Revenue Management and Profitability.
Investors, operators and guests each have their perspectives on revenue management and profitability.
Investors are more focused on understanding top-line growth versus net operating performance.
For operators their rate strategy must balance rate, occupancy and channel mix in the drive to optimise yield.
Guests, on the other hand, are sensitive to room pricing and perceived value.
So what is the right pricing strategy?
To answer that question, we need to go back to basics and know what the core proposition being presented to the market is.
In the hospitality industry revenue management, yield management and pricing strategies are very well rehearsed and commonly implemented. A consequence of this is that most operators adopt the same principles and the strategists each arrive at similar conclusions. The outcome; more-or-less everyone is doing the same.
Operators chase occupancy through deep OTA discounts and broad wholesale channels, creating price elasticity that compresses ADR and erodes GOP. Capital is often deployed to expand breadth rather than to refine guest value. This leaves investors exposed to volatile RevPAR and thin operating margins, especially in shoulder seasons and in markets where supply growth is constant.
Elasticity, in the context of pricing and demand for goods and services, refers to how responsive demand is to price changes. Most revenue management strategies are based upon the view that the demand for rooms and services are very price sensitive i.e. elastic. They also rank price as the primary factor in buying decisions when location, availability, unique nature of the brand maybe very well be more important.
However, if demand for goods or services are inelastic, consumption and demand won't change regardless of price. That is, a price reduction does not increase demand much, and an increase in price does not hurt demand. This usually happens when there is no good substitute for a product/service, so consumers must continue purchasing it even if the price changes.
Brands that control their own prices and margins, price makers, do not leave their pricing to the channel managers nor competitive discounting. They dictate the final price through strong brand loyalty, supply control and direct to consumer strategies.
Familiar examples can be found in fashion such as LVMH and Rolex who secure premium pricing by carefully controlling distribution and production volume.
In tech, Apple are a great example of dictating price by only supplying authorised resellers to avoid brand devaluation.
Innovative and disrupting brands, such as Red Bull and Nespresso change the frame of reference and packaging to bypass conventional category comparison. These are all variants of inelastic brands.
The demand signals are shifting.
A growing cohort of high‑value travellers prioritise smaller, architecturally thoughtful stays, local authenticity, and demonstrable sustainability performance. Where supply is differentiated and scarce, especially in remote or under‑served high‑value landscapes properties that credibly deliver these attributes, they can command meaningful more inelastic ADR premiums and generate high lifetime value through repeat stays and direct relationships.
Financially, the HYVVU concept is calibrated to reduce cyclical vulnerability. Internal unit models and pilot data indicate breakeven at roughly 50% occupancy, a materially lower occupancy threshold than many comparable luxury or resort products, albeit at a deliberately set ADR. The key drivers of profitability are ADR preservation (via controlled distribution) and direct booking share (which reduces channel cost and increases customer LTV). Capital discipline in design reduces fixed cost burdens and lowers the capex hurdle for new sites, enabling faster roll‑out with modest incremental investment.
Having confidence in the concept, the product/service and the fiscal model to some extent simplifies the brand proposition being presented to the market. Consumers will have a far clearer understanding of the value the brand brings them and so allowing for operating strategies that do not follow the established paradigms.
The most discerning and highest-paying guests are now demanding precisely what the hospitality industry spent decades building away from: intimacy over scale, meaning over spectacle, sustainability that is measurable rather than performed. The numbers reflect a shift that will not reverse.
The demand is clearly present. The benefits of inelasticity and guest willingness to pay is documented. Revenue management paradigms are being challenged.