Optimizing customer satisfaction via price discovery

Earlier in the month noted consumer advocate and Chirstopher Elliott wrote in the Washington Post on a new internet entrant to in the crowded hotel revenue management field. Called Backbid.com, the website  promises to "revolutionize how travelers book hotel rooms". The site allows customers to clearly see "all of the details about the property, the amenities offered and the specific bid being offered" before confirming the reservation. And as the company notes "the best part about BackBid is that there is absolutely no risk to you; if you don’t like any of the bids that you receive, just keep your existing reservation."

Whether backbid rises to the level of disruptive technology whereby customers reap heretofore unknown gains in transparency and pricing remains to be seen but the website's founder is quoted in the Post article as saying the site is "empowering the consumer to say, ‘This is what I’m looking for,’ and the hotel to say, ‘This is what we can offer. It turns the tables on the traditional way of booking a hotel room."

At the heart of every revenue management system lies a forecast of expected demand which unfortunately is a long standing and inherent weakness of the industry's revenue model and it remains so. That nearly all including the allegedly best forecasting algorithms failed spectacularly in the immediate aftermath of the September '08 financial crisis has been well documented. While Backbid does little if anything by way of addressing forecasting lacunae, it addresses a related weakness in the revenue management model: that of "booking decay" when supposedly "confirmed" reservations melt away as the day of stay approaches.

Somewhat unsurprisingly there have been detractors in the lodging industry with one commentator predicting that "BackBid will ratchet up competition to an unsustainable level" and goes on to note that “If Backbid succeeds, this sense of competition will only heighten, and hotels will be undercutting each other left and right. It’s not good for the hotel industry because everyone involved loses revenue. And while on the surface, cheaper prices may sound good to the consumer, it really means that hoteliers have fewer resources to put toward making your stay better."

The fear of hotels losing out due to revenue compression likely is both overblown if not unfounded and in reality is a straw man argument. Backbid provides price discovery and enables a guaranteed revenue base as unlike regular hotel reservations labeled rightly by the post as being offered with "generous refund policies" Backbid's bookings are non-refundable and likely will go a long way towards addressing booking decay, a long time bane of revenue managers. This not only ensures customers are happy that they are maximizing their utility but also enables hotels, in the long run, to price their inventory optimally. 

 

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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