Revenue and Profit Optimization

How Hoteliers Can Optimize Revenue with Post-COVID Demand

Business Optimization, Pricing and Revenue Management

by Stephen Davis, VP of Pricing and Revenue Services

As hoteliers look to capture limited demand and maintain yields during lingering COVID-19 impacts, optimizing yield on each guest is critical. Too often hoteliers act as facilitators, ensuring a great experience but not treating amenities as potential to capture additional revenue. From bundling vacation packages during the booking process, to making it easy for guests to purchase commodities while visiting, revenue optimization strategies that stretch beyond room revenue may make the difference between profit and loss during a potentially tumultuous year. Let's look at how hoteliers can optimize revenue with post-COVID demand.

Table of Contents

1. State of the Hotel Industry Recap
2. Revenue Generation Strategies to Make the Most of Every Guest
3. Efficient Marketing Strategies to Drive Demand
4. Sales Channel Strategies for Sustainable Growth
1. State of the Hotel Industry

Though the recovery from COVID-19 is still ongoing, the U.S. recorded its highest monthly performance levels in May 2021 since the beginning of the pandemic, according to data from STR.

Gross operating profit for U.S. hotels reached 70% of the comparable 2019 level, according to STR‘s May 2021 monthly P&L data release. While demand, revenues and GOP continue to uptick, labor spending remained flat from the previous month at 64%.

 

PR_20210701_US_PandL_chart1.png

Travel volumes are expected to be nearly fully recovered to pre-pandemic levels this Independence Day (July 1–5) as more than 47.7 million Americans plan to travel.

While the improvement is encouraging, many hotels are still experiencing financial difficulty, and even more are seeing staffing issues as evidenced by the stagnant rate of labor costs.

Hoteliers are seeing an increase in demand but need to optimize RevPAR potential by utilizing revenue generation strategies to make the most of every guest, particularly as there is an opportunity to capitalize on the pent up demand expected in the summer months.

2. Revenue Generating Strategies to Make the Most of Every Guest

The potential to drive revenue does not end once a room is booked. On-property revenue opportunities should be a focus for every hotel and resort. Not only does it improve the bottom line, it also enhances the guest experience. Opportunities include bundling, upgradable amenities, and food and beverage optimization.

capture additional spend

Bundling

Packaging and bundling provide an excellent opportunity to create a holistic experience with added value. The package can be promoted with a savings message to the guest. Packaged vacations relieve travelers of decision making once their vacation starts, which can provide a more enjoyable experience as well as capture higher revenue per room night.

An example of a bundled package message may be, “book three nights and receive complimentary transportation from the airport to the hotel for just your immediate party.”  The inherent savings of not having to pay for a taxi or shared ride service is clear to the guest.

Another example may be, “book three nights and receive 25% off one dinner meal at our restaurant.” This is also a clear savings message that may result in incremental meals served in the restaurant. Tickets to local activities (for which you receive a commission) are a great addition to vacation bundles and can be customized based on consumer segment. For example, a local food and wine tour could be appealing to a couple traveling alone. A family of four with young children may spark to the local theme park or children’s museum.

Upgradable Amenities

Once traveling, guests are often willing to pay a little more for added perks such as late check out, a premium view, or higher-speed internet access. Review your own amenity offerings which could be considered beyond the standard expectation to identify potential candidates. Where possible, bundle upgradable amenities to avoid the perception of “nickel and diming,” and keep the number of upgrades reasonable. If half the rooms in a hotel are a premium view, and you’ve categorized them into several buckets, it quickly becomes overwhelming to guests.

When adding upgrade opportunities, be sure to assess the cost and profit potential for every sale. Offering guided running tours may sound like a great idea, but if it costs more to operate than the revenue it generates, it won’t do much good for the bottom line. Most amenity upgrades are reasonably priced, but even a $10 upsell purchased by 5% to 10% of booked rooms can have a significant impact on revenue and profitability, given that most upgradable amenities typically come at no cost to the hotelier.

hotel luggage concierge

For example, offer guests an “Upgrade Your Stay” package when they check in that includes higher-speed internet access, late check out, and a free non-alcoholic drink with the purchase of any snack item from the pantry, per night. The first two have little to no cost to you and the free drink could entice someone who did not have an intent to visit the pantry to actually make a purchase, or repeated purchases, resulting in some incremental revenue to offset the cost of the drink. At $10 per night, this upgrade could be an easy decision for many travelers, but make sure you can still turn the rooms with late check outs.

Food and Beverage Optimization

Almost all hotels have some form of food and beverage sales, whether a restaurant, bar, or sundries shops in lobbies. Opportunities to optimize revenue from these outlets often fall to the wayside.

To start, you can implement menu engineering principles to feature the most profitable and popular items more prominently on the menu to sell more plates that earn high contribution margins. To learn how to implement menu engineering, read our article, Menu Engineering Strategies for Restaurants to Optimize Revenue.

 

hotel server
3. Efficient Marketing Strategies to Drive Demand

With revenue down, marketing dollars need to be hyper-efficient. These strategies have proven to drive demand efficiently, increasing profit earned per guest.

Leverage Digital Channels

Digital platforms allow the flexibility for hoteliers to adapt marketing messages as consumer sentiment fluctuates in response to COVID-19. With revenue down, marketing dollars need to be hyper efficient. Targeted, direct communication to consumers can be a powerful asset for the hotelier looking to stretch their budget.

Target Past Visitors with a Return Offer

Past guests who had a good experience are already familiar with your product and more likely to repeat an experience than risk the unfamiliar. Target past visitors with a return offer as a “thank you” for past business with messages that make them feel appreciated and welcome.

Communicate Safety Messages

When selecting a hotel, enhanced cleaning and hygiene practices are still a high priority according to the AHLA State of the Hotel Industry 2021 Report. Guests also feel more comfortable when properties communicate these enhanced cleaning practices. Nearly seven out of ten travelers report wanting to hear directly from hotels what measures properties are taking to ensure safety.

4. Sales Channel Strategies for Sustainable Growth

Third party sales channels can be a boon for business, but they also pose risks. With COVID-19 impacting demand, now is the time to assess your channel strategy and whether it is providing a net benefit.

Over time, third party agreements have the tendency to get unruly. Agreements are made year to year and often new partners are added, but many hoteliers do not perform the due diligence to optimize their distribution strategy. Below are some steps to take to ensure your strategy is working for you and not against you.

Channel strategies

Realign Commission Structure

Tie your commission structure to volume requirements by providing the most lucrative commissions to the channels that drive the highest volume.

Review Sales Volumes

Review volumes to ensure partners are performing according to their agreement. If you don’t already, create a report for third-party sales and the respective commissions to analyze if partners are living up to their end of the agreement. For channels with low volume and high commissions, consider ending those agreements.

Explore New Channels

New travel aggregators are being created daily and there are a multitude of companies regularly looking to provide value-added perks to employees such as standing discounts. Both of these options are worth exploring further and regularly looking for new players that could expand your reach.

Sales channels are often overlooked for optimizing revenues. Taking the time to assess your third party strategy could reveal significant opportunity to increase yields and drive incremental demand.

Get Started with Revenue Optimization

Unfortunately, the lingering impact of COVID-19 could continue to make profitability a challenge. Hoteliers will need every tool in their revenue management toolbox to be successful. While there may not be a silver bullet to demand generation, optimizing product, pricing, and marketing will drive revenue and set you up for success.

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How Can We Help?

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Identifying Opportunity for Hotel Revenue Amidst COVID-19 Challenges

Business Optimization, Pricing and Revenue Management

by Stephen Davis, VP of Pricing and Revenue Services, Integrated Insight

The total economic impact of COVID-19 on the travel and leisure industry led many hotels and resorts to experience one of the softest summers in recent history. Grand Traverse Resort and Spa in Traverse City, Michigan, was not immune from the impact as groups and conventions were cancelled and some families chose to pass on their summer vacation.

Grand Traverse Resort and Spa engaged Integrated Insight in late 2019 to identify revenue opportunities. The resort is a beautiful property with excellent service, world-class convention facilities and a strong EBITDA – the dream scenario for many hoteliers across the country. But we saw opportunity for even stronger revenue and profit.

Grand Traverse Resort faced ongoing revenue management challenges that many resorts wrestle with: balancing group and leisure bookings to achieve the highest profitability. There were difficult questions to answer. What base volume of group bookings achieves the highest profitability, while complementing leisure demand? And how do you get confident turning down groups during periods in which leisure business would be more profitable?

When the demand for group bookings was compromised due to COVID-19, the resort had little risk shifting its revenue management strategy and decided to get creative. Fortunately, because of the resort’s location in the northwestern part of Michigan’s Lower Peninsula, it was among the first in the state to be able to re-open.  With groups and conventions canceling, the resort had more capacity for the summer than ever before.

Integrated Insight worked with leadership to launch a successful room promotion when the resort reopened at limited capacity. We helped the resort strategize a marketing campaign to make consumers feel safe and excited for outdoor recreation.  As it turned out, that’s exactly what Michigan residents wanted to hear. Pretty soon the resort was seeing the remaining summer weekends book up with leisure business at rates well above prior years.

In spite of COVID-19, Grand Traverse Resort achieved its highest ever average summer weekend rates and had near sell-outs during July, August, and early September weekends. It was fulfilling to see Grand Traverse Resort and Spa have enough success to remain open for the summer. It was also strong confirmation that they were limiting leisure business in prior summers by booking too many convention room nights at rates well below leisure business.

Typically, changes to revenue management strategies take incremental steps for clients to execute. We saw the opportunity to move towards more leisure business and higher rates, but doing quickly is often easier said than done. COVID-19 forced them to book more leisure and proved their rates could be higher. It was a beautiful silver lining, really.

In 2021, Grand Traverse Resort is highlighting the safety of its convention facilities and the steps they are taking to allow socially distanced gatherings - balancing both leisure and groups to yield optimal revenue. When faced with uncertainty, we are often willing to take more risk. In doing so, Grand Traverse Resort and Spa discovered confidence moving forward about their business, value, and future opportunities.

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alternatives to program cuts for college athletics coronavirus

Alternatives to Program Cuts for College Athletics

Uncategorized

by Rich Pepin, COO, Integrated Insight

Published July 31, 2020

College athletics is facing an existential crisis. Another unexpected 2020 headline, but here we are. And if you’re one of the many Americans who eagerly await tuning in to a nationally televised football game on a fall Saturday afternoon, that headline is probably a punch to the gut. This fall there won’t be millions of screaming fans packed into stadiums, which spells potential disaster for college sports.

The coronavirus pandemic has significantly reduced revenue potential for football and basketball, which has been compounded by the reduced tuition income from lower enrollment at schools in the short term. As a result, schools have resorted to cutting non-revenue sports such as tennis, track and field, swimming and diving, and golf. As of now, 19 Division I schools have cut a combined 57 programs.  Division II & III and junior colleges have eliminated dozens more.

The results of a recent Gallup survey indicate college athletes are more likely to be thriving than their non-athlete counterparts when it comes to health, relationships, community engagement and job satisfaction. Taking away opportunities to be part of team sports at the college level will have negative impacts to student athletes that miss out in the short and long term. As a former Division 1 college golfer, I can attest to the overwhelmingly positive influence my four years of college athletics had on my personal development.

Not to mention, eliminating non-revenue college sports will have a major impact on the Olympic model. The U.S. Olympic model leans on these college programs that serve as launchpads for athletic careers and an ideal space for high schoolers hoping to develop into elite competitors. Nearly 80 percent of the 558-member U.S. Olympic team in 2016 competed at the college level, representing close to 150 schools.

For purposes of this discussion of the business of college athletics, let’s focus on the 130 institutions that are in the NCAA Division 1 Football Bowl Subdivision.  Half of these schools fall in the Power Five Conferences and are commonly referred to as the Autonomy schools, the other half are Non-Autonomy.  There is a stark divide in terms of overall revenue and the respective revenue sources between these groups.

Autonomous schools account for 75% of the $10.6B in NCAA Division 1 revenues and only 7% of their funding comes from institution, government support and student fees. Conversely, Non-Autonomous schools require institution, government support and student fees to cover more than half of athletic funding. At a time when state and municipality budgets are being squeezed and universities and colleges will be under financial stress due to lower enrollment, the stress on Non-Autonomous schools will be exacerbated.

Most college athletic programs are lucky to break even. But even before the pandemic, many schools (especially in the Non-Autonomous group) were struggling to make ends meet. For the Autonomous schools, coaching and administration compensation are a huge burden, representing nearly 40% of annual expenses overall.  Student scholarships and aid, gameday operations, and travel are relatively small proportions of the cost.

With costs rising much faster than inflation and schools facing a shortfall in media and bowl revenues, the only choice some schools felt they had was to eliminate entire programs. Administrators were forced to make decisions that they haven’t ever had to consider with a rushed timeline that gave them little chance to look at things holistically.  But sometimes, what appears as a catastrophe, could spell opportunity.

Opportunities for College Athletics

 

Think differently about conferences.

It is exciting and educational for the athlete to travel all over the country, but a regional or even local schedule beats no sport at all.  Many schools could develop a set of games, tournaments or meets within their own state or neighboring states and significantly reduce travel costs.  And there is a chance to develop some new in-state or nearby rivalries that have never had a chance to foster because schools were in different conferences.

Make non-revenue sports available to networks or streaming services.

There is a significant opportunity to match the demand of live college sports content with the shortfall of new programming available for TV and streaming platforms.

Production sets are on pause due to coronavirus safety concerns, putting a halt to new films and shows.  Additionally, professional sports have been on hiatus and will have the start of their seasons shifted. This gap can be filled with amateur sports. Work with the NCAA to create its own subscription-based streaming service or go to ESPN+ or others.

Leverage the hunger for live sports with a new model. If these avenues don’t provide opportunity, colleges can live stream the sporting events on YouTube with sponsors. Production costs can be reduced by utilizing the school’s in-house film and marketing students. Use well-known alums to serve as play-by-play or color commentators to draw people in while keeping costs to a minimum.

Create compelling content out of personal stories.

Beyond the competitions themselves, everyone loves a heart-warming story of personal triumph over long odds.  These stories exist in every sport on every campus.  Develop a business model to sell this content to streaming platforms that can help distribute the story while filling their own content gaps.  And it is also another opportunity to leverage in-house storytelling from film and theatre students and professors.

Re-think the way programs are supported by alumni and the community.

Develop structured programs that give people status to football or basketball tickets if they contribute to non-revenue sports.  Many alumni play tennis and golf recreationally - two sports that are on the chopping block - and they may have considered helping out.

Make sure alumni understand the impact they can make with their support.  Match alumni to specific athletes for sponsorship. Provide them with regular updates on the team and recognize their contribution with something of substance.  Twenty-eight years after graduating I still wear new UConn Golf gear every chance I get.

Maximize use of resources in the Sports Management program if there is one.

Use students and assistant professors to play a role in scheduling, fundraising, game-day management, and other duties to reduce administrative costs and provide them with real-world experience.

Re-assess the way coaches are compensated.

For high profile sports, coaching compensation has become an arms race with spending reaching new heights every year.  Most states list their highest paid state employee as a football or basketball coach at a large university.  And most contracts are guaranteed so when a school parts way with a highly paid coach, the salary is often paid out for one or more years.  The desire to compete in these highly visible sports may make it too difficult to break the mold on that compensation, but for other sports, make sure coaching compensation is in line with full professor salaries.

Maybe all of these ideas, and more, were considered before schools decided to cut non-revenue sports.  But at a time when entire programs are being eliminated, we owe it to the college athletes to explore long-standing models to see if programs can thrive in a different way.  There is so much upside in maximizing the opportunities for student athletes.

 

Menu Engineering Strategies for Restaurants to Optimize Revenue

Business Optimization, Pricing and Revenue Management

The restaurant industry should be bracing for significant economic challenges in the next twelve months. During the last recession in 2009, it took more than three years for sales at restaurants to return to pre-recession levels. The dramatic drop in sales at restaurants over the last two months is now roughly ten times the total decline seen during the Great Recession.

In order to survive the upcoming economic challenges, restaurants need to implement smart pricing strategies. One of the most powerful pricing tools restaurants can implement right now is menu engineering.

For many restaurant operators, menu engineering is a familiar concept but often disregarded in practice. The concept is simple: the restaurant menu should feature the most profitable and popular items to sell more plates that earn high contribution margins.

How Restaurants Can Engineer Menus to Optimize Profit:

1. Assess the costs and popularity for each menu item
2. Optimize the menu to feature items with higher contribution margins

Let’s take a deeper look at how to implement menu engineering strategies.

1. Examine costs and popularity for each menu item.

How to Determine Costs
In order to understand the most profitable dishes on the menu, restaurant operators need to start with understanding their costs. Taking the time to examine the cost of each menu item can be tedious, but it will produce significant payoff in the months to come.

Item profitability can be looked at on a food cost basis to keep it simple. The total food cost is found by adding up the individual costs of each ingredient on a per-item basis.

Gross profit is then calculated by taking the food cost per serving and subtracting from the sales price.

Sales Price - Menu Item Food Cost = Item Gross Profit

Taking item gross profit divided by the base of sales price provides a contribution margin for each item that does not include labor and other overhead.

How to Determine Popularity
Determining the popularity of menu items may be simple for a food operator managing the business day to day. However, to identify a more reliable answer, operators can simply pull the frequency of purchases for each food item from their POS system.

To determine each menu item’s popularity, compare the sales of each menu item on a base of daily number of customers for several months to estimate the item capture. Comparing item captures across the menu gives a measure of popularity for each item.

2. Optimize the Menu

Once contribution margin and popularity have been determined for each menu item, you can categorize them based on the matrix below.

Menu Engineering Matrix

When designing the menu, feature items with higher contribution margins such as stars and puzzles, and eliminate unprofitable ones.

Dogs: Items with low profitability and low volume. Remove them from menus.

Puzzles: Items with high profitability and low volume. Feature them more prominently on the menu and encourage wait staff to push them at table service locations.

Stars: Popular items with high profit margins. Look for opportunities to take marginal price increases on most popular items.

Work Horses: Items that are popular but not particularly profitable. Move work horse items to areas of the menu that are less prominent and don’t encourage wait staff to sell them at table service locations.

By categorizing each menu item, restaurant operators can see which items are best suited for price increases, cut from the menu, or get more prominent placement. Profitable items should be featured more clearly in the menu, and unprofitable ones should be removed. Let's look at a simple example of menu engineering with a short case study.

Dan's Diner Case Study

Dan’s Diner is just scraping by after re-opening with reduced dine-in capacity and curbside takeout. Dan is looking to optimize his menu in order to increase profitability. For each entrée, he identifies the profit margin and the number of dishes sold per customer.

Here is an example of four dishes Dan categorizes using the matrix to understand where he needs to make changes. Let’s look at an entrée from each quadrant.

Menu Engineering Matrix

The Dog: Country Fried Steak
The Country Fried Steak is the least profitable entrée and hardly anyone buys it. In order to reduce food costs and leaking profitability, Dan removes this item from the menu. Assuming that Dan’s Diner brings in $45,000 in revenue each month, a 1% decrease in food costs by cutting this menu item is worth $450 per month. These cost savings can pay an employee’s week of labor at roughly $10/hr or go towards advertising to increase demand.

When menu engineering during the current coronavirus crisis, it may be necessary to remove all "Dogs" from the menu without replacement temporarily to save costs.

The Puzzle: Dan's Gyro
The Gyro has a very high contribution margin but does not sell well. In order to encourage customers to purchase the profitable entrée, a Gyro combo special is added to the menu with a savings message and featured during happy hour.

"Puzzle" items are good candidates for discounts and deals. Their low volume means purchases are more likely to be incremental and the higher margin covers some of the discount without hurting the bottom line.

The Star: Baked Chicken
The baked chicken has the highest popularity and profitability. Dan’s baked chicken is known all over town. Customers love it for the price and quality. Dan loves it for the great margin. Dan takes a $0.20 price increase on the Baked Chicken Plate, which falls straight to the bottom line.

If Dan can identify a few star items to take minimal pricing on, the value falls straight to profit.

The Work Horse: Cheeseburger
Guests love Dan’s cheeseburger and waiters often push it as their personal favorite. The problem is that the profit margins are slim. Dan tells wait staff to stop promoting the item and instead push the Baked Chicken when asked for recommendations. Beyond steering the focus to "Stars," price increases can be leveraged to turn highly popular "Work Horses" into "Stars."

Each of these menu engineering strategies improves the bottom line by eliminating costly products and increasing the sales of profitable ones. The goal is to drive higher revenue, but more importantly, higher profits.

For more information on pricing strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

How Can We Help?

Schedule a free consultation to discuss your business needs.

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faucet is leaking with cash because company is cutting way to profitability with their revenue strategy

You Can’t Cut Your Way To Profitability – Rethink Your Revenue Strategy

Business Optimization, Pricing and Revenue Management

by Joni Newkirk, CEO, Integrated Insight

Published April 20, 2020

Some cost cutting is good, especially if it is part of an operational efficiency, continuous improvement effort. But in a downturn, many companies turn to more severe cost cuts to manage cash flows. The risk is cutting costs to the point of sacrificing total revenue and profit margin.

 

To avoid profit eroding cost cuts, consider these four steps:

  1. Know your target market.
  2. Understand your target market’s value proposition and willingness to pay.
  3. Know your variable operating costs.
  4. Calculate the impact of proposed changes, accounting for both cost savings and reduced revenue.

A recent visit to urgent care was eye opening. We visited late afternoon and I was stunned to find we just made it before closing. Previously, they were open later in the evening. My impression has always been that urgent care typically stayed open when doctors were not, as an alternative to the hospital emergency room. As it turned out, the six facilities for this particular group – all located within 20 minutes of each other – were more likely to mirror primary care practice hours than complement them:

- 2 were opened 8 am to 8 pm, seven days a week

- 2 were opened 7 am to 5 pm weekdays, and 8 am to 5 pm on weekends

- 2 were opened 7 am to 5 pm weekdays, and closed on weekends. In total, the practice is open 404 hours per week across the six locations.

Looking forward to the need for testing, treatment and vaccines for coronavirus, this urgent care group has a number of options to rethink their operating and pricing strategies to maximize profit.

1. Know your target market.

Knowing your target audience starts with understanding why they chose you versus other options. For urgent care, it may be they do not have a primary care physician. Or perhaps they couldn’t get an appointment with their regular doctor fast enough. Some want to avoid the more costly hospital emergency room. Still others have a difficult time taking off work.

At least two of those reasons speak to evening and weekend operating hours. Being open when your target market wants to do business is critical for higher profits. For this particular practice, converting just one facility to a 24/7 operation could be a strong marketing strategy.

Staggering the hours of the other facilities may also have benefit. The alternative schedule provides more coverage for just two more hours per week. Arguably, it better meets potential client needs. Two facilities are always open in the early morning, and 2 in late evening. If demand warrants more daytime hours, adjust accordingly. But first, let consumers sort where they may. Some may be forced to come during daytime, even though that is not preferred. And even others may not have considered this urgent care practice, but will now.

This is an example schedule that facilities could implement to maximize profit:

- Facility A: 24/7; never closed.

- Facility B: 5 am - 1 pm; 7 days

- Facility C: 11 am - 5 pm; 7 days[

- Facility D: 11 am - 5 pm; 7 days

- Facility E: 11 am - 5 pm; 7 days

- Facility F: 4 pm - midnight; 7 days

2. Understand the Value Proposition and Willingness to Pay

Understanding the target market’s value proposition and willingness to pay will also inform pricing strategy. Now may be the time to enter the market for Direct Primary Care (DPC) or Concierge Care. One or two facilities could be converted for a DPC practice. Or, the urgent care practice could provide direct/concierge care as a tele-medicine or at home service.

It is likely many consumers will want to be tested multiple times over the next two years. Many will be lining up for vaccines once available. DPC and Concierge Care patients pay a monthly fee for direct access to a physician, relieving stress and anxiety.

A recent article in Forbes magazine cites the pandemic “…has forced healthcare to evolve more rapidly over the last few months than it has over the past 30 years, in terms of embracing new forms of patient engagement and care delivery.”

As cited in WebMd, more patients are turning to DPC physicians for both convenience and to reduce costs associated with emergency room visits. While health care may just be catching up to other industries that recognize the value of segmenting audiences, the coronavirus wave of need may be just the one to surf into a new business model. It is possible to have both economy prices and higher priced services at the same time. The psychology of pricing is the same either way: know your customer’s value proposition.

3. Know your variable costs.

Knowing your variable operating costs will further inform net income. The urgent care facility will likely pay a premium for a nurse practitioner or physician assistant on night shift. Having physicians on call for tele-medicine visits will also come at a cost. The cost of Covid-19 tests and vaccines will be additional expenses. Accounting for all incremental costs will help inform pricing methods.

Competitive pricing is important, but covering variable costs is a necessity. What is most important is for the urgent care practice to view the business holistically. The goal is not for each facility to turn a profit on their own. Or for each DPC to be profitable on day one.

The ecosystem of “something for everyone” is meant to work in concert. There may be lost leaders and some facilities or DPC doctors will be power horses. But each has a role to play and is integral to the operation as a whole. Providing service where, when and how consumers want to engage is the end game.

4.Calculate the impact.

The final step is calculating the impact of proposed changes. What do you have to believe in terms of additional facility visits? It may not be much given the number of operating hours stayed the same. What should your penetration of the DPC or Concierge care market be? The practice could do a quick research study among consumers in the area, but there is little risk of just trying something new. If the new operating model doesn’t work, the facilities can always revert back. And the urgent care practice may be able to step their way into DPC, scaling up as popularity of the service takes off.

 

Bottom line, offering less seldom results in growth. More is better, so long as it is taken on with calculated risk. Lead with the consumer and let your strategy evolve to meet their needs.

For more information on revenue strategy and how we partner with brands across the globe, please contact us at info@integratedinsight.com

coronavirus pricing strategy

Pricing Strategies To Focus On During The Coronavirus Pandemic

Business Optimization, Pricing and Revenue Management

by Joni Newkirk, CEO, Integrated Insight

In times of crisis, there is risk of making short term decisions that will have long term impacts. Severe price increases or price gouging will take on a life of their own. The negative word-of-mouth companies will receive from price gouging will have longer negative consequences than any economic impact. Conversely, deep discounts and potential price wars are not sustainable. Here are four pricing strategies to focus on during the coronavirus pandemic.

Pricing Strategies to Focus on During the Coronavirus Pandemic

1. Create strong value for customers
2. Target a specific customer base
3. Fence promotions to avoid dilution
4. Implement strong marketing messages that resonate with the consumer

Let's take a look at what these mean and tactical examples to apply them.

1. Create strong value for your customers

Create strong value for your customers by considering their wants and needs. Package your products and services accordingly. The Coronavirus is likely to change consumer behavior in some ways. They will be more cautious of their physical space and social distancing. They are likely to be more attentive to health care. And perhaps they will become more conservative in their spending as jobs are at risk. But they will also be looking for opportunities to escape the confines of their homes. Consider promotions that avoid discounting your core product. Instead, add value by increasing the amount of product or service the consumer receives for that price. Here are some examples.

- Bubba’s Sports Bar is open for take-out only for the next several weeks. But they also want to make sure customers will feel comfortable coming back this summer. Bubba decides to extend an offer to anyone ordering take-out during “stay at home” days. Once the restaurant re-opens, they can get one half-price, table service meal inside. The intent is to keep customers coming in for take-out now. But also give them an incentive to dine out later.

- Vacation Away Travel Agency has seen its business decline due to travel restrictions. In addition, people are asked to stay at home. But even some who haven’t used a travel agency previously will see value in doing so. Just the fear of being stranded is enough incentive. Vacation Away decides to package products and services into a promotional offer. It includes free travel insurance, concierge service for emergencies, and a travel medical supply kit.

2. Target a specific customer base

Business owners can stimulate just enough demand by targeting a specific customer base. They avoid the risk of giving up unnecessary profit. Targeting offers to specific audiences also allows for customization. You can potentially reward your most valued customers.

- Bubba decides to target his bounce back offer to neighborhoods farther away from the Sports Bar. Intentionally, these are not necessarily the customers using take-out today. This should lead to incremental take-out sales as well as a future visit.

- Vacation Away wants to limit exposure should they actually have to evacuate someone. They decide to offer the package only to clients booking trips to Europe and Scandinavia.

3. Fence promotions to avoid dilution

Fences make good neighbors. They make for good offers too. Fencing applies to rules and procedures that keep the offer valid only for the intended audience.  Determine how to fence the offer in advance. Fences can be hard, whereby the consumer needs to prove they are eligible. Or they can be soft, where only the intended audience is likely to respond.

-  Bubba doesn’t need to stimulate table service dining during weekends. Plenty of televised sports bring in customers. He also believes it will only take a couple of months for people to feel comfortable dining out. He decides to put a time limit on the offer, good for Monday through Friday only. He also limits it to just June and July.

- Vacation Away feels good about its offer, but worries about the cost of large parties. They decide to limit the offer to travel parties of eight or less to avoid large, multi-generational groups.

4. Pull consumers into desired behavior

Marketing will ensure promotions drive incremental demand and revenue. They must reach the consumer in advance of their decision making. Savings or value messages need to be clear and concise, and consumers shouldn’t have to do the math.  “Save 5%” is seldom motivating even if that is all you need to do. “Save 30%” is more compelling than “Save 29%”.  “$10 off” is meaningless unless the consumer knows the original price of an item. “Buy two of X and get Y free” only works if Y is something they value.

- Bubba’s half-price table service meal is a strong offer. Consumers can easily see the value. The restriction of Monday through Friday is a bit limiting, but worth it to avoid dilution.

- Vacation Away should consider showing the actual savings the offer provides. They could also market the intangible benefit of peace of mind.

Regardless of what industry you are in, remember to always lead with the consumer. Once you understand what is in their hearts and minds, great pricing strategies will follow.

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