Key Takeaways
- How to price a hotel room depends on demand, capacity, timing, customer segments and sales history.
- Revenue management uses data to adjust room prices and balance capacity with profitable demand.
- Hotels can use multiple pricing strategies, including forecasting, segment pricing, discounts, packages, length-of-stay rules and upselling.
- Dynamic and yield management help hotels respond to changing demand while optimising room revenue.
How to price a hotel room without losing money on a room? What’s the difference between revenue management and yield management? And, when should you introduce yield management to price a hotel room?
Hotel rates always seem to change, don’t they? As consumers of hotel rooms, we’re now completely okay about hotels changing the prices for their rooms day by day (or even in real-time for some hotels).
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But do you know why?
- Why are hotel prices so high during the peak season?
- Why are you being charged 20-30% more for a room you stayed in only a month prior?
- And why are hotels offering us giveaways, points, discounts and ‘package deals’ on a daily basis?
Well, read on… we’re about to share the secrets of hotel pricing (and more) in this article.
See whether your pricing is under control
How to Price a Hotel Room Using Revenue Management Hotel Pricing
Revenue management hotel pricing is an important part of hotel pricing strategy. It can accurately anticipate the guests’ criteria based on their usage rates and choices. It can also track consumer demand to re-position prices competitively in the market without the risk of over or under capacity.
Why is revenue management hotel pricing different from pricing in other industries? Well, they use dynamic pricing much more than other industries. What’s more, they have revenue managers, teams and systems to help them decide on when to increase or decrease prices; and distribution strategies during a particular time (or price cycle) for maximum profits.
Simply stated: “Selling the right room, to the right client, at the right moment, for the right price, through the right distribution channel, with the best cost efficiency”.
In the hotel business, there is no common fixed price for rooms. Indeed, it all depends on factors that build demand and balance capacity.
Okay, let’s go into the pricing schemes of hotel management to understand more.
How to Price a Hotel Room: Key Factors to Consider
To price a hotel room effectively, hotels need to balance demand, capacity, timing and customer behaviour. The article highlights several factors that help determine the right room price:
- Demand: Hotels analyse current and expected demand to decide when rates should rise or fall.
- Seasonality and events: Peak seasons, weather and major events can change demand and influence room prices.
- Sales history: Past booking and sales data can help hotels anticipate demand and set prices for similar periods.
- Customer segments: Hotels can offer different rates, discounts, packages and promotions to different types of guests.
- Length of stay: Hotels can limit stays when demand is high or offer discounts when demand is low.
- Room inventory: Yield management considers available room types and the price that can be charged in different scenarios.
- Dynamic pricing: Hotels can adjust rates as supply and demand change across days, weeks, months and different price cycles.
- Upselling and cross-selling: Hotels can increase revenue through room upgrades, amenities and additional services.
Together, these approaches help hotels balance room capacity with profitable pricing while responding to changing demand.
Introduction to Price Optimisation 💰 Podcast Ep. 74!
How to Price a Hotel Room at the Right Time
In the hotel industry, it is essential to get the right data on different factors influencing demand. Things like: the weather, peak seasons, spending habits of guests, preferences, values, rating of the hotel. Even data on crowd events are analysed by hotels to determine the right room price for different customers.
Data on demand gives pricing and revenue teams a good insight into how to optimise room capacity at the best price. They’ll also look at current and past sales history too. For example, if the Superbowl is playing in a particular city, past history of the hotel during the last Superbowl can help anticipate what price to set and the accommodation needed for sports fans staying at the hotel.
Revenue management tools give revenue managers additional insights which increase their sales and revenues. They don’t rely on second-guessing. No. The hotel industry uses data-driven insights to set and manage prices for their hotels’ rooms to cover their costs adequately; and more importantly, drive profitable sales and create memorable experiences for customers.
Price Strategies for Hotels
Forecast strategy
This is largely based on demand. It will look closely at whether demand is at its highest or its lowest. Forecast strategy focuses on supply and demand drivers.
- Rate Parity Strategy
This means providing a steady rate for the same room for all accredited hotels. Consequently, it gives a price range for the guest to decide.
- Segment Pricing
This is when the hotel offers a room at different rates to different kinds of guests. When a hotel uses segment pricing they want to implement differentiated pricing to different customer segments i.e., like coupons, special offers or different levels of room discounts.
Discount Codes to Prompt Direct Bookings
This is when discounts are awarded to future bookings for booking a room directly with the hotel rather than booking from an online booking website.
- Package Deals
This is when hotels provide additional services at extra cost besides booking the room, i.e., bundled price options and promos. Moreover, this helps to optimise the profits in one booking.
- Duration of Stay Strategy (DOS)
As the name implies, this is based on how long the guest is staying. If the demand for the room is high, a limit is imposed on how long a guest can stay. If low, the hotel can give discounts to entice the guest to stay longer.
- Cancel Policy
This is when a hotel charges a full or percentage-based fee for cancellation – generally after stipulating in the agreement that fees will apply if the guest cancels the reservation 24 hours before check-in date. They also generate substantial revenue from charging customers higher rates when they opt for a flexible cancellation policy.
- Upselling
Upgrading or transferring to a better view or room is very effective in raising revenues. Therefore, getting a better room means paying more.
- Cross-Selling
Like upselling, the guest is enticed to buy more amenities on top of what they’ve already purchased.
- Outstanding Review Management
Nothing like good reviews for the hotel to bring in more guests. When the reviews are good for the hotel, they know they get better services than the other hotels. As a result, the guest expects the best the hotel has to offer. Particularly, quick response to the guests’ demands is key to good hotel reviews.
How to Price a Hotel Room Using Yield Management Hotel Pricing
Though yield management is a similar concept to revenue management, it is important to realise that yield management differs because it concentrates on price and sale volume during a peak in the price cycle. In the hotel business, yield management is applied when hotels are selling the rooms at separate prices because of an upward trend in the price cycle. In addition, they’ll also compare rooms sold the previous year and how to analyse the demand for the rooms at this point in time to double-check price points.
Yield management has two parts:
- Room-inventory management assigns various types of rooms according to demand and supply.
It also looks at the right price for the room in different scenarios.
How to Price a Hotel Room using Dynamic Pricing strategy
Dynamic pricing is based on a fluid pricing structure and is used mostly by e-commerce, aviation and energy industries. Unlike a fixed pricing structure, dynamic pricing is a strategy that continually adjusts prices in real-time in response to actual supply and demand.
Using dynamic pricing for hotel pricing helps revenue managers move prices according to key demand drivers. A key demand driver for hotels is weather and another is seasonality. Hotel rates change according to seasons, weekly and monthly demand shifts including days and hourly rates. With the right dynamic pricing software, hotels balance supply and demand between lower and higher room rates.
Benefits of dynamic pricing:
Optimises profits from each guest
Will eventually find the right price matrix suited to your hotel
Achieves flexible rates according to demand, cost and volume shifts
- Monitors competitors’ rates and adjusts your rates almost instantaneously
See how pricing breaks in practice
Implications
The hotel industry is constantly evolving; which means management must find new ways to generate real value for its customers, including advertising to stay ahead of the competition.
How to price a hotel room depends on several factors. Namely, forecasting when the demand is high or low – a top goal for revenue managers.
- New technology can help the hotel business to improve its pricing and revenue management strategies.
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Conclusion
- A number of factors go into finding the right hotel pricing. No two hotel pricing structures are the same.
- A hotel’s goal is to optimise revenues and balance capacity. Thus, finding the right strategy requires great teams, data and technology to implement the best pricing plans to maximise profits.
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