A Guide for Hoteliers on Pricing Strategies

Are you a hotelier and not sure which pricing strategy you should apply to maximize your revenues ?

In order to ensure success for your hotel company, it is important to implement the right pricing strategies so you can attract customers.

Hotels have several options in terms of effective pricing strategies. Any hotel professional should know about the different pricing strategies and then decide which one is best for them.

What hotel pricing strategy stands for and why is it so important ?

First of all, pricing strategy in hotels is all about deciding which rate to charge for the rooms that you have in your property. Applying the right rate will allow you to boost the room sales. It is important to be careful to not apply the wrong pricing strategy as it can push away customers to book in your hotel. In the hotel sector, pricing is so crucial as if it is done right, it leads to increase your occupancy and revenues. As a hotelier, you should not price too high to not let potential guests be attracted by competitors. You should not price too low to be able to pay for your operating costs.

There are several factors that should be considered before choosing the right pricing strategy which are the following according to an article written by experts from Hotelogix, Hotel management system company  (Links to an external site.): seasons, demand and supply, week day, target market, room types, occupancy, service value, etc.

The hotel industry has similar pricing strategies than other industries in addition to its own particular pricing strategies. You want to sell more of your rooms to maximize your revenues, then consider using these pricing strategies according to the article from Hotelogix :

Dynamic Pricing Strategy : It is also called occupancy-based dynamic pricing strategy in the hotel sector. Here, prices are based on market supply and demand. When demand is higher than supply, this is when you should consider raising your room rates. Then, in the low season when the demand is low, the room rates should be reduced in order to attract more customers to book in your hotel.

Competitor Based Pricing Strategy : Here, your room rate would depend on the market rate.You would need to benchmark and look at the pricing of your competitive set which are the different hotels that can be considered as direct competitors to you. Then, the rate you want to sell the rooms to your guest should be based on your competitor’s prices. As the hotel industry is a highly competitive market, a small difference in price compared to competitors could sometimes influence customers to decide which hotel to book. As a result, this could be an effective strategy to implement.

Forecasting-Based Pricing Strategy : When implementing this strategy, your need to determine the rates based on historical data. What hoteliers usually do is to look for the KPIs from the precedent year which include Average Daily Rate, Occupancy, and Revenue Per Available Rooms. Then, they make their decision on pricing based on past performances. Based on expected demand and occupancy, you can determine which rate you would like to apply for the different types of rooms.

Guest Segment Based Pricing : This pricing strategy is very common in hotels as many hotels have different types of rooms and as a result attract different types of customers. For example, a suite with ocean view might have a different clientele than a standard room with the same view. As a result, hotels are applying different prices for the different segments targeted for these rooms.

Length of Stay Pricing : Hotels can decide to apply prices based on the duration of a stay. Hoteliers usually implement this pricing strategy to maximize their property’s occupancyIndeed, they would apply one rate based on a minimum or maximum length of stay.

Other pricing strategies that can be used in hotels are :

Psychological Pricing Strategy: It is a pricing strategy that is based on using human psychology to increase your room sales. For instance, you can decide on having a room rate of 99 dollars instead of 100 dollars as customers might psychologically believe that it is not expensive because the rate is not reaching the 100. Another way to boost sales through using the psychological pricing strategy could be to motivate guests to book a room as there would be a 50% discount on the second room.

Bundle-Pricing Strategy : This pricing strategy is a good way to add value to your service and is one of the most successful pricing strategies that you can use as a hotelier. It is very common that hotels would create packages with a room in addition to other offerings such as breakfast or activities included. Here, you can determine a reasonable rate for your room based on your bundle offers. Implementing this strategy is efficient as it can highly motivate guests to book in your hotel as it makes them believe they are having more for less.

Premium Pricing Strategy : This strategy is usually applied by luxury hotels that have high rates as a way of providing prestige and value to their guests. If you are a luxury property, guests usually decide to stay in your property for the image and status your brand gives to them. As a result, your hotel could apply premium prices for prestige purposes.

As you now know different pricing strategies that you can implement in your hotel, it is important to carefully review each one of them. Then, you should determine which one(s) would bring the best financial results to your property. There is no right or wrong method for pricing as it depends on circumstances and business environment. Each hotel is different, so there might be pricing strategies that work better than others depending on the property type.