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 can you price a hotel room without losing money? 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 with 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 more for a room you stayed in only a month earlier?
- Why are hotels offering 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 controlHow to Price a Hotel Room Using Revenue Management
Revenue management is an important part of hotel pricing strategy. It helps hotels anticipate demand, optimise room rates and balance capacity. It can also track consumer demand to reposition prices competitively without the risk of overcapacity or undercapacity.
Why is revenue management hotel pricing different from pricing in other industries? Well, hotels use dynamic pricing more extensively than many other industries. What’s more, they have revenue managers, teams and systems to help them decide when to increase or decrease prices and which distribution strategies to use during a particular period (or price cycle) to maximise profits.
Simply stated, revenue management means 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 influence demand and balance capacity.
Okay, let’s look at hotel pricing schemes to understand them better.
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. Several factors 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 different days, weeks, months and 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. These include the weather, peak seasons, guests’ spending habits, preferences, values and hotel ratings. Hotels also analyse data on crowd events to determine the right room price for different customers.
Demand data gives pricing and revenue teams good insight into how to optimise room capacity at the best price. They’ll also look at current and past sales history. For example, when a major sporting event takes place in a city, historical hotel performance during similar events can help anticipate demand, room rates and accommodation needs.
Revenue management tools give revenue managers additional insights that can increase sales and revenue. They don’t rely on guesswork. Hotels use data-driven insights to help set and manage room prices, balance capacity and demand, and drive profitable sales.
Pricing Strategies for Hotels
Forecast strategy
This is largely based on demand. It focuses on whether demand is high or low. Forecast strategy focuses on supply and demand drivers.
- Rate parity strategy
This means offering the same rate for the same room and booking conditions across distribution channels. Consequently, it gives guests a consistent price to consider.
- Segment pricing
This is when the hotel offers a room at different rates to different types of guests. When a hotel uses segment pricing, it can implement differentiated pricing for different customer segments such as coupons, special offers or different levels of room discounts.
Discount codes to prompt direct bookings
This is when discounts are offered to guests who book rooms directly with the hotel rather than booking through an online booking website.
- Package deals
This is when hotels provide additional services at an extra cost when guests book a room, such as bundled pricing options and promotions. This also helps optimise profit from each 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 demand is low, the hotel can give discounts to entice the guest to stay longer.
- Cancellation policy
This is when a hotel charges a full or percentage-based cancellation fee according to the terms of the booking. Hotels may also charge higher rates for flexible cancellation policies.
- Upselling
Upgrading or transferring guests to a room with a better view can increase revenue. Therefore, getting a better room means paying more.
- Cross-selling
Like upselling, the guest is enticed to buy additional amenities alongside what they’ve already purchased.
- Outstanding review management
Good reviews can help a hotel attract more guests. When reviews are positive, guests may expect better service from the hotel. As a result, guests expect the best the hotel has to offer. In particular, a quick response to the guests’ demands is key to good hotel reviews.
How to Price a Hotel Room Using Yield Management
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 sales volume during a peak pricing period. In the hotel business, yield management is applied when hotels are selling the rooms at separate prices because of an upward trend in prices. In addition, they’ll compare historical room sales and current demand to check price points.
Yield management has two parts:
- Room inventory management assigns different room types according to supply and demand.
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. Unlike a fixed pricing structure, dynamic pricing adjusts prices in response to changes in supply and demand.
Using dynamic pricing for hotel pricing helps revenue managers move prices according to key demand drivers. Two key demand drivers for hotels are weather and seasonality. Hotel rates change according to seasons and weekly and monthly demand shifts, with rates also changing on a daily and hourly basis. 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.
- Can eventually find the right price matrix for your hotel.
- Enables flexible rates based on shifts in demand, cost and volume.
- Monitors competitors’ rates and helps hotels respond quickly to market changes.
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, including forecasting when demand is high or low, which is a key goal for revenue managers.
- New technology can help the hotel business to improve its pricing and revenue management strategies.
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Bottom Line
- A number of factors go into determining the right hotel price. 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 strong teams, data and technology to implement effective pricing plans and maximise profits.
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