Automation is sweeping the nation. With emerging technologies all around us, and the legitimization of the Internet of Things (officially deemed a phrase by Merriam-Webster this year), the idea of doing anything manually seems almost archaic.
But, in reality, intelligent software automation should be measured on a continuum. For years, manual, or “cost-plus,” pricing models have been viewed as old school and time consuming methods, with less than optimal results. And while automated demand- and value-based pricing processes have taken the front seat, companies still aren’t seeing the hyper-growth results they were hoping for with the pull of a lever.
That’s because, despite the rise of pricing automation, human beings still have veto rights over the their robo-pricing systems, and are exercising those rights to the detriment of organizations’ ROI.
This past spring at the Professional Pricing Society’s 28th Annual Spring Pricing Conference, pricing’s foremost thought-leaders came together for events, workshops and online courses to facilitate ongoing learning, networking and shared experiences in price management. We sat in to hear Karen Berg, manager of Global Pricing and Inventory Strategy at InterContinental Hotels Group (IHG), discuss working with franchisees who have total control of their unit pricing and how to essentially sell them on automated price adoption.
Prepare for Total Automation
In the hotel industry, pricing is based on the metric of revenue per available room. So, for a hotel owner, with all the rooms you have available to rent, how much revenue do you expect to collect? Since hotel rooms are considered perishable, as they don’t have an opportunity to resell it if it goes unoccupied, competitive benchmarks are set based on this nightly metric.
So, similar to the dealers in the industries Syncron serves, hotel owners must first address inventory management before they can even tackle pricing. For example, if you charged the same price for all hotel rooms, you would only have a 50% occupancy rate. There are instances, though where someone would potentially pay more – but you haven’t give them the chance to choose. The same goes for charging less for tiered rooms: by not preparing for these different types of demand, there’s a chunk of empty rooms left (read: missed revenue). So, in order to price rooms intelligently, you need to understand the capacity and demand, competitor prices, and your customer’s price sensitivity.
Brace for Adoption Impact
All these things considered, How do you, the pricing expert, get buy-in with a new process? “At the end of the day, IHG owns nothing – all hotels are franchised. So, me telling someone to drop the price on a room is almost insulting to them because it’s their money, not mine,” admits Berg. You have to provide proof to gain trust in your pricing recommendations, otherwise your owners are quickly going to step back into manual pricing of the past. And with more than 76,000+ pricing decisions per hotel per day –there’s simply not enough time to overlook automation.
“Pricing is a very emotional decision for the individual unit owner. By overriding your recommendations, they have reverted your company back to the dark ages of cost-based pricing.” – Karen Berg
Berg reminded us of the good ole Field of Dreams quote: “If you build it, they will come.” This is an example of what NOT to do in software adoption. Just because you built something new doesn’t mean everyone will suddenly flock to it; you have to push adoption and communicate the value to the people of WHY they should adopt.
Lead the Charge
Pricing is a simple algorithm: math + sales. But while there may be numbers involved, you have to think humanly about it, and remember that you’re essentially selling the process to your team. Here are three ways IHG influenced adoption in the pricing portion of the organization:
1. Create the value proposition.
Most modern moguls know that automation has the potential to be a huge financial win – but in the case of individual business owners, you’re playing with people’s money. Prove that these kind of price management platforms are not only accurate, but work to constantly to optimize and refine prices – ensuring that it’s always a seamless experience.
2. Make believers out of their stakeholders.
Once the pricing team makes a recommendation to the stakeholders, the often will say “no” right off the bat. To them, lowering the price of a room for optimization sounds counterintuitive – but they don’t understand the big picture. Results show that hotels that have higher automation adoption are generating more overall revenue uplift – up to 1.8% higher than those sticking to their manual processes, in this case.
3. Show them the proof in the pudding.
Gather up your remaining “non-believers” and get them to determine the optimal price on their own. Then, using a pricing simulator, show them the true optimal price based on the correct algorithms. Chances are, automation will win every time.
“If you want a pricing system to take over human thought completely, you’re being unrealistic,” says Berg. “There will always been people and emotions involved.” That’s where it’s the pricing expert’s job to instill trust, constantly test, and invest in the product.
And there’s no end to this role of “change agent” – it’s a steady cycle of ensuring success by providing the right tools and materials needed to the people at all times. From onboarding training and materials for continued understanding and education, to ensuring the pricing tool is easy to use for the end user, and listening to regular feedback, it’s all about promoting adoption and proving, once and for all, that the effectiveness of price automation will always win the day.