While everything appears seamless in the front of house, the back end of a hotel is considerably more complex. Regardless of the type of hotel or the number of rooms at your property, a good pricing strategy is necessary for success.
The right pricing strategy can distinguish you from your competitors and prevent new businesses from entering a competitive marketplace.
Of course, having the wrong pricing strategy can also ruin your chances! Having a pricing strategy that consistently works for your business is essential to increasing your market share.
In this post, we will guide you through all the steps to pricing success!
You can’t just wake up in the morning and decide that today your double room will cost €100. Prior to this decision, you need to do some forecasting to better understand where your guests are coming from and how much they are willing to pay!
Anticipating demand and performance is key to forecasting, providing hotel management the ability to make strategic decisions on pricing.
Accurate forecasting should give a business a clear snapshot of how it will perform in the future and allow management to make any necessary adjustments. Looking at industry trends and past performance can also assist in making decisions about pricing and promotions.
While forecasting isn’t foolproof, you can make reasonably accurate assumptions based on the time of the week, day, and the state of the economy.
To read more about forecasting at your hotel, you can read: What is Hotel Forecasting - Models and Best Practices
These are the four most important steps to follow to simply and efficiently anticipate future demand and therefore the expected performance of your hotel business:
1. Use Historical Data — Refer to your PMS system for your historical data. It’s a good indicator of what’s next.
2. Monitor your Competitors — Always keep an eye on what’s happening in your local area. Has a similar hotel recently closed or relocated or has a competitor decided to renovate? These are all factors which could affect your market share. Not sure who the competition is? Read more here!
3. Consider Special Events and Holidays — Incorporating special events and holidays into your calendar is essential. Customers expect to see special offers and additional inclusions during seasonal events.
4. Follow Market Trends — Take a broader view and look at what’s happening within both the local and global economy. Pay attention to market trends within the hospitality industry and observe the arrival figures in your part of the world.
One of the first things we do when working with a new hotel is to establish Rate Parity across all channels.
We accomplish that by maintaining consistent rates for the same product across all online distribution channels, based on the actual revenue you are getting from a booking - this means not counting the commission paid to OTAs.
For instance, an OTA reservation might be €100 but you are only getting €80 (assuming a 20% commission for example). The same reservation from your website will bring you €100 (but you will have to discount from that the cost of marketing and running your website).
From the consumer's point of view, it’s beneficial if your room rates match across the web. It shows that you are dependable and helps build a relationship of trust that might later persuade them to book directly with you in the future.
So, the main principle of rate parity is that your rates should be the same across all your sales channels. It doesn't matter if you're selling via OTAs, your own website, or through the telephone, your rates should remain consistent. Read: What is Rate Parity and Why It Is Important? for more details.
Different guests look for different things and are willing to pay different rates to get what they want. Therefore, by properly segmenting potential guests, you can be more efficient with marketing and distribution. You can then take a different approach when defining your pricing strategy!
Having in mind the different customer segments, we can then implement basic rates:
This is the lowest, non-restricted rate which guests can book. It’s available to all and can change from several times per day to per week.
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This is a restricted rate that has been set through an agreement between the provider and an entity such as a corporation. This rate is normally calculated based on the assumption that bookings will continue to generate repeat business.
A group rate is generally given to a large travel party who book a significant number of rooms during a specific period of time. In many cases, groups are given a discounted group rate by hotel operators.
As the channel connectivity grows and guest booking sources expand, we can look into more pricing options too.
This strategy revolves around adjusting pricing based on the length of the stay. When demand outweighs supply, it can be beneficial to implement a rule where guests are obligated to stay a minimum number of days.
For example, you already know that booking too many one-night stays on a popular night, such as a Saturday, means you’re forced to turn away more customers who want to book multiple night stays.
More importantly, you will end up having an empty hotel on Sunday because you are already booked out on Saturday and all potential multi-night bookers cannot stay at your property. In these cases, you should add a longer minimum stay policy, both to increase your occupancy and your revenue.
Alternatively, when demand is lower, you can potentially encourage guests to stay longer by offering them a lower rate if they stay for multiple days, or simply lower the minimum length of stay to one night only.
To learn more about improving Revenue with LOS, read: How to use Length of Stay Restrictions
Cancellation policies can also factor into a pricing strategy and help to increase revenue.
Rates can be lowered on the agreement that there are no refunds in the event of cancellation.
Alternatively, higher rates offer guests greater flexibility with cancellations.
Hotels in high demand can really benefit from no refund cancellations. By charging lower rates in exchange for foregoing a refund, busy hotels are able to sell the same room twice in event of cancellation.
Read: Everything you Need to Know About Hotel Cancellations for more on the subject.
It's vital to have a plan for peak periods. A flexible pricing strategy will allow your hotel to maximize profits during high demand times.
Peak periods are times of high demand, where hotels can potentially charge more for their rooms. These could be seasonal peaks or related to specific events or holidays.
For instance, if your hotel is located in a city that hosts a popular annual music festival, you should anticipate higher demand during that time and adjust your prices accordingly.
Adapting your pricing during peak periods doesn't mean overcharging guests. It's about finding a balance between making a profit and providing value to your customers.
Utilizing technology is an effective way to keep track of and apply your pricing strategy.
Revenue Management Systems (RMS) help streamline the complex process of pricing. These systems use algorithms and AI to analyze historical data, competitive set data, and forward-looking market information to suggest optimal pricing.
In addition to RMS, Channel Managers (CM) can also be used to ensure rate parity across all your distribution channels.
By combining technology with a sound pricing strategy, you can effectively manage rates and increase profits.
Use discount codes and last-minute offers to bolster customer loyalty and maintain high occupancy. Distribute codes to past guests via various channels, subtly encouraging them to book directly again.
These codes can also persuade guests from third-party channels to book directly next time, saving commission fees.
Last-minute offers attract spontaneous travelers and bargain hunters, aiding in achieving full occupancy. Ensure these offers cover costs and generate profit while promoting them effectively to create urgency. These strategies can form a powerful segment of your revenue management toolbox.
Boost your revenue by creating exclusive packages and leveraging upselling and cross-selling opportunities. Craft packages bundling room bookings, local tours, and special meals at a discounted rate, enhancing guests' perceived value and encouraging more bookings.
Simultaneously, use upselling to encourage guests to upgrade their purchases, such as moving from a standard room to a suite.
Meanwhile, cross-selling refers to suggesting services like spa treatments or guided tours that enhance guests' stays.
These strategies not only raise your revenue but also offer memorable experiences, increasing the likelihood of return visits. Learn more about these strategies with these articles:
Your pricing strategy is not a one-and-done deal. The market conditions are constantly changing, and your pricing strategy needs to evolve along with them.
Regularly reviewing your pricing strategy and making necessary adjustments is a crucial step towards success. By doing so, you can ensure that your pricing remains competitive and profitable.
Remember, a good pricing strategy is about more than just setting the right price. It's about understanding your market, anticipating demand, leveraging technology, and adapting to change.
By following these steps, you can create a pricing strategy that not only increases profits but also improves guest satisfaction and loyalty.
With 15+ years of experience in supporting hoteliers in optimizing their operations and launching innovative hotels around the world, Benjamin Verot (a.
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