a&o is the largest private hostel chain in Europe - and one of the largest in the world - but also counts hotels and conference centers among it’s hybrid offering. With such a complex inventory mix, the leadership team decided to revamp their tech stack and needed a modern data-driven revenue management platform to optimise commercial decision making. In 2019 the private equity owned group ran a six month procurement process before choosing Pace’s revenue platform over competition including Duetto.
Since the switch, Siim Karu - Chief Revenue Officer at a&o - has been consistently running tests on the impact Pace dynamic pricing has had on their revenue generation. Even Covid lockdown in Germany during a traditionally low period of demand didn’t stop him from running some numbers. We spoke to him about his findings:
“ Pace’s automated solution has allowed us to focus on revenue strategy for the long run and given us an immediate uplift in our revenue, even during the worst of Covid lockdowns” - Siim Karu, Chief Revenue Officer, A&O
Dynamic pricing vs static pricing
Before 2020 we were running an old fashioned static pricing revenue model, which required fixing the prices of all categories for a predetermined period of time either based on category or season and with no proactive price changes. In short, it was the opposite strategy to what Pace provides.
In Q1 2020 we implemented Pace Pricing across all a&o properties, finally introducing a fully dynamic pricing model to our revenue management. One of the ways Pace works is that prices adjust in response to changes in demand, regardless of house level occupancy, day of the week or category. Furthermore, the dynamic pricing applies in a 365-day booking window. To reiterate, this was a revolutionary approach in comparison to what we were doing before with cruder static pricing.
To measure the impact of Pace’s dynamic pricing during the COVID lockdown, we looked at actual revenue generated in the 90-day booking window from the dynamic fully independent traveler (FIT) segment at one of our properties in Frankfurt.
We contrasted this with a theoretical static pricing scenario that we created, based on the actual January 2021 pickup pattern and with no adjustment based on demand during the pickup window. We used the same strategic starting prices for both models while the static pricing structure replicated our previous (before Pace) grid pricing models at a&o.
Remember that in Germany, Coronavirus related global travel restrictions and the Germany-wide tourism ban meant that there was limited or no base business on the books. Accommodation was only permitted for business travellers, transit passengers or people traveling for an urgent personal matter.
The chart below shows the actual FIT dynamic pickup recorded in January 2021 within the 90-day booking window, showcasing net revenue generated and the daily pick up ADR alongside it.
Despite extremely low daily pick up levels, final prices were not flat and a gradual increase of bed prices was recorded in dorm categories. In private room categories, price adjustments were more frequent in the first half of the month.
In a normal period of low demand, the system would usually learn that customers were unwilling to pay a higher price for private rooms and would therefore stop attempting to increase the price.
“Pace’s dynamic pricing gave us a 7% revenue uplift.”
As the price sensitivity for dorms appeared lower towards the end of the month, the system gradually increased the selling rate in order to improve net revenue gain.
To give you an idea - the lowest dorm bed price in January was €10.00 gross, while the highest reached €14.60 gross. The lowest twin room price in January was €40.00 gross, while the highest reached €44.00 gross. Below is a chart showing the dorm room price changes over the period:
Using Pace’s dynamic pricing - fully independent traveler (FIT) dynamic net room revenue picked up in the 90-day booking window was 7% higher than it would have been under our old static pricing model. In short, even during an unprecedented national Covid lockdown and rock bottom hospitality business - Pace’s dynamic pricing gave us a 7% revenue uplift.