The hotel industry has experienced a number of drastic changes over recent years.
NB: This is an article from Beonprice, one of our Expert Partners
This is due, in part, to the understandable challenges encountered as a result of the Covid pandemic and its impact on travel and hospitality. But it is also down, in large part, to the acceleration of technology, namely solutions relating to artificial intelligence and Big Data. And this has led us to a fork in the road where, in order to remain competitive and relevant in the industry, hotels must develop new data-driven pricing strategies.
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It’s all about creating dynamic and segmented rate structures that enable you to attract and retain a larger market.
In this post, we will discuss why pricing is so essential for your hotel and how you can design an effective strategy that generates consistent revenue streams. We will do this by sharing the top hotel pricing strategies that you should be using in order to create and maintain effective revenue management processes.
Why are pricing strategies so important in the hotel industry?
Let’s start with the basics: why are pricing strategies so important in the hotel industry?
As a hotel owner or revenue manager, your main objective is obviously to make a profit. And this means selling as many rooms as possible, at the right price. It’s not as simple as defining a price and then marketing your offer, though. Your prices need to be flexible and adapt to a range of factors including market demand, occupancy, and the rates offered by your competitors. If you don’t adopt a flexible approach and use a variety of fair pricing strategies to keep your finger on the pulse, then you are unlikely to generate consistently optimised RevPAR for your hotel.
Here are four vital elements that you need to keep in mind when you implement your pricing strategies:
- Understand your target market: who are your typical guests and how much are they willing to sacrifice in return for the value that your hotel has to offer?
- Promote quality: undercutting your competitors is not always the best strategy. In fact, higher prices can often reassure guests that you are selling a high-quality experience.
- Find the right occupancy balance: Although it may be tempting to focus on reaching maximum occupancy, it’s always a good idea to leave a few rooms empty. This reduces the likelihood of generating room availability uncertainty. This is especially true when it comes to returning guests. If they repeatedly find it difficult to make a reservation with you because you are always fully booked, then they will eventually move on to one of your competitors.
Game-changing hotel pricing strategies
When it comes to implementing pricing strategies, the aim is to find a rate that is both appealing to guests, and profitable for your hotel. There are a number of approaches you can use to find the right price that drives demand and boosts performance. The right strategy for you will depend on your unique objectives and evolving market conditions. Generally speaking, though, most hotel revenue managers tend to rely on multiple pricing strategies.
Here are some of the most effective pricing strategies that you should be using.
Demand-based pricing involves regularly updating your rates in line with fluctuations in demand. For example, you might raise your prices during peak seasons, such as the summer and school holidays, and reduce them during quieter off-peak seasons.
For this strategy to be effective, you need access to real-time historical data so that you can analyse historical rates, occupancy trends, and other valuable metrics such as average guest spend. You also need the right tools so that you can anticipate future demand and adjust your prices accordingly.
Do you know when your peak seasons are? Have you got the necessary data in order to calculate how much your guests are willing to pay at different points throughout the year? Do you have access to the right tools to predict future demand based on past behaviours?
Length of stay pricing
Length of stay (LOS) pricing strategies can also be highly valuable in hotel revenue management. Essentially, this means adjusting your rates according to how long a guest is going to stay with you. For example, you might promote one price to guests who are only staying for one night and offer discounts to guests who are planning on staying for a week.
You could also consider implementing booking restrictions such as minimum stay requirements or a range of cancellation policies according to a guest’s length of stay (such as higher prices with guaranteed last-minute cancellation refunds, and lower prices if a guest agrees they will not be entitled to a refund if they cancel their reservation).
When it comes to pricing strategies, you should always make sure you have access to real-time data on the rates that your competitors are offering. That way, you can make adjustments when necessary so that you consistently attract guests to your hotel.
With a competitive pricing strategy, you need to make sure that any price you offer is in line with the rates being offered by comparable establishments in your area. But you also need to make sure that the prices you offer are appealing. Price yourself too high and potential guests will go elsewhere; price yourself too low and those same guests will assume that what you are offering is of less value. It’s all about understanding the market in which you are operating so that your rates attract more customers, boost your occupancy levels and, ultimately, help you create a steady and consistent revenue stream.
Rate parity strategy
Finally, when it comes to hotel pricing, it’s important to ensure you are offering rate parity. Essentially, this means that the prices you offer are consistent across all your platforms and distribution channels. This helps to generate a sense of trust and transparency with your guests which helps to convert them into loyal, returning customers.