Who am I:

• Hotel Berna, Milano – 122 rooms website since 1996 www.hotelberna.com

• Hotel Lugano Dante, Lugano – 83 rooms website since 1997 www.hotel-luganodante.com

The www was launched in 1991

The current market situationAll hotels worldwide since 2007 are suffering both in drop of occupancy (10-30%) and in ARR (10-30%), depending on the type of property, star rating, location and country. Signs of recovery in business bookings: + 3.59 in February 2010 (The Pegasus View)

A study of the Cornell University summarizes the following issues:

• customer rate resistance• contract renegotiations • competition• price wars • the difficulty in maintaining pricing positioning, because the drop in demand has shifted considerable pricing power to the customer

Forecast for 2010

• business travel recovery in the works : + 3.59 bookings in Feb. (The Pegasus view)• shorter “Booking window”• more challenging pricing strategies• quick reaction and adaptation• corporate clients expecting better rates or more benefits (Free Internet)• leisure clients looking for “big deals”• more attention on customer satisfaction, customer retention and loyalty strategies, in one simple word… the Guest Experience (a Market Metrix study)

The important role of intermediation (OTAS) in the Pricing & Value proposition

The main players:

• Expedia (1996): owns also Hotels.com, Hotwire, Egencia, Venere, etc.• Travelocity: owns also Last Minute - 1998, which is part of Sabre holding (GDS)• Priceline: owns Booking.com – 1996 and could become the largest european OTA• Orbitz

Expedia also owns the giant Tripadvisor (30’000’0000 monthy visitors)

Expedia - 25 displayed per page

• 147 hotels in Zürich @ 121 hotels in Geneva

Expedia, Inc. is the leading online travel company in the world. Since launching in 1996, the company's Expedia.com brand has grown to… includes 20 Expedia.com sites; more than 70 Hotels.com sites; Venere.com™; leading U.S. discount travel site Hotwire®; Egencia™, the world's fifth largest corporate travel management company; the world's largest travel community TripAdvisor® ®; and China's second largest booking site eLong™.

Our mission is to build the world's largest and most intelligent travel marketplace, …. to more than 110,000 hotels and hundreds of airlines, tour operators, car rental companies and destination services supply partners.

Booking - 20 displayed per page

• 101 hotel in Zürich @ 107 hotels in Geneva

Established in 1996, Booking.com offers competitive rates for any type of property, ranging from small independent hotels to a five star luxury. The site is available in 24 languages and offers over 73000 hotels in 71 countries

What we have to consider when we work with OTAS?

• BAR - offer competitive rates• rate parity (not only on BAR rates, but also on other SRPs)• taking part to special offers and packages as (stay 3 nights and get ...% off)• consider allotment and inventory issues • BAC (best available content): nice pictures, an enticing description, good reviews... The “value proposition” • The different criteria for a good ranking: conversion, commission, constant availability, content, CXL rate, competitive rates, correct payment

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• the worldwide commercial strategies and distribution channel possibilities for individual hotels• the Billboard effect (a Cornell University study) • the enormous marketing and promotions investments - traditional and online made by the OTA: the IT infrastructure and the growing “look to book ratio”, pay per click, banners, commission recognised to the numerous other partners and lead generators, etc.• commission levels between 12 and 35%

The benefits for the OTA customer

The customers, in only a few clicks, take advantage of very effective services: instant availability, hotel pricing comparison and features, easy booking, reviews and no reservation fees. Furthermore, they feel safe and stronger for their review possibilities…

Who is paying for all of this?

• it seems only one player: the hotel sector

What has happened?

1. Occupancy levels and load factors are way down across the travel industry. The temptation is to slash prices to stimulate demand – and some are doing this already.

2. Continued pressure to lower rates: is this another Case of the Stockholm Syndrome?

Have you ever heard of the “The Prisoners’ Dilemma”?

In its classical form, “The Prisoner’s Dilemma” is presented as follows (Concise Encyclopedia of Economics, Wikipedia, Britannica Concise Encyclopedia):

Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal. If one confesses and the other does not, the one who confesses will be released immediately and the other will spend 20 years in prison. If neither confesses, each will be held only a few months. If both confess, they will each be jailed 15 years. Each one is assured that the other would not know about the betrayal before the end of the investigation. Prisoners cannot communicate with one another.

Given that neither prisoner knows whether the other has confessed, it is in the self-interest of each to confess himself. Paradoxically, when each prisoner pursues his self-interest, both end up worse off than they would have been had they acted otherwise.

3. Are you familiar with the meaning of commoditization?

A commodity is a product that is completely undifferentiated. If a product becomes less differentiated, so that buyers care less about who they buy from, this change is called commoditisation. The key effect of commoditisation is that it reduces the pricing power of the producer. If products become more alike from a buyer's point of view they will tend to buy the cheapest .

4. Hoteliers, together with the pressure of OTAS, tried to stimulate the - weak - demand using mainly a low pricing model strategy, playing a great role in the guest value perception and its satisfaction.

Remember that the hotel product /service is intangible during the booking process?

Some examples of low pricing/discount communication model, opaque sites, meta search:

• Shopping screen (all hotels look alike)• Expedia• Travelocity Top secret Hotels video Travelocity• Priceline video what people say• Hilton• Wyndham• Easyjet

Some other examples:

• Mobissimo (Meta search)• Bookingbuddy (Meta search)• Getaroom.com • Uptake.com• Tripology.com

And the growing power of consumer generated content (travel advice sites, blogs, wikis, social media, etc.)?

• The role of Tripadvisor (belongs to Expedia) Fact Sheet

- Over 30’000’000 trusted traveller reviews & opinions- New York city One single Hotel- 2010 dirtiest Hotels- fake reviews- Tripadvisor partners with Yahoo! Travel- has introduced the “Business listings” feature

• An interesting site Oyster.com (will it survive?)

What is value?

Value has several different meanings (Zeithaml’s research):

1. Value is low price. For some customers the lowest price is the best value.2. Value is getting what I want from a product or service;3. Value is the quality I get for the price I pay;4. Value is all I get for all I sacrifice. Is the relationship between every benefit in the purchase, ownership, consumption and disposal of a

product or service, and the various sacrifices the make to enjoy those benfits.

Value is the customer’s perception of the balance between benefits received and sacrificesmade to experience those benefits.

Value = Benefits Sacrifices

Sacrifices:

• Money (Price)• Search costs (prepurchase work in searching for solutions and comparing alternatives).

Time is money…• Psycological costs (purchasing can be a very stressful and frustarting experience) &

Perceived risk (performance, phisycal risk)

The gap analysis model of service quality - SERVQUAL (Parasuraman, Zeithaml, VA & Berry)

Evaluate the Value proposition of our competitors (from Xotels blog)

The SWOT model…

• Identify the strenghts and weakness of our hotel

• Develop a check list to evaluate our competitors in terms of product & quality:

- quality of the tangible products - quality of the service delivered by Staff: authentic friendliness, exclusive service, exceptional personal attention, warmth and tue hospitality

• Consider also the Perceived service, using score from hotel reviews sites! The Guest experience

Competitors check list

Does our hotel price positioning make sense?

The Price Value Matrix…

• Choosing a clear positioning strategy for our base rate will help strengthen the value perception to consumers…

Does our hotel price positioning make sense?

Penetration Pricing strategy

• The market accepts and understand our positioning among the cheapest in market. This can work if that positioning does not drive the market rates down.

Does our hotel price positioning make sense?

Equal Pricing strategy

• We sell at comparable prices. The hotel value proposition will make the difference!

Does our hotel price positioning make sense?

Surroinding Pricing strategy

• The first room type will be the cheapest in the market or among the cheapest ones. The superior room will be sold at a rate close to the first available rates of our competitors. The Key success is to offer added value.

Does our hotel price positioning make sense?

Skimming Pricing Strategy

• We position ourselves amongst the most expensive. And we are considered the Price leaders Can we really provide more value? Will our customers understand the reasons why they are paying more?

Strategies & Tactics to survive in an Economic downturn

Basically there are two ways to compete in a price war environment:

1. non-price methods2. price related methods

Report – Revenue Management in an Economic Downturn. Cornell Nanyang Institute of Hospitality Management, March 2010

PAST FUTURETactics used (multiple choice) Performance Tactics to be improved

72% Discounting• 72% lowering rates Negative Is the least likely tactic to be repeated

38% Rate Obscuring• 73% Value added packages• 50% Extra night free• 48% Opaque distr. chann.• 47% Free Breakfast

Fairly well • 93% Sell through opaque distr. Chan. • 91% Offer value added packages• 89% Offer free breakfast

41% Marketing • 52% New market segments• 34% Additional revenue streams • 38% Pay-per-click advertising

All are positive

• 94% who had used these tactics during 2009 would continue to use this approach also in 2010

27% Cost cutting• 23% Closing facilities or scheduling renovations (*)• 31% Reducing operating hours

Both positive.

Better performance(*)

• 73% would continue to adopt these tactics

Report – Revenue Management in an Economic Downturn. Cornell Nanyang Institute of Hospitality Management, March 2010

Conclusion

The 4 most used tactics in 2009

• 73 % Value added packages

• 72 % Lower Rates

• 52 % New market segments

• 50 % Free extra night

The 4 strategies to use in 2010

• 94 % Marketing Tactics

• 84 % Rate obscuring approaches

• 68 % Cost cutting approaches

• 66 % Discounting – the least likely tactic to be repeated!

1. When developing a strategy plan it‘s important to focus on a long-term goal.

2. It‘s necessary to consider the impact that the strategies will have on customer satisfaction, employees satisfaction and long-term image of your hotel…

3. Be patient & don‘t panic!

An interesting study of Cornell University (Strategic Pricing in European Hotels 2006– 2009)

A four - year study, based on 8026 hotel observations, reveal that – both in good times and bad – hotels that offer average daily rates (ADR) above those of their competitors have lower comparative occupancies but higher REVPAR!

1. Higher revenue performance is accomplished by hotels that offer higher rates than their competitors;

2. RevPAR is not stimulated by dropping competive prices!

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The temptation is to slash prices to stimulate demand – and some are doing this already.However, history warns of the dangers of this strategy. The decisions you make today could affectyour profitability for years to come. So cutting prices may delay your ability to benefit when theeconomy does bounce back. Revenue managers have a key role to play is deciding when, how andwhere to discount, as well as looking for ways to add value without cutting prices. All this requirescreativity and focus from revenue management, CRM and marketing teams, as they worktogether to create packages and promotions for specific customer segments.

So what happens if we promote purely on price?

• Price addict: we educate consumers that the only difference between our hotel and the competition is the price;

• Reference price:when customer assess price fairness, they consider what they have paid before;

• Booking window: guests will have the temptation to wait as long as possible before booking, in the hope to find a better deal;

• Margin erosions:lashing prices will erode margins and thus service levels and standards have to be adjusted;

• it will be more and more difficult to fullfil and meet customer expectations;

• Public reviews (and complaints) will play a dramatic impact on the hotel value perception and will worsen the hotel occupancy – Brand reputation a Market Metrix study

Strategies & buzz words

• Rate integrity. It’s really hard in tough economic times, but we should try somehow to avoid dumping rates to an extent which could hurt our image. Price according to the perceived value and considering the competitive set, which has not necessarily to be followed.

• Rate obscuring & Price fencing are important to protect brand integrity

• Evaluate your Lead time pricing

• Channel conversion pricing: use strategies in order to stimulate your repeat guest booking directly. Move them from where they are to where you want them to be…

• Added values: add additional services or features to the offer.

• Differentiate: create an offer which differentiates us from the competitors. Be creative, sell an Experience!

Strategies & buzz words • Guest experience: focus on the customer - Train: our employees have to be trained to explain prospects why we are diffent from

the others - Deliver: use any occasion to meet deliver a brand experience - Exceed customers expectations: go that extra miles – M.O.T. (moments of truth): 1. Hello, come on in.” 2. Welcome, what can I do for you? 3. I will do what it takes to make this experience WOW. 4. Thank you. 5. Good bye and come back soon.

• Stimulate word of mouth

• build a CRM strategy (Customer Relationship Management) in order to create a long – term relationship

• E_CRM is only a small part of the relationship (have you heard of electronic Concierge?)

One example of a E_CRM strategy( made by us), a small family run hotel:

• analysing the concept touchpoints• going into more details flowchart • a part of the relationship first flowchart & Iframes (confirmation, prestay and post stay)

The new born “My Lugano Dante”

- uploading the reservation in the PMS - the platform - send the confirmation: to the company to the guest - the Mypage

Grazie per l’attenzione!