Thursday, May 17, 2012

Traditional pricing models in hotel, airline, theatre, or sport industries tend to charge high price on rooms or seats for last minute purchasers. In the eyes of managers, last minute purchasers have rigid demand on the service, and are limited in choices in accessible range, so they have a high willing to pay. So collecting high revenue per unit from these last minute purchasers is critically important to ensure the overall cash flow of the company.

However, this model is being challenged today. The mobile Internet technology is changing the landscape of information acquisition process for these last minutes purchasers. Now through mobile sites or apps on smart phones, people can easily search across many different hotels, airlines, and agencies, compare prices, check out photos and consult reviews before finalizing deals. In past, they had to “walk up” to front desks or ticket windows and inquire about rates or prices in a small range in area.
In new situations, more competitors are brought in at each single case of consumer, and the status of consumer is tremendously changed. Cooperating with traveling website or app operators, many hotels and theatres started to offer mobile-only low rates to attract these last minute purchaser. They recognize that these same-day or last minute reservations provide an opportunity to fill rooms and seats that they know will otherwise go unsold, and so they are willing to offer significant discounts of up to 50 percent off the rates available through other channels to consumers accessing information on mobile devices. For example, Barney Hartford, the CEO of Orbitz, mentioned that a great four-star resort property in Scottsdale, Ariz. provided an additional discount for mobile users as part of their "Mobile Steals" offering, bringing the rate down from $129 to $83 per night.
So, this is the truth: when information asymmetry is broken by new technology, traditional pricing model can no longer bring more revenue. In fact, it makes you leave money on the table.
Terrence Ye is a graduate student in the Northwestern Medill Master of Integrated Marketing Communications program and is specializing in consumer insight from big data. Terrence will be graduating in December 2012. He can be reached on twitter using the handle @terrenceye

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