Soothsayers predict and price!

Anshu Sarin Jul 12, 2021

Our land has more than its fair share of soothsayers. Dare I say, many have made it into a profitable business! Prediction in the real sense, can be hard, more so if it’s about the future.

So what do we do - We could hold back a notch our natural desire to ‘predict’ and focus on preparation? We could break it down into managerially relevant chunks that help separate the knowable from unknowable. Let’s spend some time on a relevant ‘chunk’ today, pricing!

Generally speaking, consumers are relatively more amenable to price fluctuations in an airfare than a hotel tariff. Truth be told, consumer’s memory is akin to an elephant’s when it comes to price.

Adopt a ‘Design Thinking’ ideology, think like a consumer. For you to ponder upon - when the price rises beyond your psychologically acceptable mark at your preferred business hotel, what do you do? Or your favorite holiday resort is charging double of what you usually paid for the coveted bi-annual holiday – what do you do? Do you look for alternates/ do you get into a trade-off mode/ reduce your holiday period, trim expenses elsewhere to make the same holiday happen or perhaps accept the price but seek more ‘value’ now from the same stay!

Don’t let the ‘wrong’ price stick assuming that at ‘right’ time the price-change will be seamless. It can be expensive and challenging to reverse the psychological impression.

I am all for dynamic pricing. Here is the short point to the long winded conversation, when there is no historic data, find a direction and stay course. The direction should be based on your location, brand strength & offering, competitive rates, market intelligence and importantly your survival needs. Beauty of dynamic pricing is that it’s not hard on you when you are wrong. Make those mistakes and make the corrections. Like in life, it should never be about the mistakes we make but about the speed at which we learn from them.

Here are some other things to consider when setting rates in the current market:

Is price making people flock to an aircraft/ hotel? Understanding what level of elasticity exists per segment is important to determine the pricing strategy. If discounting rates by 50 per cent could induce demand then we all would be averaging >80 per cent occupancy.
An airline or a hotel consumer’s journey offers a million and more data points. Derive consumer insights from these data points. It tells us what each segment desires and what are they willing to pay for it. Gut instinct will always have its place under the sun but for now let data speak ahead of it.
“Major pandemic does have effects. What it does not do is introduce something truly novel. Rather, it accelerates and magnifies trends and processes that were already underway” Stephen Davies. Double down on those underlying trends and processes. It is less to do with ‘first mover advantage’ but more to do with being relevant.
Spending power of leisure segment is lower than business segment. Taking a step further, spending power of domestic market is lower than international market. Green shoots emerging from leisure travel tell us that there is light at the end of the tunnel, even if the remaining tunnel is long.
In an existential crisis situation, we focus on the certain, cut cost. Some cost cuts are deep and some that cut the bone. Align product & pricing such that we avoid cost that cut into the bone. If there is one thing we know then it is that the pandemic has lasted us longer than we had ‘predicted’ in April 2020. Same will be for the cost cuts.
Ascertain the depth and width of your distribution capabilities. Deeper and wider they are, stronger are the pricing abilities.

Soon, we could be seeing a frenzy of mergers, acquisitions and brand sign-ups, not because they will all be distressed sale but also due to realization of what scale brings. Scale that should attract the best in class and most diverse intellect. Think about it, the three critical verticals (often diluted in role, ranking and delivery) which will play a pivotal part in deciding for or against an asset owner aligning with a brand, will be: