A dynamic revenue strategy can help hoteliers meet the challenge of Airbnb, says Duetto
Forward-thinking hoteliers who embrace modern dynamic revenue optimisation technology will be able to take on the threat from the sharing economy, epitomised by the likes of Airbnb.
Fast-growing Duetto, a Las Vegas-based firm that exploits new powerful big data analytics to help hotels manage revenues, says the days of fixed rate contracts are numbered.
Michael McCartan, Duetto managing director EMEA, said: “This concept of open pricing, where you allow the market to determine what the price should be, flies in the face of fixed contract negotiations.
“We say hotels need to evolve to a point where you are less reliant on that business. Do not give your inventory away too cheaply just because you want to build business in advance.
“This is a fairly radical shift from the way it’s been done for the last 30 or 40 years.”
Duetto has seen impressive growth outside of the US and sees Europe as its big opportunity due to the more fragmented nature of the market.Just over two years since it launched here revenues are forecast to overtake the US this year and this week it signed one of its biggest clients, nH Hotels, adding 400 properties to its platform.
From its origins in 2008, Duetto has built technology for the wider sector and raised $62 million in funding since 2012.
It says pricing each room-type, or even individual rooms, according to forecast demand and being able to tweak room-type pricing to react to market conditions gives hoteliers back control.
McCartan said this can help them be less reliant on OTAs, which he said are directly responsible for customer acquisition costs rising at twice the rate of hotel revenues over the last six years.
And the ability to market and price specific room types, like larger family suites, apartments or villas, individually could help hotels fight back against the likes of new entrants in the sector like Airbnb.
“Historically, hotels would price their Best Available Rate (BAR) and push that into the Property Management System (PMS) and every other rate would cascade down from that,” said McCartan.
“But each room type has its own demand and should have its own price independently of what the other room prices are.
“Revenue management structures were built to support the way the PMSs were built. They would look back to predict the future. It was like driving a car forward just using the rear view mirror.
“One of the benefits of this new approach is not only that you can yield room types but start looking at channels independently a well.
“There is rate parity that you have to consider, but still, the opportunity for hotels is to have better engagement with customers directly and create an understanding that if you book direct with the supplier we will always give you not just a better price but a better product.
“The customer will get something unique and personalised to them. That’s a very strong proposition when you are trying to get more guests to book direct.
“Of course hotels want more direct business, and they can do that by pricing more appropriately to the direct customers.
“One of the attractions of Airbnb is customers have a direct relationship with the host so hotels need to start looking at what they’re doing in terms of pre-stay engagement with the guest.”
McCartan said that by revenue managing discreet room types hotels could load their Airbnb-style larger rooms and apartments on to the site to exploit its undoubted reach.
Duetto’s pioneering work in Vegas showed the benefits of just $5 incremental revenue generated in a 3,000 room property.
McCartan said this does not mean cutting out the indirect channel but just giving hotels the opportunity to turn the dial a few notches in their favour which could significantly improve profits.
“Powerful OTAs will want product but what they are all looking for is the cheapest price for the best product,” added McCartan.
“As long as you satisfy that need, that gives you the latitude to offer other product that’s not necessarily price based.
“The risk for the hotel is that they still rely on the OTAs and they don’t want to give them something that’s so out of kilter they drop off their search results, but they need to offer the right product to the right people at the right time.”
McCartan said Duetto is seeing 300% year-on-year growth, with medium-sized hotel groups between 10 and 50 properties the area it has seen most success in.
“They can take a more progressive view to managing change more easily than bigger groups,” he said. “They can make decisions quickly.”
VC-funded Duetto currently works with over 1,000 properties worldwide including Pestana Hotels, Ace Hotels and Warwick Hotels, and has opened offices in Singapore and Dubai, as well as London.
It charges a per room per month licence for its technology that effectively integrates with a hotel’s existing PMS to take over the revenue management strategy.