Nothing may be more critical for the profitability of a hotel than getting its pricing strategy right. It can also be an incredibly multifaceted and complex task. What does it take to build a winning rate strategy for hotels today?
NB: This is an article from EHL Insights
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This article offers a comprehensive look at what hotel pricing is, how to price a hotel room, and what the most prominent hotel room pricing strategies are across the industry.
Whether you want to start with the foundations or are looking for more advanced approaches, we will explore how hotels of all sizes can create smarter, more responsive pricing models that not only maximize revenue but also guest satisfaction (these two go hand-in-hand, just wait and see).
Laying the Groundwork: How to Price a Hotel Room Effectively
Even the best hotel pricing strategy may not yield the desired outcome without firm foundations. The hospitality industry and the hotel room as a product are very unique. This section outlines the fundamentals you should know before settling on the rate strategy for your hotel.
Understand the Economics of Your Hotel Rooms
Pricing effectively requires you to know your offering through and through. For a hotelier, it means understanding the specificities of the hotel room as a product, the two most important considerations being perishability and costs.
Room inventory is perishable, which means that if a room is not sold for a given night, that revenue opportunity is lost forever. Because of this, there is an urgency to fill up any unsold rooms as we get closer to a certain date.
The other primary consideration is understanding your breakeven point. Running a profitable hotel is impossible without room rates that cover the expenses incurred when running a room. This is why calculating a hotel room rate starts by identifying the fixed and variable costs associated with running a room and the target profit margin, which gives you the minimum rate or a pricing baseline that covers your expenses and target margins.
Understanding cost considerations and perishability can already be considered a bare minimum hotel pricing strategy. However, maximizing hotel revenue takes more than just covering expenses. Pricing should also reflect how your guests behave, what they value, and how your hotel fits into its market landscape. Let’s look at the full range of hotel pricing strategies that build on these fundamentals.
