Subjects: Time to talk about dynamic pricing, turning Christmas fear into Christmas cheer, the Airbnb roller-coaster ride
Authors: Glynn Davis, Amber Staynings, Ann Elliott
Time to talk about dynamic pricing by Glynn Davis
When hints by government departments of potential fuel shortages hit the news, the natural result was drivers descending on garages to fill their tanks. The inevitable outcome was many forecourts having to quickly put up the shutters when they ran out of supplies. What did not happen was any increase in prices in accordance with the normal economics of supply and demand.
This is because people don’t like such activities, as it smacks of profiteering. This was the conclusion of a report published by researchers Daniel Kahneman, Jack Knetsch and Richard Thaler in 1986, which recognised that when there is a risk of a product running out, companies do not raise prices but simply let the shelves swiftly run down to empty.
It is deemed far better to have empty shelves than to be seen profiting from a situation of high demand and then be savaged by the media. It’s for this reason that the supermarkets and convenience stores have suffered stock shortages of various products, and certain items have had to be removed from restaurant menus at various times during covid-19.
As the hospitality industry faces higher costs from multiple directions – we all know the growing roll-call of inflation-drivers – there maybe needs to be a more intelligent, flexible way of dealing with pricing rather than the blunt instrument way it has largely been dealt with to date. For many companies, the extent of their dynamism with pricing is to charge more for dinner than for lunch. The problem for businesses is that everybody seems to regard any sort of dynamic pricing-type activity – or yield management, as the airlines call it – as being sinister and all about ripping off the public.
Asda recently announced its plans to roll-out electronic shelf edge labels (ESLs), citing the cost savings it will achieve from changing prices on its miles of shelving in a matter of minutes from a central stock file, rather than having people wander the aisles to handle the laborious task manually. What it has also made clear is that dynamic pricing is not part of its strategy – even though it knows that ESLs would enable it to change prices throughout the day to clear short-dated stocks, thereby reducing waste. And, of course, potentially increase prices where there is a significant uptick in demand and deter widespread stockpiling.
The opportunities for the likes of Pret A Manger and other foodservice operators in introducing such labels is obvious, and is enhanced significantly when you consider the ability to add QR codes onto the ESL to show nutritional information. There has also been work undertaken to include near field communication (NFC) tags onto some labels, thereby enabling individuals (such as those with subscriptions) to simply swipe their phone and be shown a different price to that shown on the label.
Introducing intra-day price changes is certainly a challenge right now, but JD Wetherspoon does employ a dynamic-type arrangement which involves it charging marginally different levels for food and drink at each of its pubs. This is done to ensure it is the cheapest in specific areas, so those pubs in areas where there is a high density of Indian restaurants will have very competitively priced curry dishes. This has been described by critics as predatory activity, but there are certainly lessons to be learned from how it cleverly uses data and crunches the numbers to constantly optimise pricing across its estate.
One way to introduce price movements is to completely remove any sinister perceptions and bring in a bit of fun by making it a part of the theatre of the venue. Years ago, a visit to fish restaurant Geales in London’s Notting Hill would be enhanced by its blackboard listing fish prices at the point of the catch and showing its impact on the price of the dishes based on these raw material movements. An early example of gamification, I reckon. Pesca restaurant in Amsterdam has a similar dynamic arrangement in place for its fish dishes.
Such activity might be seen as a bit gimmicky, but if it moves the dial on the public (and media’s) acceptance of dynamic pricing, then the hospitality industry – and the technology providers in this space – can make some progress towards adopting a more intelligent approach to pricing, which in turn might go some way to easing the economic pressures the sector is likely to undergo for the foreseeable future.
Glynn Davis is a leading commentator on retail trends
Turning Christmas fear into Christmas cheer by Amber Staynings
I hear you! It’s looking very uncertain for festivities at the moment, isn’t it? And why is that? Is this just consumer confidence, or because hospitality was understandably late in launching Christmas this year? Or perhaps both?
To answer those questions, let’s turn to the facts. Data from Bums on Seats provides a unique insight across a large portfolio of clients, and many different sites and brands. This tells me a great deal about consumer behaviours and industry performance. This data can be compared with activities leading up to Christmas pre-covid (remember that?), telling us that the hospitality sector could rely on at least 85% of all Christmas bookings taking place before the end of October. Good times!
This year, I would estimate much closer to 35% than 85%. That’s incredibly unnerving. Christmas, yet again, was meant to bring merriment, rejoicing and, as I always like to pun, the tills ringing out at Christmas time. So, what’s going on and what can we do about it?
Let’s start with the customer (an absolute must), and then reflect on the fact that you are also a customer. So how are you feeling? Well, I for one haven’t started thinking seriously about Christmas preparations, or the Bums Christmas party, other than “it will happen in January”. Admittedly I have booked for the Bums “family” (as we like to call ourselves) to attend the UKH annual Christmas lunch (you see where my priorities lie) and arranged Christmas cards for our clients as well as a little Bums staff secret Santa (thought about, not started). I have not thought, or started, on anything else beyond this. And you’ll notice it’s all mainly just “thought”. What am I waiting for? What are we all just waiting for?
Further personal insight: I am considering an office move to a prestigious site but am deeply concerned about committing to the deposit and rental terms in case we go to this mystical “Plan B” – which is not so mystical and threatens renewed social distancing and lockdowns. Are we to expect this threat every winter now? It seems utterly ridiculous to me, but then, so did all of 2020. You may say “but putting down £5pp isn’t the same as spending 15k”, but that’s where the facts suggest you would be wrong as the thinking behind a reservation in a restaurant, bar or hotel is the same – hesitancy and fear about the future.
If you want to understand your customer, then you need do no more than consider how you are feeling personally right now. Relate your own fears (fear being our most powerful emotion, by the way) to that of a Christmas party booker, who has the following major concerns:
• Losing company money
• Catching covid-19 individually or collectively
• CSR (bigger than ever)
• Budget and expense
• Going home for Christmas as I missed out last year
And that’s just the top six! So, it’s no surprise really that Christmas is not, thus far, delivering to expectations – although I’m sure the wise among you may have suspected this from the start, and that’s why my eternally positive outlook can “bite me in the baubles” occasionally.
Let’s look now at our sector’s planning for Christmas. We were so, so late! So very late! We know the reasons why, but boy am I convinced that being late had a major knock-on effect. The sooner we market Christmas, the sooner our customer will think about it – sound and proven advertising principles. Communicate your message early, clearly and to the targeted demographic, and watch the crowds come flooding into your venue.
We clearly missed around three months of sales (that’s me being generous). For many of us, it was a lot more if you have private event space, and for some of us, almost nothing at all, because planning for Christmas had taken backstage. We know that if you launch it late you will lose out to competition, even more so at a difficult time like this. My point is the longer it takes us to launch that delicious Christmas menu and price point, the slower the sales and the shorter our window for year-on-year growth. Fact!
I don’t mean to be doom and gloom. However, we must all learn from our customers’ fears so we can eliminate or reduce them substantially to secure much-needed bums on seats. It’s imperative (and obvious) that you understand and empathise with your potential customer in order to build trust and maintain the long-term relationship crucial to building loyalty and your underlying profitability derived from sales.
Learning from experience is one of the joys in life as far as I’m concerned, and applying the lessons from this year’s generally slower preparations for Christmas within hospitality is a MUST for next year. Christmas, with the right planning and timing, should be the most profitable trading period which impacts on revenue in subsequent periods as well as the rest of the following year and beyond. It baffles me why, for too many venues, planning for Christmas becomes almost an afterthought. It should be a yearly business focus, prioritised for planning alongside other forthcoming events (including Valentine’s Day) and worked on in Q1, launched at the start of Q2 so you are driving sales three months of the year, and hitting your bottom line in Q4. Done!
Now we are almost into November, what we really need to discuss is what we can do to drive Christmas sales this year. The answer is much simpler than you might expect – understand and eliminate your customers’ fears to bring them into your venue and make everyone happy with Christmas cheer!
Amber Staynings is the founder and chief executive of Bums on Seats
The Airbnb roller-coaster ride by Ann Elliott
“Can we land a helicopter in your garden when we stay in your Airbnb?” asked a guest who has booked to stay in our Airbnb house next year. Not our usual request, I have to say. My first instinct was, as always, to say yes. Let’s just cut down some trees, remove a few fences and protect the power lines.
Of course, it’s all possible (although our garden still wouldn’t be big enough, unfortunately). Guests must always come first, but in the end I had to say no and point her in the direction of the Milton Keynes landing pad. “It’s ok,” she said, “our pilot will sort it all out.” I cannot wait for them to arrive.
Although I have been in hospitality all my working life, running our own hospitality business is completely different to either running an agency or working for a corporate. It’s hands-on, face-to-face and never out of our minds. We are always talking about it, planning, considering how we can do things better and making plans for the future. It’s been all-consuming, I have to say.
We opened our Airbnb in January 2020 and it’s been a real roller-coast of a year, as you might imagine – just like it has been for all other hospitality businesses. Fourteen guests to stay one weekend, none the next, with one week’s notice. Then guest bubbles, then no one. Then guest bubbles again, and then back to groups of 14. And no support when guests disappeared – just no income. It’s certainly made us more resilient.
We have set our financial objectives on income and profit and established our vision of being an Airbnb super-host with an average score of five. We try to live our values of being generous, helpful and kind. We want every guest to leave us having had the most wonderful time in our home, and we do everything we can to make that happen.
Things don’t always happen that way though, as every operator knows. The electricity failed one evening when we were staying away. The hot tub went cold when guests left the lid up for six hours during the day. Ladybirds invaded a bedroom one night in September. Our neighbour scared the living daylights out of guests when he started to conduct rifle practice in his back garden. And one group of guests arrived with so much pre-prepared food it wouldn’t all fit in our two fridges.
We are always surprised by the sorts of things left by guests that we send back to them. Underwear, predictably, features quite heavily – and then there’s jewellery, baby alarms, keys (lots of keys) and other clothing. While most guests leave our house looking as if they have never been there (some even strip beds and put the sheets in the washing machine), there are a some who aren’t quite as considerate (and that’s their prerogative, of course).
We have had guests who break ornaments, don’t tell us and shove them in a drawer. Or cover the house in glitter which they can’t always completely hoover up. Or seem to move every piece of furniture around for whatever reason. Or take our full bottles of shampoo and conditioner. Or use lots of fake tan which leaves its mark everywhere. Or ruin everything on a bed (including the mattress) after a wild night out in Aylesbury.
We have loved it all though – the good, the bad and the occasionally ugly. We try and think like operators in terms of our standards and are constantly asking ourselves if something would have been acceptable to us when we were both operators in corporate businesses.
If it wouldn’t have been okay then, it’s not okay now. We try to deliver real attention to detail, awesome standards and a genuine welcome. I constantly mentally thank the operators I know for keeping me optimistic and forward-thinking when things have been challenging – I really couldn’t have done this without their encouragement and support.
Ann Elliott is a hospitality strategist, connector and adviser