Unfortunately, a universal hotel Revenue Management approach that suits every property doesn’t exist, but there are certain strategies that work better than others, especially as a smaller independent hotel.
NB: This is an article from Lighthouse (formerly OTA Insight)
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Your property should have a tailored pricing strategy that fits its unique needs, but there are common industry practices that can be honed to compliment your business and improve performance.
Below is a non-exhaustive list of some established room pricing strategies that may prove useful:
1. Cost-plus pricing
This is a traditional method where you calculate all the fixed and variable costs of running your hotel (everything from food and beverage to energy bills), then add your profit on top of the total cost by placing a mark up on each room.
It is a straightforward approach but the glaring issue with this strategy is it doesn’t take into consideration two of the most important elements of Revenue Management – market demand and your competition. If you utilize a cost-plus pricing model, there is a strong chance you are missing revenue opportunities over high demand periods.
2. Market-based pricing
You won’t be the only hotel in your market, so it’s worth keeping an eye on your competitors’ rates. By doing this you can accurately set room prices in line with market trends.
You can boost your bookings by offering competitive rates, or enhance profits by pricing higher due to superior services.
However, this puts too much emphasis on your competitors. It may eat away at your profits by leading you into a price war. It also doesn’t take into account the customer perception of your hotel, what if your competitor offers an inferior product?
3. Value-based pricing
It’s not all about price – it’s also about your brand, more importantly, the value associated with your brand.
With value based pricing, you determine room pricing based on how the guest perceives your hotel.
For example, if you manage a luxury boutique property you’ll know that the key message is to “never lower prices”. The problem is the perceived value of your offering changes depending on your guests’ buying behaviors and their needs at any given time.
4. Open pricing
Open pricing offers a more strategic approach for hoteliers, enabling the independent customization of rates across various distribution channels, distinct room categories, and specific dates, thereby maximizing revenue potential with more precise inventory management.
Open pricing is more complex than other pricing strategies and requires frequent monitoring and adjustment, which is often automated with a sophisticated Revenue Management System (RMS).
RMSs are typically more prevalent within group and chain hotels, given their complexity and the substantial training they necessitate due to intricate system rules and extensive reporting features.
Consequently, this strategy is unlikely to be the most suitable option for smaller independent properties.
