How the Atomize pricing algorithm behaves during market deviation
During these difficult times where tourism and travel behavior completely deviate from "the normal", it is a big challenge for you as a hotelier to know how to act and what your next move should be. In terms of automatic revenue management, it can create a lot of uncertainty and some may say "historical data is useless" or "without no demand, there is no need for optimizing rates". To reduce that uncertainty, we feel it is important to clarify how the Atomize pricing algorithm operates and protects your rates.
Furthermore, if you understand the artificial intelligence of our algorithm, you also understand why an automated revenue management system can be the difference between success and failure during the market recovery.
To get the complete picture it is important to first understand how the algorithm behaves during a dramatic market downturn as Covid-19 and consequently protecting your rates.
How does the pricing algorithm behave when the market suddenly drops?
As a starting point, with floor price features and a price hierarchy in place, rates will never go below a certain rate chosen by the hotel. When a crisis like Covid-19 hit, the algorithm initially assessed lower price points continuously in relation to real-time performance at these lower price points. If no increase in pick up or performance is realized the algorithm automatically flags this. If the drop in demand is so significant that the reference value drop does not result in a change in performance, the system will understand, stop reducing rates and place the price point "in the middle" of the comp set while waiting for new data points (e.g. pick-up) before the testing sequence above is repeated and re-assessed. This hinders Atomize from creating a downward price spiral in this scenario and ensures rates are protected.
Should I override system recommendations and price manually with low demand?
We advise you to rely on the prices provided and/or set by Atomize even though automated pricing can be switched off. In the current situation where there is low to no demand, pricing will not save you. Instead, other strategic actions, such as changing the distribution strategy by focusing on your local segments and targeting this segment with attractive local staycation offerings will make a bigger difference. Consequently, rather than believe in call on higher demand by lowering prices, you need to find new demand.
Also remember, to dump prices is rarely a good idea, it takes a second to lower them, but it can take years to get back to the same price level and you may risk hurting your brand along the way and attract guest segments that will might have long term negative effects on your overall hotel brand strategy.
Before overriding rate recommendations, ask yourself what decision you could make in the current situation that is smarter than system suggestions. Would you increase the price? If so, why? Would you lower it more, if so why? But more importantly – what effects might this have on your revenue and hotel strategy.
How do Atomize use and interpret historical data in relation to COVID-19?
Historical data can normally be used as a good initial guess for the future, but the belief about the future must always be updated as new data comes in. Atomize has a flexible system that can be fed with prior knowledge about the world. We see clearly in our customer's data when the effect of Covid-19 started and the model will automatically be provided with this information.
In order to avoid feeding the algorithm with this “non-representative data” during this period, it is flagged as “corrupt data” in the system on each specific market and not taken into account by the pricing algorithm. That said, historical data will always be an important and relevant factor for understanding booking behavior and pricing and demand patterns – but it is important to understand that history actually can be “re-written” from a pure data perspective. What is also important to keep in mind is that historical data is just one piece of the puzzle, Atomize price optimization has several layers and also evaluates real-time performance for future arrival dates, comp set data, price sensitivity, unconstrained demand and prices by room type, ensuring you drive the most profitable business to your property to help you recover faster.
Atomize is closely following the development of the social distancing measures and travel restrictions in each country to be able to be ready when each local market starts to recover. Atomize will by default follow the conservative strategy to keep the normal pricing and not follow any races to the bottom. Further, into the future our model will assume that things will eventually go back to normal, but this belief will, of course, be updated as time goes.
Atomize can also help the hoteliers to adapt the model if they want custom adjustments to the pricing strategy during these times.
If you want to dig deeper into the impact of COVID-19 on the hotel landscape we have put together educational recorded webinars with the most common advice for hoteliers on how to handle the corona-crisis.