply to post a comment or reply to another comment. Please consider that this is aprofessional forum; courtesy and professional language and tone are expected. Beforeposting, please review eCornell's policy regarding plagiarism (the presentation of someoneelse's work as your own without source credit).




https://s3.amazonaws.com/ecornell/global/eCornellPlagiarismPolicy.pdf


Multiple Rates

Check your knowledge of how to set multiple rates.

You must achieve a score of 100% on this quiz to complete the course. You may takethe quiz as many times as needed to achieve that score.

Points: 5




Get Started on an Action Plan

Pricing is one of the most powerful tools a hotel can use to drive revenue. This courseexamines the limitations of the one-price model, the benefits of making price more variable,the wisdom of using rate fences to segment markets, and the challenges and rewards ofmanaging distribution channels in accordance with revenue management principles. It alsolooks at customer perceptions of fairness regarding pricing policies.

In your action plan for this course, you will consider how to apply pricing and distributionchannel concepts and strategies to a real-life situation. While you will draft most of thisaction plan at the end of the last module, you will do some initial work on it now andthroughout the course.

If you are not currently associated with a hotel or business, base your action plan on a hotelor business with which you are familiar.

Instructions:

Download the Pricing Strategy and Distribution Channels Action Plan.Review the plan document so you are familiar with its structure.In the Key Business Problem(s) section, write an initial draft of a business problem oropportunity you would like to address, relating to pricing and distribution channels. You canmodify this later, but make an initial attempt to describe a problem or opportunity thatrelates to pricing strategies.In the Notes section, make notes of concepts or recommendations contained in Module 1that you think may be useful to consider when you work further on your action plan. Foreach item that you include, indicate why you think it may be relevant to your situation.Save your work at a convenient location on your computer or storage area. This action planis a course requirement, but do not submit it at this time.

Before you begin:

While you won't submit the document now, please review the rubric (list of evaluativecriteria) that will be used when you submit the document with notes and completed plan atthe end of the course. Also, review eCornell's policy regarding plagiarism (the presentationof someone else's work as your own without source credit).

Grading Type: Points

Points: 0

Back to Module 1: Why Price Matters© 2016 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_action-plan.docx

https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_action-plan.docx



Module Wrap-up: Why Price Matters

Why Price Matters

This module demonstrated that the flexibility of a variable-price approach enables managersto offer the right room at the right price. You learned why price matters and found outwhy and how to make prices more variable. You gained an in-depth understanding of therole of price so you can use price strategically.

Now you are able to describe the role of price in revenue management and compare andcontrast a one-price approach to a variable-price approach.




Module 2: The Optimal Price Mix1. Module Introduction: The Optimal Price Mix2. Watch: Price Elasticity3. Watch: Setting Prices4. Watch: Positioning Strategies5. Read: Positioning Your Price6. Watch: Selling Strategies7. Ask the Expert: Marco Benvenuti on Discounting and Trends8. Price and Sell9. Reflect on the Optimal Price Mix

10. Module Wrap-up: The Optimal Price Mix



Module Introduction: The Optimal Price Mix

The Optimal Price Mix

In the following pages, deepen your understanding of variable pricing. Learnhow prices were set according to traditional methods and how they are setwithin a revenue management framework. Learn about positioning yourprices in relation to those of your competitors. Finally, explore differentmethods of using available prices in the selling process. As you discoverhere, creating your optimal price mix includes pricing, positioning, andselling.

When you have completed this module, you will be able to describe several pricingapproaches, characterize key positioning and selling strategies, and discuss pricingdecisions in terms of price elasticity.

Back to Module 2: The Optimal Price Mix



Watch: Price Elasticity

Price Elasticity

The tendency for demand to change with changes in price is the price elasticity ofdemand. In pricing and selling, enterprises must have a clear understanding of the elasticityof demand. Watch this video to learn more about price elasticity and how it relates torevenue management.

Inelastic Demand

When consumers purchase about the same quantity of a product regardless of changes inprice, demand is said to be inelastic. Here are some situations in which demand is likely tobe inelastic.

Few alternativesInelastic demand often indicates low competition and highly differentiated services;demand doesn't vary because there are few or no close substitutes for the product. Forexample, the demand for a particular hotel is likely to be inelastic if that hotel is the onlyone in the downtown area.

Insignificant priceDemand may be inelastic because the product price may represent a very small portion


of the consumer's budget. For example, the demand for chewing gum and breath mintsis likely to be inelastic.

New productDemand for a product is likely to change over the product's lifetime. When the product isnew, demand may be inelastic because there are few or no other products like itavailable. However, the demand for this product may become elastic in the long term;competitors may emerge or the product may become less desirable.

Elastic Demand

When consumers purchase significantly less of a product due to price increases andsignificantly more due to price reductions, demand is said to be elastic. Here are somesituations in which demand is likely to be elastic.

Many alternativesElastic demand often indicates high competition and standardized services. Productswith many close substitutes are usually characterized by elastic demand. For example, abudget motel in a downtown area with three other budget motels is likely to have elasticdemand.

Significant priceDemand for products that make up a large portion of the consumer's total budget tendsto be elastic. The demand for dinner at an expensive, four-star restaurant may beelastic.




Watch: Setting Prices

Setting Prices

Managing price is critically important to revenue management. In this video, ProfessorKimes presents several approaches to setting prices. As she explains, not all of them aresuitable for hotel revenue management.

Single-rate pricing

One rate is available to all transient customers. This approach is not designed to respond tochanges in demand and does not take into account customer ability or willingness to pay.

Cost-based pricing

This is the most traditional method of setting prices. This method is no longer widely used inthe hotel industry, although it remains common in food and beverage businesses.

Competitive pricing

Competitive pricing sets prices according to what competitors are charging. This is acommon and fairly effective approach in the hotel industry. With this approach, it may bepreferable to be in the position of price leader rather than price follower.


Demand-based pricing

As the name implies, this approach is designed to respond to levels of demand. Demand-based pricing looks at the price elasticity of customers—that is, how sensitive customersare to changes in price. During low-demand periods, discounted rates are open. Duringperiods of high demand, discounted rates are largely closed.

In revenue management, it is common to use a combination of demand-based andcompetitive pricing.




Watch: Positioning Strategies

Positioning Strategies

In the hotel industry, it's important to determine how you measure up to your competition.Are your competitors offering a higher-end product or a product of slightly lower quality?How do you compare in terms of location or access? With these considerations in mind, youcan set prices.

Find out about positioning and its role in pricing in this video.




Read: Positioning Your Price

Positioning Your Price

Many factors influence the pricing decisions you make, including the rates your competitorscharge and how your product compares to your competitors' products. The followingapproaches will help you analyze these factors to position your room rates appropriatelyrelative to the competition.

Approaches to Positioning Your Price

Skim—To skim, set your prices higher than the competition does so you can "skim off"the higher-paying customers. If the competition is charging $79, you might set your ratesat $89 and $99 in hopes of getting the people who are willing to pay a bit more.

Match—To match, set one rate to match the competition and another rate slightlyhigher. For instance, if the competition is charging $79, you might also charge $79 forone type of room and have an $89 rate available for a better room or option.

Surround—To surround, offer one price that's lower than the competition's price andone price that's higher. If the competition is charging $79, offer a $69 rate to attract thebargain seekers and offer an $89 rate for a slightly better room or option.

Undercut—To undercut, offer a price that is the same as your competition and a lowerone as well. If the competition is charging $79, offer a $79 rate and a $69 rate in hopesof attracting more customers.

Penetrate—To penetrate, set your rates lower than those of the competition. If thecompetition is charging $79, offer rates such as $69 and $59 in hopes of gettingconsumers to try your products.


The table above illustrates the five approaches to positioning your price against thecompetition's. In this example, the competition is charging $79.

Now, print a downloadable version of the table below to help you set prices using the fivepositioning methods described here. Enter the competitor rate and set your own higher,lower, and equal rates accordingly.




https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_positioning-your-price.pdf

https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_positioning-your-price.pdf

Watch: Selling Strategies

Selling Strategies

Once you have set your rates, you must decide how to quote those rates in the sellingprocess to get the best price for your product. In this video, Professor Kimes presentssome approaches to selling.

Top-down price quoting

The starting point for top-down price quoting is the highest availablerate. From there, the seller applies discounts as required to arrive at anacceptable price. In the hospitality industry, a booking agent may beginby quoting a high rate and gradually reduce that rate if the callerexpresses an unwillingness to pay. But this method can cause customerdissatisfaction.

Bottom-up price quoting

This method starts with a low basic price. From there, the sellersuggests "extras" that result in higher-priced options. In the hospitality


industry, a bottom-up pricing approach might begin with the rate for abasic room and arrive at a higher price through the addition of amenitiesor deluxe features.

Menu guide

The menu-guide approach provides a list, or menu, of several differentrates for the customer to review. These rates may include a basic rate,an upgraded rate, and a rate available to selected customers through aclub membership or other designation. The guest is asked which rate heor she would like to pay.

Best-available-rate (BAR) price quoting

This approach guarantees that the hotel quotes the lowest possible rate.Hotels developed this approach when they found that customers wereable to get lower room rates from third-party Internet sites than from thehotel directly. The BAR guarantee encourages customers to book roomswith hotels directly rather than through third parties.




Ask the Expert: Marco Benvenuti on Discounting and Trends

Marco Benvenuti on Discounting and Trends

In the following short videos, Marco Benvenuti, Chief Analytics Product Officer and Co-founder of Duetto, shares his ideas about setting room rates, offering discounts, andcurrent trends in hospitality.

In this first video, Marco explains that setting the optimal room rate requireslooking at multiple data points.

Question

What sorts of things should a hotel manager think about when setting room rates?

In this video, Marco Benvenuti of Duetto points out that discounting has always beenchallenging for hotel managers. Here, he explains his approach to discounting, which is tokeep a discount open once it is established.

Question

What about offering discounts? When should they be offered and how should they bepositioned?

In this final video, Marco Benvenuti of Duetto discusses his view of current trends inhospitality. For example, he sees the hotel industry progressively moving away from "bestavailable rates."

Question

What are some of the latest trends you've seen in pricing?


Price and Sell

Use this quiz to test your mastery of the concepts covered in thissection.

You must achieve a score of 100% on this quiz to complete thecourse. You may take the quiz as many times as you need toachieve that score.

Points: 6




Reflect on the Optimal Price Mix

In the previous module, you began work on the action plan you will submit for evaluation atthe conclusion of this course. You will now perform further work on that plan.

Instructions:

Open the action plan and review the work you did in the previous module.In the section labelled Notes, make notes of concepts or recommendations contained inModule 2 that you think may be useful to consider when you work further on your actionplan. For each item you include, indicate why you think it may be relevant to your situation.Save your work. This action plan is a course requirement, but do not submit it at thistime.

Before you begin:



Points: 0






Module Wrap-up: The Optimal Price Mix

The Optimal Price Mix

In this module, you learned how prices were set according to traditional methods and howthey are set within a revenue management framework. You learned about positioning yourprices in relation to those of your competitors. Finally, you explored different methods ofusing available prices in the selling process. You found that creating your optimal price mixincludes pricing, positioning, and selling.

Now you are able to describe several pricing approaches, characterize key positioning andselling strategies, and discuss pricing decisions in terms of price elasticity.




Module 3: Rate Fences1. Module Introduction: Rate Fences2. Watch: Introduction to Rate Fences3. Read: Rate Fence Mistakes4. Read: Benefits of Rate Fences5. Fill the Stadium6. Recommend Rate Fences7. Reflect on Rate Fences8. Module Wrap-up: Rate Fences



Module Introduction: Rate Fences

Rate Fences

Let's continue our exploration of variable pricing. Having considered ways ofdeveloping price mixes, we're ready to address the question of who payswhat price. Hotels and other businesses approach this question using ratefences. Rate fences provide flexible pricing using rules that enable yourcustomer base to segment itself. Developing and using rate fences iscritical to the success of a variable-price plan.

In this module, learn how to segment your market by price using rate fences.

When you have completed this module, you will be able to define rate fence, list differentkinds of rate fences, and create rate fences. You will be able to discuss mistakes that havebeen made and can be made in creating and using rate fences.

Back to Module 3: Rate Fences



Watch: Introduction to Rate Fences

Introduction to Rate Fences

Rate fences establish rules by which customers segment themselves into price groups.Watch this video to learn about the different types of rate fences, benefits of rate fences,and common rate fence mistakes.




Read: Rate Fence Mistakes

Rate Fence Mistakes

Rate fences are used widely in the hotel industry and in many other industries, as well. Therate-fence concept is simple, but creating good rate fences and using them effectively canbe complicated. Here are some mistakes to avoid.

Too much focus on discounts

One of the biggest mistakes that hotels and other industries make is to focus too muchon creating rate fences that allow customers to qualify for discounted rates and notenough on creating rate fences for middle- and high-end rates. What about thosecustomers who may be willing to pay more? It's a mistake to leave them out of yourrate-fence strategy.

Not effective

Some rate fences are not effective. For example, consider a rate fence that is meant toqualify customers for a discount. If the customer qualifies simply by showing a couponor asking for the discount, it's not an effective rate fence.

Allowing everyone to qualify for your discounted rates is a mistake. The rate fenceshould provide value for both you and your customer. When creating a rate fence, thinkabout how you will ensure that people who don't qualify aren't included.

Too difficult

When designing a rate fence, keep it simple. Reservation agents and front-desk clerkshave limited time to spend qualifying customers, so be sure the rate fences you developare easy to administer. Be sure your customers can understand them, too. If a ratefence is difficult to follow, it will not be successful.

Insufficient price differentials

Make sure there are significant differences between prices. For example, if you decideto charge $110 for a room with a view and $100 for a room without a view, customersmay not see these prices as different.

Wrong segmentation criteria

Try to use objective criteria rather than personal criteria. It's much easier to askcustomers whether they work for a particular company or are members of a particulargroup than to ask how old they are or what color their eyes are.


Unfair

For businesses using demand-based pricing, rate fences address the issue of perceivedfairness, providing a way to implement revenue management with reduced risk. If fenceswill be seen as fair, they need to be logical, transparent, clearly communicated, andfixed so they cannot be circumvented.




Read: Benefits of Rate Fences

Benefits of Rate Fences

Here are some of the key benefits rate fences provide if they are designed well and usedeffectively:

1. Increased sales to price-sensitive consumers using lower rate optionsWithout discounts, these consumers might not purchase the product at all. Withdiscounts, they can be "priced into the market"—that is, offered a price they are willingto pay. For example, a group of consumers might think a price of $200 is too expensivefor the latest cell-phone technology, but that group may readily buy cell phones pricedbelow $100 through a special offer. The key is to develop a rate fence that appealsonly to this part of the market.

2. Increased sales at higher ratesRate fences offering benefits such as a complimentary breakfast, flowers for the room,or airport transportation target those hotel customers willing to pay a higher rate.

3. Increased revenueFor example, if a spa treatment is made available at only one price, price-sensitiveconsumers may find that price too high, and some customers might end up paying lessthan they are willing to pay. If the spa offers several price options and createsappropriate fences, these additional revenues can be captured.

4. Increased market shareAgain, a lower price may make it possible for price-sensitive consumers to becomecustomers, increasing the market share; or special offers to groups (for example, acorporate discount, a credit-card offer, or travelers' club discount) may add newconsumers to the product's market.© 2016 eCornell. All rights reserved. All other copyrights, trademarks, trade names, and logos are the sole property of their respective owners.

5. Market segmentation that will help you meet customer needs as you increaserevenueConsumer response to your rate fences, especially through purchasing, may provideyou with important market data regarding consumer preferences. For example, willyour customers accept restrictions of time and date to get a lower rate, or would theyrather pay full price? Are certain amenities so important that your customers will pay ahigher price to secure them? Your knowledge of what's important and unimportant toyour customer groups will help you meet their needs.

6. A positive image of the businessConsumers consider rate fences to be fair, and fair practices are very important to thefuture success of the business.




Fill the Stadium

The following assessment presents a series of questions about a one-price, two-price, andthree-price approach to pricing seats in a Brussels stadium. As you progress through thequiz, find average price, revenue, revenue per available seat, and occupancy.

You must achieve a score of 100% on this quiz to complete the course. You may takeit as many times as needed to achieve that score. You will be able to see yourdetailed results after you submit the quiz.

Points: 13




Recommend Rate Fences

Instructions:

You are required to participate meaningfully in at least two discussions in this course.

Discussion topic:

At this point in the course, you should have worked through the calculations of occupancy,total revenue, RevPAS, and average price for the two-price and three-price models in theBrussels Brasseurs example. How did you do? Do you have questions about how thosecalculations are done? Share your ideas, concerns, and questions with other learners in thisonline discussion. In addition, be prepared to talk about rate fences. Which rate fenceswould you recommend to make the new pricing model work? Which rate fences would youavoid?

To participate in this discussion:

Click Reply to post a comment or reply to another comment. Please consider that this is aprofessional forum; courtesy and professional language and tone are expected. Beforeposting, please review eCornell's policy regarding plagiarism (the presentation of someoneelse's work as your own without source credit).






Reflect on Rate Fences

In the previous modules, you began work on the action plan you will submit for evaluation atthe conclusion of the course. You will now perform further work on that plan.

Instructions:

Open the action plan and review your previous work.In the section labelled Notes, make notes of concepts or recommendations contained inModule 3 that you think may be useful to consider when you work further on your actionplan. For each item that you include, indicate why you think it may be relevant to yoursituation.Save your work. This action plan is a course requirement, but do not submit it at thistime.

Before you begin:



Points: 0






Module Wrap-up: Rate Fences

Rate Fences

This module showed that hotels and other businesses approach the question of who pays what price using rate fences. It explained why developing and using rate fences is critical to the success of a variable-price plan. You learned how to define rate fence, list different kinds of rate fences, and segment your market by price using rate fences.




Module 4: Managing Perceptions of Price1. Module Introduction: Managing Perceptions of Price2. Watch: Reference Transactions3. Read: Perceived Fairness4. Watch: Customer Reactions5. Watch: How to Change Price6. Ask the Expert: Dave Roberts on Innovative Pricing

Practices7. Change Prices8. Reflect on Managing Perceptions9. Module Wrap-up: Managing Perceptions of Price



Module Introduction: Managing Perceptions of Price

Managing Perceptions of Price

Customers don't automatically see variable-pricing methods as positive.When you implement variable pricing, your customers may be confused byprice changes and what seems like price inconsistency. If they haveexpectations about what your product should cost, they may not consideryour variable-price practices fair.

This module helps you fine-tune your management of customer perceptionsand address questions of fairness.

When you have completed this module, you will be able to define reference transaction andreference price and discuss the issue of perceived fairness in pricing. You will be able torecommend effective ways to change price and describe different customer reactions toprice changes.

Back to Module 4: Managing Perceptions of Price



Watch: Reference Transactions

Reference Transactions

Consumers use reference prices and reference transactions to decide whether a particularprice is reasonable or "fair." When consumers perceive a price as unfair, not only will theybe less likely to purchase the product, but they may develop negative feelings about thecompany offering the product, too. In this video, Professor Kimes explains what referencetransactions are and why they are important to pricing.




Read: Perceived Fairness

Perceived Fairness

"Researchers have shown that fair behavior is instrumental to the maximization of long-runprofits."

What do your customers consider fair practices? This is a question you must consider whendeveloping prices and determining how to sell rooms. Certain revenue managementpractices may be viewed as unfair, especially by consumers who aren't familiar with anapproach they encounter or have not been given sufficient information about how anapproach is being used. If customers view your practices as unfair, they will be less likely tosupport your business in the future.

Read "Perceived Fairness of Yield Management" by Professor Kimes to see howconsumer perceptions can change over time and to gain some interesting context for thetwo fairness polls you encounter in this course.

View the article




https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_prcvdfairness.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_prcvdfairness.pdf

Watch: Customer Reactions

Customer Reactions

Applying revenue management practices to pricing is complicated by what customersbelieve about fairness. In this video, Professor Kimes discusses customers' perceptions ofdemand-based pricing and best-available-rate pricing. Do your customers believe thesepractices to be fair?

Consumers may perceive demand-based pricing techniques as unfair for at least tworeasons.

1. The higher price during periods of higher demand may exceed consumers' referenceprice. Consumers may have derived their reference price from a lower price offered bythe same hotel during periods of lower demand, creating a low perceived value.

2. Consumers may not see the hotel as providing more value for the higher price. Thisviolates the principle of dual entitlement: customers are entitled to a reasonable priceand firms are entitled to a reasonable profit.

If consumers believe the hotel is raising prices for no reason other than to increase profits,and if they see no increase in value for the higher price, they will view that price change asunfair.

Best-available-rate pricing addresses some issues related to consumer perceptions offairness. Whereas a blended rate approach obscures the actual daily rates and makes


comparisons among hotels difficult, best-available-rate allows the consumer to see the rateassociated with each day.




Watch: How to Change Price

How to Change Price

Research indicates that consumers are more likely to support companies they believepractice fair pricing. Customers may view an increase in price as unfair if they cannotattribute it to cost increases or general market shifts. Taking steps to present the increasein an acceptable way will help you manage customer perceptions through the price change.In this video, Professor Kimes explains how to change price.

Two Approaches to Changing Price

Inform the consumer

Make information about the price change available.Present a balance between customer value and company value.Use either physical or nonphysical characteristics to differentiate the new, higher-pricedproducts.

Change the consumer's frame of reference

Raise the reference price.Use one or more of the following methods to change the reference transaction:Offer additional benefits with the product or service, such as additional amenities or foodand drink discounts.


Sell the product or service as part of a package, such as a cruise package or weekendgetaway.Attach restrictions, such as requiring a minimum length of stay, imposing a cancellationpenalty, or making reservations nonrefundable.




Ask the Expert: Dave Roberts on Innovative Pricing Practices

Dave Roberts on Innovative Pricing Practices

Dave Roberts is Senior Vice President of Consumer Insight and Revenue Strategyat Marriott International, Inc. In these videos, he shares some observations about innovativepricing practices in the hotel industry.

In this first video, Dave discusses the importance of forecasting in pricing and theconnection between inventory and pricing. In this second video, he advises independent hotels to examine their competitive sets whensetting room rates.




Change Prices

Use this quiz to apply your knowledge of how to change prices.

You must achieve a score of 100% on this quiz to complete the course. You may takethe quiz as many times as you need to achieve that score.

Points: 5




Reflect on Managing Perceptions

You will now return to your action plan and do some further reflection on how the conceptsin this course may apply to your situation.

Instructions:

Open the action plan and review your previous work.In the section labelled Notes, make notes of concepts or recommendations contained inModule 4 that you think may be useful to consider when you work further on your plan. Foreach item you include, indicate why you think it may be relevant to your situation.Save your work. This action plan is a course requirement, but do not submit it at thistime.

Before you begin:



Points: 0






Module Wrap-up: Managing Perceptions of Price

Managing Perceptions of Price

This module focused on the management of customer perceptions and addressed questionsof fairness. You are now able to define reference transaction and reference price anddiscuss the issue of perceived fairness in pricing. You are able to recommend effectiveways to change price and describe different customer reactions to price changes.




Module 5: Distribution Channel Management1. Module Introduction: Distribution Channel

Management2. Watch: Distribution Channels3. Read: Distribution-Management Issues and Trends4. Watch: Distribution-Channel Intermediaries5. Manage the Channels6. Module Wrap-up: Distribution Channel Management7. Complete and Submit Your Action Plan8. Watch: Thank You and Farewell



Module Introduction: Distribution Channel Management

Distribution Channel Management

Consumers interested in booking hotel rooms have many options availableto them, including phoning the hotel directly, using a central reservationdesk, searching the hotel's website, using an online service, or contacting atravel agent. This means that from the hotel's perspective, reservationinformation comes in from multiple channels. Managing all that informationcan be challenging! In addition, hotel managers must select what channelsto use, set appropriate rates for channel sales, and allocate optimal

numbers of rooms to each channel.

This module considers the complexities of multiple distribution channels and examines thechallenge of distribution-channel management.

When you have completed this module, you will be able to discuss the role of distributionchannels in hotel revenue management. In addition, you will be able to provide examples ofdistribution-management issues.

Back to Module 5: Distribution Channel Management



Watch: Distribution Channels

Distribution Channels

From travel agents to travel websites to the hotel's own reservation phone line, hotelmanagers have many channels to manage. In this video, Professor Kimes discussesdistribution channel options and the management decisions that surround them.




Read: Distribution-Management Issues and Trends

Distribution-Management Issues and Trends

Intermediaries will yield substantial influence as gatekeepers

Intermediation costs and rate pressure will challenge hotel profit levels

In recent years, the Internet has brought dramatic changes to hotel distribution channels.Online travel agencies are competing with search engines and hotel brand websites. Socialmedia sites are a platform for the exchange of travel information, and consumers are usingtheir mobile devices to explore travel options and make bookings.

To provide hotel operators with information needed to make good strategic and tacticaldecisions, the Hospitality Sales and Marketing Association commissions independent, in-depth studies of hotel distribution channels. The document below is the 16-page summaryof its most recent study. Its findings are based on data from over 25,000 hotels and 100brands representing over three million hotel rooms. (A new study is due out in the latter partof 2016.)

The study notes that distribution costs have been rising steadily. "As current and emergingintermediaries take advantage of an active digital travel market," the study says, "they willwield substantial influence as gatekeepers, imposing fees and charges for directing theconsumer traffic to the hotel. Growth in digital travel shopping will expand the transparencyof hotel pricing structures putting additional competitive pressure on rates. The combinationof the higher booking volumes passing through intermediaries, the costs imposed forintermediation and the pressure on rates will challenge the hotel owner and manager tomaintain profit levels."

View the document




https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_distribution-channel-analysis-summary.pdf

https://s3.amazonaws.com/ecornell/content/SHA/SHA533/sha533_distribution-channel-analysis-summary.pdf

Watch: Distribution-Channel Intermediaries

Distribution-Channel Intermediaries

Hotel rooms are available to consumers both directly and indirectly. Direct options includeby phone and through the hotel website. Indirect options occur through intermediariesincluding traditional travel agents, online services, and travel-managementcompanies. Intermediaries complicate the sales and reservation processes for the hotel.Watch this video to learn about how hotels use and manage intermediaries.

Internet intermediaries include familiar companies such as Expedia, Travelocity, Orbitz, andHotwire. Though these Internet options may look similar to the consumer, they differsignificantly by business model. In addition, they differ from hotels' own branded websites,which also are readily available on the Internet but are not intermediaries. Let's examinesome of the more popular intermediary types to see how they differ.

Types of Internet Intermediaries

Merchant modelHotel offers a net wholesale rate often 20%-35% below retailIntermediary can decide what to chargeTypically, large advertising budgetIntermediary handles very high volumeExamples: Expedia.com, Hotels.com, Travelocity.com


Opaque/auction modelConsumers bid on roomsConsumers do not know the names of the hotels prior to biddingReservations are nonrefundableExamples: Priceline.com, Hotwire.comRetail travel modelReservations and services are available online onlyIntermediary uses traditional travel agentsCommissions are usually around 10%Examples: Orbitz, American Express

Note: Retail is also available on merchant and opaque sites.




Manage the Channels

Use this quiz to apply your knowledge of distribution-channel management.

You must achieve a score of 100% on this quiz to complete the course. You may takethe quiz as many times as you need to achieve that score.

Points: 4




Module Wrap-up: Distribution Channel Management

Distribution Channel Management

This module showed that reservation information comes to the hotel from multiple channels.It considered the complexities of multiple distribution channels and examined the challengeof distribution-channel management. You are now able to discuss the role of distributionchannels in hotel revenue management. In addition, you are able to provide examples ofdistribution-management issues.




Complete and Submit Your Action Plan

Throughout this course, you have been looking at variable pricing, rate fences, distributionchannels, and perceptions of fairness.

In your action plan, you have been taking notes relating to how these concepts andstrategies may be relevant in your own situation, or in a hotel or business with which youare familiar.

It's now time to complete your action plan.

Instructions:

Open your action plan document.Referring to the notes you took, complete all sections of the plan.Save your work.Submit the action plan for instructor review by uploading it below. This assignment isrequired for course completion.

Before you begin:

Please review the rubric (list of evaluative criteria) for this assignment and eCornell's policyregarding plagiarism (the presentation of someone else's work as your own without sourcecredit).


Points: 20

Submitting: Online Upload






Watch: Thank You and Farewell

Thank You and Farewell

Thank you and I hope you enjoyed the course.




Supplemental Reading List

Supplemental Reading List

The Center for Hospitality Research provides focused whitepapers and reports based oncutting-edge research.

"Best-available-rate Pricing at Hotels: A Study of Customer Perceptions andReactions." (2005) - Kimes, Sheryl E., and Kristin V. Rohlfs.Center for Hospitality Research Reports 5.7: 1-19.

"The Basics of Yield Management." (1989) - Kimes, Sheryl E.Cornell Hotel and Restaurant Administration Quarterly 30 (1989): 14-19.

"Revenue Management: A Retrospective." (2003) - Kimes, Sheryl E.Cornell Hotel and Restaurant Administration Quarterly 44 (2003): 131-138.

"Wishful Thinking and Rocket Science: The Essential Matter of CalculatingUnconstrained Demand for Revenue Management." (1998) - Orkin, Eric B.Cornell Hotel and Restaurant Administration Quarterly 39 (1998): 15-19.

"The '4-C' Strategy for Yield Management." (2001) - Withiam, Glenn. Center for Hospitality Research Reports 1.1: 1-20.

Back to Course Resources



http://www.hotelschool.cornell.edu/research/chr/

http://www.hotelschool.cornell.edu/research/chr/

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_bestavail_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_bestavail_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_yldmanh_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_yldmanh_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_revmanage_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_revmanage_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_wshflthnk_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_wshflthnk_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_withiamyield_en-us.pdf

https://d31owemgwclw9w.cloudfront.net/content/SHA/SHA533/sha533_992_withiamyield_en-us.pdf

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