Remote Revenue Management
Over 10 Years' Experience
Free Revenue Management Audit
  • Remote Revenue Management
  • Over 10 Years' Experience
  • Free Consultation

A Beginner’s Guide To Hotel Pricing Strategy

A variety of pricing strategies are used by hotels to maximise occupancy and revenues. Some common hotel pricing strategies you may have heard of are Dynamic Pricing, Length of Stay Pricing and Open Pricing.

If you are looking to develop an optimal pricing strategy for your hotel, you must ensure that you understand a customers’ willingness to pay, competitive value analysis, consumer psychology, customer segmentation, market research, value creation and, of course, revenue management!

It is only when you have this understanding, that you should begin to create a pricing strategy to maximise your hotel’s revenue and profits.

In this article, I define what a hotel pricing strategy is, describe hotel pricing strategies, share guidance on when to make changes and much more!

What Is A Hotel Pricing Strategy?

A hotel pricing strategy is a long-term, overall plan as to how you intend to set prices for your rooms for the purpose of maximising your revenues and profitability.

For example, part of your plan for your hotel may be to increase your room rates during your high season and decrease them during your low season, or to offer discounts to guests that are willing to make their reservation in advance or stay multiple nights.

What Is The Role Of A Hotel Pricing Strategy?

The role of a hotel pricing strategy is to maximise revenues and profitability by helping the hotel to continuously identify and subsequently capture optimal revenue opportunities.

A well-crafted hotel pricing strategy can help to:

  • Boost profitability
  • Build long-term customer relationships and improve guest satisfaction
  • Communicate brand image, positioning and expectations of product quality and value to prospective customers
  • Help acquire, grow and/or maintain market share
  • Maximise occupancy and revenues

7 Effective Hotel Pricing Strategies

There are a variety of hotel pricing strategies that can be used as part of your revenue strategy. The following represent seven examples of common pricing strategies that could potentially prove useful for your property:

  1. Arrival Based Pricing – Involves determining pricing for the entire length of the guest’s stay based on their day of arrival.
  1. Competitor-Based Pricing – Involves setting your prices based upon what your competitors are charging for their rooms.
  1. Daily BAR (Best Available Rate) Pricing – Involves determining prices by day and potentially changing prices daily throughout a guest’s stay.
  1. Dynamic Pricing – Involves using data and analytics to help predict demand for your rooms and adjusting your prices accordingly.
  1. Length-of-Stay Pricing – Involves offering discounts to guests who will stay for multiple nights consecutively.
  1. Occupancy-Based Pricing – Involves adjusting your prices based upon your anticipated occupancy levels.
  1. Open Pricing – Involves optimising prices for each channel, room type and segment independently.  

You can use one or a combination of pricing strategies simultaneously to create a pricing strategy for your hotel, but what you implement should be reflective of several factors, such as hotel type, market conditions and the technology available to you to support your chosen pricing strategy.

It is also important to be proactive and retain the flexibility that will enable you to adapt to changing market conditions or operating costs and to experiment with different pricing strategies so that you can truly ascertain what works best for your hotel.

What Is A Dynamic Pricing Strategy?

Dynamic pricing is a strategy that involves using data and analytics, in real-time, to adjust prices as frequently as deemed appropriate, for the purpose of maximising revenues and profitability. It is a pricing strategy many hoteliers opt for because it is widely considered to be conducive to increased profitability – providing hotels with the opportunity to sell as many of their rooms as possible at their maximum value.

An example of this would be if Taylor Swift announced a tour including a show in the city where your hotel is located, on a date that you would usually consider to represent a typical Saturday when you would expect to sell all your rooms at £179. However, tickets for her show sell-out quickly and her fans then turn their attention to finding accommodation in your city. If you have implemented a dynamic pricing strategy, you will likely have reacted to this increase in demand by increasing the prices of your rooms and consequently increase your revenues and profits!

Dynamic pricing can be a complex and sophisticated strategy to implement and manage but is made possible with flexible, integrated technology such as MavPERFORM and has proven to be highly effective in maximising revenues.

However, should you choose to use a dynamic pricing strategy in your hotel, it is important to be transparent with prospective customers so that they can understand why prices are changing frequently, because they are less likely to reserve a room if they believe you are trying to overcharge them.

Who Is Responsible For A Hotel’s Pricing Strategy?

In a medium to large hotel or a group of hotels, a Hotel Revenue Manager is usually responsible for creating and managing a hotel pricing strategy. They will, however, likely liaise with sales and marketing when developing pricing strategies for corporate clients, events or groups and seek input from other revenue team members and relevant stakeholders.

In smaller properties, it may instead be the General Manager or even the Owner that assumes responsibility for the property’s pricing strategy.

When To Adjust Or Change Your Pricing Strategy

You should consider making adjustments to your pricing strategy if there are significant changes in market conditions or the operating costs of your hotel.

The key changes to be aware of include:

  • Competitor Pricing – If your competitors adjust their prices, or a new hotel opens within your local market offering low prices, you may need to make adjustments or lower your prices.
  • Demand Fluctuations – If you see a significant change in demand for rooms at your hotel, due to an announcement of a new, popular event or adverse weather conditions, it may indicate that you need to adjust your pricing strategy.
  • Operating Costs – If your hotel’s operating costs increase due to a rise in the cost of labour or utilities, you may need to raise your prices to continue to cover those costs and maintain your profitability.

Furthermore, it is prudent to review your pricing strategy regularly to ensure that it continues to be aligned with your hotel’s long-term goals and objectives and serves to help your hotel realise its true revenue potential. If, for example, you have improved your amenities or increased your facilities, you may be able to increase your prices!

If you do decide to make changes to your pricing strategy, do so gradually and be transparent with prospective customers to help avoid any confusion, disappointment or upset.

How To Optimise Your Hotel Pricing Strategy

If you’re unsure as to how to devise or manage your hotel’s pricing strategy, seek outside expertise by finding a great revenue management consultant for your property. They will plug your knowledge gap and readily share their expertise with your team. The greatest will provide dependable support, drive efficiency and save money!

A Hotel Revenue Management System (RMS) can help to collect and subsequently analyse your hotel and market-related data to bolster your revenue performance. A great RMS, like MavPERFORM, will also produce accurate occupancy forecasts, calculate optimal prices to maximise RevPAR and automate revenue reporting for benchmarking against your competitors, the market and trends!

All this information can be used to form ideas and inform your decision-making process in regards to how and when to optimise your pricing strategy.

What Are The Risks Of Using The Wrong Hotel Pricing Strategy

There are several risks involved for hotels that fail to create an effective pricing strategy, the most common of which are:

  • Dissatisfied Customers – If guests feel they are being overcharged, they are less likely to return in future and may subsequently decide to leave negative reviews online, which can damage your hotel’s reputation, reduce your ability to increase prices and deter new, prospective guests!
  • Lost Revenue – If your prices are too high or too low, you engage in price wars with your competitors or operate with fixed prices, you are likely to leave money on the table!
  • Low Occupancy Rates – If you price your rooms too high, you may find it difficult to consistently sell your rooms and will consequently reduce the number of guests staying at your hotel – reducing the potential for additional on-property spend too!
  • Reduced Profitability – If your prices are too low, or the costs associated with a high level of occupancy too high, you may find it difficult to make profits, which could lead to financial problems for your hotel!

Is It Time To Re-Think Your Hotel Pricing Strategy?

At MavREV, we specialise in providing outsourced revenue management expertise remotely at a fraction of the cost associated with employing a full-time revenue manager. We will maximise RevPAR at your hotel using MavPERFORM RMS and serve as a friendly, proactive addition to your on-property team. Get in touch with us to book your free 1-2-1 consultation now!

Advice

  • An Introduction To Revenue Management Systems (RMS) For Hotels

    Read more
  • A Beginner’s Guide To Hotel Pricing Strategy

    Read more
  • The Importance Of Yield Management In Hotels

    Read more

©2024 MavREV. All rights reserved. Company No. 10258933. Registered in England & Wales