Hotel Pricing and Room Rate Optimisation: The Complete Guide
Revenue management and room pricing can become very complex very quickly. The temptation to look no further than the simple room pricing you’re already employing may be hard to resist.The skills required tend to transcend many areas including technology, customer service, finance, and more so it can be very hard to feel like you’re covering all the bases and staying on top of your pricing.
Such is the fickle nature of the market, prices can (or should) change not just every day but sometimes every hour depending on demand. This is the kind of agility property managers and/or revenue managers are faced with achieving.
However, that doesn’t mean effective room pricing is out of reach unless you do have those skills. There are plenty of methods less experienced hoteliers can use when they don’t have the bandwidth to become or hire a revenue manager.
Pricing your hotel rooms is about getting the most revenue possible out of each individual room. Don’t think about what the room is worth; think about how much value you can get out of it – the guest will often be prepared to pay more money than the flat-rate if they sense an opportunity to get a little extra benefit.
Occupancy also plays a role in the way you price your rooms. After all, an unsold room achieves nothing so pricing your rooms to maximise occupancy can often be a better tactic than pricing rooms to maximise profit on them individually. In a highly competitive location, it’s sometimes necessary to lure guests in with lower rates. At least then you have the guests and your competitors don’t. You can then find ways to gain more revenue from the guests through other services offered at the hotel.
Every hotel has its own unique room pricing considerations depending on:
- Market demographics
- Level of competition
- Type of service offered
Unfortunately there’s no one-size-fits-all, so the advice offered in this blog should be adapted as you see fit to your specific business.
Establishing a hotel pricing strategy
Crafting and executing your hotel pricing strategy requires you to do more than establish rates for your rooms during particular seasons. You’ll want to go beyond that – optimising your pricing strategy so that you maximise the revenue that you generate per room and per guest.
There are a number of questions that should surround your pricing strategies:
- What do your guests want?
- Which strategy will complement the business mix?
- How will different strategies affect connected channels and distribution partners?
- How does your strategy integrate with your channels?
- Who are the experts that can help determine the right strategy?
Let’s take the first question as an example. Certain guests will prefer or be accustomed to particular pricing methods. For instance, some may like a cost breakdown of their stay by day, while others are happy with a rate for their entire stay. This is where either Daily Pricing or Length of Stay pricing strategies might come into play.
Sometimes you can spend far too long trying to understand the strategies of your competitors, asking:
- When are they increasing their rates?
- Why are they decreasing their rates?
- How often do they discount?
- Are my rates on par?
- Is my hotel offering value for money?
Competitors are certainly not the only factor that should influence your hotel’s room pricing. Often it’s better to look at competitors after you think you’ve priced your rooms to advantage and then adjust as needed.
With the increased availability of real-time marketing data, it’s entirely possible to design a multi-tiered dynamic pricing strategy that can change at a moment’s notice. With accurate prior knowledge you can easily.
- Optimise your room rates
- Understand how competitive your room pricing is
- Increase your chances of being booked online
- Use the market to your advantage, rather than be dictated by it
Technology can also play a major role in accurately and effectively establishing strategies at your hotel. Pricing and business intelligence tools make it much easier for you to monitor the market, track competitors, collect data, forecast, and make quick adjustments.
With all that in mind, the first priority of pricing should be forecasting. This way you can predict demand so you can get travellers to book early. Then you can raise rates later as availability drops and demand increases. (This is an ideal pricing structure known as the “ascending model” whereby pricing increases closer to an arrival day.)
There’s no strategy that is perfect for any hotel. Each property must consider the pricing strategy, or strategies, that work best for its particular brand. A revenue manager will spend a lot of time analysing data and other influencing factors to ensure the business is operating with the best possible chance to maximise income.
Common elements of a hotel industry pricing strategy
As discussed, each individual property will have a strategy that works for them but there are common practices across the industry that can be applied to your business.