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Price vs. revenue in an economic downturn period

October 28, 2008 | Hospitality Industry

Should revenue managers be chasing profit or revenue during an economic downturn period? Is there a simple strategic solution to leverage revenue management during such a period?

Dr. Reed Holden, co-author of ‘Pricing with confidence’ and contributor to the Revenue Management Forum, suggests one solution many companies turn to is to cut costs and drive efficiency. This is fine and serves to increase profit margins however he warns solely relying on this strategy is not enough as you can only cut costs so far before the quality of your product and service becomes impaired.

Another solution is to offer more discounts to hit revenue targets. The main problem with this is the advent of price wars. In the Asia Pacific region EyeforTravel Research has already found that price wars have become an issue in the hotel sector. The impact of such wars can only be damaging for all companies involved.

An interesting point that Dr. Holden makes is that one of the keys to success in a downturn is to stop chasing unrealistic revenue goals with price discounts. ‘Chasing declining revenue with price discounts just makes the problem worse–you end up with less revenue and no profit. Smart pricers look for ways to eliminate discounts, especially on high value products and services—even in a downturn!’

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