9 Powerful Hotel Pricing Strategies to Implement in 2020
28 April, 2020
In the ever-evolving global economy, the key to an effective revenue management strategy is to
adopt a systematic approach to pricing. So, when making any business decision, a proper thought
on your hotel pricing strategies is necessary.
Overall, a hotelier should understand and look into all the aspects of proper room rate pricing,
with the help of which you can increase your business revenue.
In this blog, I’ll guide you with the most powerful and smart pricing strategies you can apply
to boost your hotel revenue.
What is the importance of hotel room pricing?
With no strategy, it is almost impossible for hotels to grow successfully in the hospitality
industry. In all business strategies, pricing strategy is one of the most important things to
consider increasing hotel revenue.
Hence, the answer to the question is simple – if you don’t want to lose your customers and
competition in the market, it is necessary to set a pricing strategy to increase ADR, RevPAR,
and overall profitability of the business.
What are the basic steps to implement a pricing strategy for hotels?
Just starting up with the pricing strategy won’t work if you’re not aware of the fundamentals
and don’t consider them. Below are the steps which are necessary to consider to create a proper
pricing strategy for your hotel:
Once you have this information in hand, it will be extremely easy to decide on your hotel room pricing models
What are the factors that impact hotel room pricing?
This whole game of the pricing strategy becomes complex as you need to consider several factors that impact room pricing in the hotel industry. Some of them are –
Cost:
Cost includes raw materials, selling and distribution overheads, cost of advertisement and sales
promotion. Hence, it is necessary to analyze all the costs before setting the prices to minimize
losses.
Demand and market structure:
Market demand for service has a great impact on pricing. If there is no demand for the service
or hotel room, it cannot be sold at all. However, different guest segments may react in a
different way to price changes.
Laws and regulations by the government:
These persuade hoteliers to make instant price change decisions. The laws set regulations on
hotels’ activities because of which hotel room pricing is affected, leading to the controlling
of prices at minimum or maximum levels.
Seasons:
Peak and weak seasons cause the fluctuation in tourists and visitor numbers to a destination.
This is the reason, sometimes hoteliers need to change or completely revamp their room pricing
strategies to earn a profit.
And any unwanted circumstances:
Any situation or say a natural calamity that comes all of a sudden can impact pricing. For
example; earthquake, tsunami, any announcement from the government viz. demonetization, new tax
levies, and such likes.
Now that you know the factors and basics which impact your room pricing, let’s see the best
strategies you can adopt from now onward to boost your hotel revenue.
The Best Hotel Pricing Strategies to Increase Hotel Revenue are:
Here, I have listed the effective pricing strategies along with the factors that affect them. I’ve also given examples to help you understand and implement them better.
1. Pricing Based on Occupancy
Occupancy based pricing strategy is the best way if you want to increase room revenue. You can
set the pricing of your hotel rooms based on the demand and supply.
Whenever there is a demand, you can increase your room rates for more business ROI. And when
there is off-season or low demand than other seasons, you can lower the room rates to fill your
rooms and gain profit even in the off-seasons.
Example: During the peak season, if your 7 to 8 rooms are still unoccupied,
you can increase the room rates of the same for more business profit. Similarly, when there
is off-season and you want to fill your rooms, you can charge less to encourage bookers to
book at your hotel.
2. Pricing Based on forecasting
Forecasting is an important factor to consider for setting the price of the rooms that are
available for future dates. However, to do proper forecasting, there should be some previous
data such as occupancy data of previous months, different types of room sales as per the demand,
promotions, or seasons. Accordingly, you can change the room rates based on the upcoming demand
or expected occupancy.
Example: If you found that you earned more
revenue in last December, then you can set the pricing for the coming December to earn more profit for the business.
Let understand it better with another example. When analyzing the previous data, you observed
that most of your guests generally book a simple room rather than a luxury room, then you can
charge a bit higher for simple rooms than usual, and even include them in your packages and
promotions to sell them better.
3. Pricing Based on the Market Competition
What your competitors are doing or offering is the foremost thing that you need to take care of
to compete in the market. For that reason, you constantly need to monitor your competitors’ room
rates and understand their pricing strategy. Keep in mind to compare that with your room rates
to get a clear idea on how the market is trending.
When done and monitored properly, it will help you know what guests are paying and what they’re
willing to pay for a hotel room. On the basis of all this data, you can devise your hotel pricing
strategies to gain a head start among your competitors.
You can define or list your competitors based on factors like; property type, room rates, star
category, offers or discounts, or promotion channels. Hence, it is important to consider all
these factors and oversee relevant competitors to set a pricing strategy that will help you
compete with them.
Example: When checking up with the competitors,
you come to know that they’re offering a complimentary service (like one time free breakfast or
spa) to those who’re booking well in advance and long-staying guests to make more profit. Hence,
you can set pricing and even create packages accordingly.
4. Pricing Based on the Length of Stay
In this, you can adjust pricing based on the length of stay of your guests. The length of stay
ideally depends on the number of night packages you’re offering to your guests. An advantage of
the length of stay pricing is that guests are offered one simple rate for their entire stay based
on their arrival date and total reservation night length.
The best time to apply this strategy is during festivals and vacations. Here, you want guests
to stay for a minimum of a few days at your hotel so that even if you receive lesser bookings,
it doesn’t matter much as nights stayed will increase.
The main aim of a revenue manager is to modify the room pricing based on the maximum/minimum
length of stay to increase occupancy and business ROI in most cases.
Example: Let’s say, you know that guests tend
to stay for a longer period during school vacations. Or say you got a booking inquiry from a
guest willing to stay for a longer period. Accordingly, you can set different packages for 1,
2, or 3 nights for the upcoming guests as per the demand or occupancy.
5. Pricing Based on Your Guest Type
To build an effective hotel pricing strategy, it is necessary to understand the different market
segments. You can sell the same room at a different price for different guests. Analyze the
different types of guests who are visiting your hotel.
The guests can differ as per their age, taste (of the hotel room), the purpose of visit,
class/lifestyles, location, or occupation. You can observe the type of guests at your hotel,
then plan and set a pricing strategy for those who bring you good business.
Example: For guests of a higher class, you can
charge more for a room which is sea-facing and have all the in-room facilities. Similarly, for
business travelers, you can offer a studio apartment (if you have), or a room with meeting space
or work desks at a higher rate. Whereas, for guests who have a limited budget and can afford
only simple rooms, you can set pricing to charge them lower.
6. Pricing Based on the Non-refundable Policy
Though it is surprising, a well-planned non-refundable cancellation policy can help you increase
your revenue. It is one of the most vital factors that you can include in a pricing strategy.
Cancellation policy based pricing strategy can help you reduce the loss and sell rooms at a
profitable level.
Example: You can offer a lower rate for a longer
stay with a condition of no refund in case of cancellation (this will help you sell the room again
if canceled). You can set a rule of no cancellation policy during peak seasons, and a refundable
policy (to a certain limit) during off-seasons.
7. Pricing Based on the Upselling
Upselling is beneficial during the booking process. In this, you can offer the “upgrade” options
to the guests while they’re making a choice of a hotel room. Upselling encourages guests to
spend more at the time of booking.
Example: You can encourage guests to pay slightly
more for a better room (with good views) with better facilities. This will also improve their
experience with you.
8. Pricing Based on the Cross-Selling
Cross-selling has now become popular and excites customers to make additional purchases apart
from the one they already booked in advance. It is also most effective while sending the
reservation confirmation email to your guests.
Example: You can offer additional services
like massage, gym, popular tours, pick up and drop off services through regular promotional emails.
9. Pricing Based on Your Repeat Guests
This is an effective hotel pricing strategy if used in the correct manner. There are high chances
of existing guests to visit again at your hotel.
However, to attract repeat guests and earn revenue through them, you need to apply a proper
pricing strategy. You can use discount codes (via promotional emails/SMS) for your repeat guests
which can encourage them to book with you directly in the future. You can also include your hotel
loyalty programs (if you run any) to welcome repeat guests and direct bookings for your hotel.
Example: You can email to all your guests with some discount on vacation tours or offers to stay
for 2 nights with a lower rate package on their birthdays/anniversaries on booking directly with
the hotel. In addition, if the guest is a business traveler, you can add them to your list and
offer special rates when they visit the city again.
So here, these are the most effective pricing strategies from my end, which you can implement
easily to get more bookings.
In conclusion
Well, this is it!
The above mentioned are the most productive hotel pricing strategies that have worked for many of
our customers. You can apply these pricing strategies, observe the changes, and see the result.
We’re sure that it will work and help your hotel business grow in the future.