Pricing strategies in the hospitality industry are the key to unlocking your property’s profit potential. When implemented correctly, pricing strategies allow hotel owners to optimize room rates, bolster profits and keep occupancy high.
NB: This is an article from Canary Technologies
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Some of the most effective strategies can be grouped into two categories: dynamic pricing – which is based around market conditions – and promotional techniques.
The Importance of Effective Pricing in Hotel Revenue Management
Dynamic pricing can have a major impact on a property. Check out this example between two fictional hotels, Aspire Hotel and Basic Stay Hotel, to see what a difference it can make.
Aspire Hotel is run by a savvy operator who conducts thorough market research and adjusts rates based on demand, competitor pricing, seasonal trends and more. During peak seasons, the property strategically optimizes rates to maximize revenue, which it balances with targeted promotions to boost occupancy during their low seasons.
In contrast, Basic Stay Hotel relies on a fixed pricing model, disregarding market fluctuations and competitor activity. They maintain the same rates year round, missing opportunities to capitalize on high-demand periods and struggle to fill rooms during off-seasons. When they do offer discounts and packages, they do so without considering customer segments or market conditions.
Both hotels have the same number of rooms and are located in the same market, but Aspire Hotel consistently outperforms Basic Stay Hotel in occupancy rates and revenue. Why? Aspire Hotel understands the power of effective hotel pricing strategies. Next, let’s examine some key factors to consider when crafting your own property’s pricing approach.
4 Dynamic Hotel Pricing Strategies for Maximum Revenue
There can sometimes be confusion between dynamic pricing, variable pricing, and hotel yield management. Variable pricing is about adjusting rates based on factors such as room type, view or amenities. Yield management, on the other hand, focuses on adjusting prices based on occupancy variations. Dynamic pricing, illustrated below, can take revenue management in hotels to the next level by adapting to market trends and demand in real time.
- Seasonal Pricing
Imagine it’s peak season and your competitors are filling up fast. With dynamic pricing, you can adjust your rates on the fly to capitalize on that demand. Alternatively, during periods of lower demand you have the flexibility to strategically adjust your rates to attract more guests, ensuring your rooms are filled rather than sitting empty. For instance, if your standard rate is $150, you may drop it to $120 during low and shoulder seasons to entice budget-conscious travelers. - Event-Based Pricing
Staying on top of major events and conventions occurring in your market allows you to take full advantage of the opportunities they present to adjust rates. For example, if a major music festival is coming to town, this provides the perfect opportunity to increase rates and make the most of an influx of travelers. - Booking-Based Pricing
Dynamic pricing can also account for reservation-related factors such as length-of-stay, popular days, and booking windows. For example, if you operate a leisure hotel that sees the majority of your bookings occurring on weekends, it may be beneficial to offer a discounted rate on Thursday nights to encourage longer stays. - Forecast-Based Pricing
By leveraging historical and market data, you can predict demand for future dates and adjust rates in response to that information. This is where pricing tools and software, such as a guest experience platform and revenue management system (RMS) come into play. An advanced RMS plays a pivotal role in optimizing room rates by offering real-time insights that empower data-driven decisions, giving you the ability to respond to market changes quickly.
