Social media services use within pricing and revenue management

The increasing adoption of the Internet and social media both by customers and by companies has evident impacts on pricing strategies. Pric...

The increasing adoption of the Internet and social media both by customers and by companies has evident impacts on pricing strategies. Prices are increasingly published on the Net in the official websites of travel companies, in that of distribution channels and in unofficial websites (travel blogs, virtual communities, travel review websites, etc.) where people comment the value-for-money (O’Connor 2008; Christou and Nella 2012; Maier 2012). Customers can compare easily different travel companies’ offers, consult other customers reviews, and then compare prices by means of meta-search websites. This is clearly an advantage for travelers who have more power to choose the right solution. For tourism companies, this can be both an advantage and a disadvantage. In fact, rates and fares become visible not only for customers but also for competitors who can monitor more effortlessly other companies’ decisions and policies. Therefore, firms can study other companies’
strategies but, in turn, they are monitored by competitors.

social media services pricing

Furthermore, customers are involved in the benchmarking process by means of social media metrics such as rankings, ratings, likes, etc., that become indicators of quality and have the power to increase web reputation. Therefore, the ability to stimulate positive consumer-generated content (reviews, comments, posts, etc.) can increase the level of service quality perceived by customers that can be used also in external communication, giving the opportunity to higher prices. For example, the TripAdvisor year award certificate52 for a restaurant or a hotel is a seal of quality that could increase the occupancy rate and consequently revenues.

The previous trends generate an increasing prices dynamism that has become a critical element in travel distribution and channel management (Maier 2012; Mauri 2014). Travel companies have to continuously align their rates to those of competitors more dynamically than in the past (Mauri 2012). This affects revenue management practices that have become more complex because new factors have to be considered.

Revenue management (RM) is a business process implemented in order to maximize revenues and profits (Mauri 2012).53 It can be defined as “a range of activities related to demand management, including pricing, segmentation, capacity and inventory allocation, demand modeling and business process management” (Journal of Revenue and Pricing Management). Social media can affect various steps of the RM process that are classified as follows: market segmentation and pricing guidelines, demand forecasting, inventory allocation and price optimization and overbooking and oversale (Mauri 2012).

First, social media allow companies to gather more information about customers enriching their databases. This gives the opportunity to improve segmentation, differentiation, and personalization of services provided. The combination of online customers’ unstructured information coming from social media with other more traditional ones coming from loyalty programs, CRM, etc., may help revenue management effectiveness. Therefore, a deeper knowledge of consumers’ features, behaviors, and price elasticity facilitates price strategy definition and demand forecasting (Minazzi 2012).

Moreover, different prices can be associated with diverse buyer features and rate fences (e.g., frequency of consumption, reason of stay, individual/group). For example, special services and rates are studied for loyal or business customers. In addition, concerning the type of client (individual/group), social media allow individuals that are linked by means of social networks to aggregate in groups and exercise the power to ask quantity discounts or other favorable conditions. An example is Bonvoy which enables people to create travel groups. In practice, the Facebook interface allows users to plan, book and split costs of their trip, paying a lower price.

Finally, some travel companies adopt special rates to stimulate people to connect to the Facebook page in order to receive special offers and prices or conditions. This action has a double effect: on the one hand, it allows companies to collect additional customer’s information and, on the other hand, to have a direct channel to communicate and eventually to sell travel services.

Also the distribution channel is a criterion used as transaction rate fence often considered within price discrimination policies. The possibility to better understand the profile of customers of different booking channels offers also an opportunity to define more precisely pricing strategies and capacity allocation (how to allocate inventory among various booking channels). As examined previously in the chapter, private sales for example imply a particular offer with specific restrictions (time, volume, etc.) that motivate a certain discount and allow to allocate inventory in specific periods of the year characterized by low occupancy (e.g., low season). In this case, the price offered will be different from that on OTAs or published on the property website. The objective is price optimizations according to different distribution channels that are used by various target markets. However, it is essential for companies to apply these practices paying attention at the risk of consumer’s perception of unfairness (Mauri 2007, 2012). Consumers will perceive the service as unfair if different prices are set for the same service. Indeed, unfairness perception is generally associated with transaction similarity (Xia et al. 2004).

Another aspect to consider when discriminating the price among distribution channels is rate parity. Rate parity is a term used especially in the hospitality industry and occurs when a hotel has homogeneous rates for the same product across all its distribution channels (Mauri 2012). Actually, according to some scholars who analyzed online hotel rates comparing them on different distribution
channels, rate parity is more an ideal concept (Demirciftci et al. 2010; Toh et al. 2011). However, online intermediaries generally require a specific clause about rate parity in their agreements that provide penalties or downgrading in the ranking in case of violations. With the development of meta-search websites, the check of rate parity respect is easier.

In conclusion, in order to fully exploit the opportunities that social media offer to revenue management, sales and marketing, and revenue management department should work together to develop “the right offer, to the right consumer, at the right time and at the right price”.



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The Digital Media Strategy Blog: Social media services use within pricing and revenue management
Social media services use within pricing and revenue management
The Digital Media Strategy Blog
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