Hotel management is multi-faceted, and each decision carries significant weight.
NB: This is an article from Demand Calendar
One of the most pivotal decisions is setting the right price policy for hotel rooms. A hotel’s pricing strategy can be the difference between empty rooms and a bustling, thriving business. In hotel pricing, two primary strategies stand out: generic room pricing and guest-based room pricing.
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Each approach has unique advantages and challenges, and their applications can significantly impact a hotel’s bottom line, guest satisfaction, and competitive standing.
Generic room pricing, the more traditional model, sets a standard room rate, providing simplicity and predictability. On the other hand, the newer and increasingly popular guest-based room pricing strategy allows for a more personalized approach, adjusting prices according to the specific needs and willingness of the guest to pay.
In this blog post, we will delve deep into both these pricing strategies, offering a detailed exploration of how they work, their pros and cons, and the circumstances under which they can be most effectively utilized.
Generic room pricing
Generic room pricing is a traditional and widely-used strategy in the hotel industry. In this approach, hotel rooms are viewed and sold as commodities, regardless of who the guest is. The core principle of generic room pricing is that as long as the guest pays the current market rate, the hotel is indifferent about who occupies the room.
How to set the room rates
In this model, the pricing is primarily determined by market conditions and competitor rates. The hotel closely monitors the going rates of similar accommodations in the area and prices their rooms competitively. As a result, room rates under this model are inherently dynamic, fluctuating by the demand for accommodation and the ups and downs of competitor rates.
The focus here is to ensure the rooms are always occupied rather than trying to cater to individual guest preferences or willingness to pay. It’s a more standardized, impersonal approach that has proven effective, especially for large hotels or those in highly competitive markets. Generic room pricing can be applied to any hotel, from a generic budget hotel to a generic luxury hotel.
Advantages of Generic Room Pricing
The primary advantage of generic room pricing is its simplicity. The hotel sets the room rates based on the market and competitor rates, which apply to everyone. This approach can be less administratively complex and easier to manage, as it can be automated and managed by any revenue management system and does not require intricate manual data analysis or pricing adjustments for each individual booking.
