Value-added pricing, also known as value-based pricing, is a pricing strategy in which a hotel sets its prices based on what a customer believes the value of a room or service to be.
It’s different from most other strategies, in that the price isn’t based on a tangible metric like supply and demand or cost (though cost must still be considered to ensure you’re generating profit, not just revenue).
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Luxury goods such as designer handbags, fine wines and Swiss watches are prime value added pricing examples. The material and labour costs to produce these goods aren’t that high, but the reputation of the brand or the region in which the item is made means that customers are willing to pay more.
But what is value based pricing in hotels specifically?
Why should hotels implement a value added pricing strategy?
Your hotel can potentially make more money from value-added pricing than from any other strategy. When you work hard to build a great guest experience, people will be willing to pay more to experience it.
This does mean that the successful implementation of a value added pricing strategy begins by crafting a truly alluring and unique guest experience that will get people talking. But if you manage to do it, the increased demand will allow you to set your prices far higher across your distribution channels, even if your costs remain relatively low.
This can greatly improve your revenue management efforts, helping to optimise both room occupancy and the average rate paid for each room.
How does value added pricing work in hotels?
Value-added pricing is all about how a guest perceives the value of the experience you offer. You can positively alter this perception, and therefore charge more for your rooms and services, by enhancing your hotel’s reputation. This can be achieved in two main ways:
- Through marketing and branding efforts: Focus your marketing on the quality of your guest experience, specifically on any market-leading aspects of your offering. Capture and create high quality content that puts your hotel and services in the very best light.
- Through ratings and reviews: Reviews are critical to your value-added efforts, as potential guests see feedback from previous guests as objective evidence of the quality of your offering. Do all that you can to get happy guests to leave a review: remind them at check-out, send follow-up emails and consider offering an incentive.
How to create a value-added pricing strategy
Here are eight important steps to keep in mind when creating a value-based pricing strategy at your hotel: