Uber-izing Hotel Pricing: Duetto
Using more data than ever before to optimize hotel room pricing.
Hotels leave money on the table 100% of the time: if a hotel is sold-out of rooms that means it could have priced them higher, and if there are rooms still available that means it could have captured more revenue by renting them out through promotional pricing. Pricing properly is mission critical– because hotel rooms are a perishable good with a fixed cost, any profit from a price increase drops directly to the bottom line.
As if this weren’t enough of a problem waiting to be cracked, Online Travel Agencies (OTAs) and the sharing economy (i.e. AirBnb) are also putting increased pressure on the hotel industry’s profitability.
This is where Duetto comes in.
Duetto’s Value Creation
Launched in 2012, Duetto uses data and algorithms to help their clients dynamically update pricing across multiple channels and increase profitability. In this era of Big Data, Duetto uses its analytical chops to crunch variables upon variables that affect hotel pricing: demand, traffic to the hotel’s website, holidays, events in town, weather, competitive pricing relative to other hotels nearby, historic no-shows, cancellations, and whether guests want to stay one or several nights (it’s more worthwhile for a hotel to rent for several nights at a lower rate, than to automatically grant a room to a higher rate client but only fill it one night).
Duetto’s analysis then allows hotels to update real-time how they price rooms on their own sites, on partner channels (i.e. Kayak), and to price discriminate among would-be clients based on their search terms and timing. If this sounds like Uber surge pricing for hotels…that’s because it is! Ultimately hotels capture more value by pricing closer to true willingness to pay, but consumers win too if demand is low and Duetto leads to more frequent last-minute deals.
Duetto’s Value Capture
Duetto operates as a price-optimizing SaaS for business clients, and charges a yearly SaaS subscription fee based on the number of rooms in a hotel it manages, and the quality of the hotel.
Using data in the hospitality isn’t a novel idea – many hotels have de-facto outsourced price optimization to OTAs such as Kayak, or are using older companies such as Rainmaker and IDeaS, which have been around since before the advent of Big Data. Duetto’s competitive advantage lies in the ease of vertically integrating its SaaS into a hotel’s own operating system, and in the immense industry knowledge of its co-founders: Craig Weissman was a co-founder and former CTO of Salesforce, while Patrick Bosworth and Marco Benvenuti ran revenue management for the Las Vegas Wynn.
The hospitality industry as a whole is notoriously slow in adapting to change, but concrete returns on investment in Duetto’s SaaS price-optimization should make it an adoption no-brainer.
As for expansion goals Duetto has already signed up roughly 30 hotel chains, with its sights set now on the industry heavyweights such as Starwood, Hilton, and the likes…
Interesting. It raises a good tension between data and marketing. You can likely sell every room in a hotel every night given the right price, but sometimes that price will below the price the hotel finds “on brand” (hence of course, Priceline). Had Duetto built in any ability to use opaque pricing to drive the booking of the last rooms? The Ritz would of course rather have a couple of empty rooms than sell any for $50 a night.
Duetto’s customer traction has been impressive so far and they have an all-star team. Building integrations with existing work flows and meeting specific needs of large hotel chains is not an easy task. Assuming that analytics and prediction capabilities can be extended beyond the hotel industry, I wonder if/when we are going to see them expand to other verticals, e.g. event venues, marketplaces, etc.
This idea makes complete sense in this market, and, as you say, to some extent basically improves on what hotels have already been trying to do via OTAs. Of course being able to self-manage price optimization and be less reliant on OTAs is attractive, though OTAs will likely still be important for the user review and reputational side of things. I’m curious to see whether the rise of Duetto (or other similar entrants) will change the role of OTAs. It will also be interesting to see whether savvy customers may try to game the system in some way (as people already try to do with air travel to some extent).
I do agree with Jon, though, that dropping prices too low carries brand risk — this is already an issue on external vendor sites, and brand-name hotels may be hesitant to make lower prices known unless they can explicitly be presented as exceptional promotions. But that said, I think that effective price optimization is an attractive enough proposition that hotels will jump on it.
Interesting post, I had not heard of Duetto! I just read the post on Expedia which made me want to check this out. It made me think of the current tagline from Starwood for their “Best Rate Guarantee”: “If you find a lower qualified rate within 24 hours of booking, we’ll match it–and give you a 20% discount or 2,000 Starpoints”. Hotels are fighting hard against OTAs and the pricing power they have amassed. I definitely think Duetto can have a role moving forward to give hotels more control over inventory supply/demand. I’m not sure the hotel is able to put restrictions on how low (or high) OTAs set room rates but I can imagine there is room for more efficiency to let hotels capture more of the value they deserve.