5 revenue management roadblocks: how to spot them and solve them
Smartpricing
Revenue management software that empowers hotels and lodging businesses to grow their revenue.
Have you ever encountered resistance to change with the classic retort: "But we've always done it this way"? It's a common scenario in personal and professional circles and reveals a deeper phenomenon: cognitive biases.?
Biases act like mental shortcuts, distorting our perception of reality and hindering progress. Whether it's an overconfidence in our forecasts or a reluctance to embrace new technologies, biases can have a considerable impact on hotel management.?
In this article, we'll look at how five common cognitive biases can undermine hotel pricing strategies and explore their effects on business success. But don't worry, we'll end on a positive note with effective strategies to counter them.??
Before getting to the heart of the matter, let's conduct a simple activity to illustrate how cognitive biases can influence our perceptions.
Hands-on learning: understanding cognitive biases
You might’ve seen this popular activity come up while browsing through social media, which perfectly highlights an example of a common cognitive bias. Hands-on learning is an effective way to retain information, so let’s give it a try:
Tricky, right? Why is that??
You’re so focused on identifying blue objects that all other colored ones have been ignored for that brief moment. While specialized focus and attention to detail can prove useful in your business, these psychological blockers can seriously hamper your success.
Let’s take a closer look at 5 common cognitive biases and why we need to be wary of them.
Common cognitive biases affecting hotel pricing strategies and their harmful effects
Bias #1 - Anchoring bias
The anchoring bias gives too much weight to the initial information received.
An example ??
You monitor competitors’ pricing strategies to situate your own, using them as “anchor points”. If the average competitor maintains low prices, you could be led to set your pricing strategy close to theirs, even if your situation is completely different (e.g. you offer better quality services or have unique amenities that justify higher prices.)
?? Caution
Monitoring competitors is a key element when developing your pricing strategy; however, relying too heavily on this information can limit your pricing potential, preventing innovation and adaptation in decision-making.
Bias #2 - Confirmation bias
The confirmation bias seeks out and interprets information that confirms existing beliefs, ignoring data that challenges these views (this is the main bias present in the “look around the room” activity done earlier in the article).
An example ??
Your establishment is located away from the bustling city center, and guests need to have a car or use the limited means of transport available to get to your property. This distance, and what you might perceive as an “inconvenience”, lead you to lower your room rates drastically.??
?? Caution
In this particular case, your establishment could have unique features and offer a genuine "local experience" that many travelers are looking for. But your assumptions are leading you to devalue your establishment, resulting in lost revenue. This could even go as far as how you sell yourself (your property) to travelers.
Bias #3 - Overconfidence bias
The overconfidence bias overestimates one's own knowledge, skills, or command of a situation
An example ??
You took an accredited revenue management course a few years ago and have delved deep into best practices on how to define your pricing strategy, so you feel confident doing so without additional support or resources.
?? Caution
Taking a course and acquiring new knowledge and skills is great, but this is a fast-moving market and the information acquired at the time of the course is likely to be outdated, making your pricing strategies less effective.
Bias #4 - Availability bias
The availability bias bases decisions on the most readily available or memorable information, rather than on in-depth analysis.
An example ??
You’ve spoken to fellow hoteliers who have told you stories of negative reviews after raising their prices, and they’ve told you that this had an impact on their business. For fear of finding yourself in the same situation, you decide to keep your prices low or not to raise them.
?? Caution
In this case, the bias takes the form of a fear-based approach to pricing, which may prevent you from taking advantage of market opportunities. Your situation may differ greatly from that of your competitors so, an increase in your prices could have a completely different outcome - a positive one, even.
Bias #5 - Status quo bias
The status quo bias prefers to maintain current conditions and resists change, even when better alternatives are available.
An example ??
You use a fixed price list for your rooms during the high season and another during the low season. But tourism evolves, and so do travelers’ behaviors. And yet, the “I’ve always done it this way, why change?” prevails.
?? Caution
This prevents you from exploring better alternatives and evolving with the changing times. Fear of change is a common sentiment, but refusing to adapt to industry trends or embracing dynamic pricing can allow your competitors to outperform you, leaving you behind.
Effective ways to tackle cognitive biases
Now that we've identified common cognitive biases affecting hotel pricing strategies, let's explore effective methods to overcome them. By implementing these strategies, you can make more informed decisions and maximize the potential of your hospitality business.
?? Awareness and open mind (to change)
It's crucial to start recognizing our biases—it's the first step to overcoming them. This means taking a moment to reflect on your decisions and ask yourself whether they're truly what's best for your business or just a result of sticking to old habits. Remember, the hospitality industry is constantly evolving. What worked before may not work today. By staying open to new ideas and trends, you can adapt and thrive in this ever-evolving landscape.
?? Continued learning & development (L&D)
Think of it as a journey—a continuous process of growth and adaptation. By continuing to learn, you can break yourself free from outdated mindsets and embrace fresh strategies. This can mean diving into revenue management courses, tuning into industry webinars, or reading insightful articles and books. For instance, getting access to a comprehensive guide to revenue management can equip you with the knowledge and tools needed to confidently navigate this critical aspect of your business.
?? Quantitative analysis
Let's make decisions based on hard facts, not just gut feelings. To help with that: data analysis. A closer look at your numbers based on a variety of metrics can help you uncover some truths about what's working and what's not. Whether it's sales figures, guest data or market trends, relying on concrete data, can help you make informed decisions that lead your business to success.
??? Qualitative analysis
Sometimes the answers lie in the details and experiences. To get the full picture and shake up your perceptions, you need to take a closer look at guest feedback via post-stay surveys or online reviews, employee insights and market dynamics. By delving deeper into the qualitative aspects, you can uncover valuable information that will enable you to improve your strategies.
?? Defined strategy
Setting clear, measurable goals can help beat bias at its own game. When you have a crystal-clear target—like boosting revenue by 10% in six months—it's easier to see what's working and what's not.
Ready, set, let's conquer biases
In conclusion, the key to overcoming biases is action. It's about stepping out of your comfort zone and actively challenging your beliefs through implementation and experimentation.
By adopting new strategies, measuring their impact and adapting accordingly, you can free yourself from the limitations of biases and lead your hospitality business to success.
Remember, every little step counts in breaking old habits and adopting practices conducive to growth.
If you want to implement dynamic pricing and challenge your assumptions, but don't have the time for in-depth training, consider Smartpricing. The AI-powered software constantly analyzes internal and external data, enabling you to make informed pricing decisions, maximize revenue, and grow your business.
Ready to take the first step? Book a personalized demonstration with a Smartpricing consultant today and watch the potential of your hotel business soar!
P.S. Not ready for a personal consultation? No problem! Take our quiz to test your price management skills (warning: the results may surprise you ??).