A guest books a room at your hotel for a long-awaited holiday. They find a great deal, only to discover later that a friend in another city got the same room for $500 less. This is location-based pricing in action—a strategy that adjusts prices based on a customer’s location. While hotels use it to maximise revenue, it can also alienate guests, damage trust, and drive them to find ways around it.

 

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The Hotel Industry’s Pricing Problem

 

For hotel revenue managers, pricing optimisation is a delicate balancing act. The goal is to increase profitability while staying competitive. Location-based or geo-based pricing seems like a smart way to do this—charging travellers from wealthier regions more while offering discounts to those from lower-income areas. Airlines and insurance companies use similar methods. So, what’s the issue?

 

The problem is perception. Guests expect price differences based on demand, timing, or room type. But when they realise they are charged more simply because of where they live, it feels unfair. A traveller from Sydney paying more than someone from Adelaide for the same hotel room, on the same night, doesn’t sit well. The moment guests feel exploited, they start looking for ways to beat the system. Enter VPNs, metasearch engines, and location-spoofing tactics, which make geo-pricing less effective in the long run.

 

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When Location-Based Pricing Strategy Backfires

 

Hotels often assume location-based pricing will go unnoticed, but today’s travellers are savvy. They compare rates across multiple booking platforms and use tools to bypass location-based restrictions. One major hotel brand learned this the hard way. For years, they charged higher rates to guests browsing from wealthier postcodes, believing they had a greater “willingness to pay.” However, after a viral social media post exposed the price differences, guests lost trust. Many vowed never to book with them again. What seemed like a clever revenue strategy turned into a PR disaster.

 

Another challenge is rate parity agreements, which require hotels to offer the same rates across different booking platforms. If a guest finds a lower rate elsewhere because they booked from a different location, they may demand a price match or book through a competitor. This not only reduces profitability but also creates operational headaches.

 

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The Ethics of Geographical Price Discrimination for Hotels

 

Beyond the business risks, there’s an ethical question: Is it fair to charge guests more based on where they live? Some argue that it’s no different from dynamic pricing in other industries. Others see it as discriminatory, particularly when it lacks transparency. If guests feel they are being charged more just because they live in a certain area, resentment builds. And in an era where online reviews and social media can make or break a hotel’s reputation, negative sentiment spreads fast.

 

Moving Beyond Location-Based Pricing 

 

location-based pricing can be effective if approached with fairness and transparency. Instead of using it purely to maximise revenue, hotels should focus on making their pricing strategies more ethical and value-driven. Here’s how:

 

Transparent Communication – If using location-based pricing, hotels should clearly explain why different rates apply. Providing context—such as demand fluctuations, local market conditions, or exclusive regional offers—can help guests feel informed rather than deceived.

 

 

Value-Based Pricing – Instead of varying prices based purely on location, hotels should tie price differences to added value. Offering additional perks such as complimentary breakfast, flexible check-in, or discounted local experiences can justify rate variations while enhancing guest satisfaction.

Ethical Segmentation – Rather than charging wealthier regions more, consider offering discounts to price-sensitive segments. For example, hotels can provide special rates for students, seniors, or long-term travellers without unfairly inflating prices for others.

Loyalty and Personalisation – Implement AI-driven personalised pricing based on past behaviour, loyalty status, and engagement with the brand rather than just location. Rewarding repeat customers with better rates builds long-term relationships and improves customer retention.

 

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Rate Parity and Fairness – Maintaining consistency across booking channels prevents backlash. If location-based pricing is used, it should align with broader revenue strategies, ensuring that guests from different regions still perceive fairness in pricing.

Flexible Booking Policies – Guests value flexibility, especially in uncertain times. Instead of adjusting prices based on location alone, hotels can introduce flexible booking options, such as free cancellations or price guarantees, to enhance perceived fairness.

 

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From Discrimination Pricing Tactics to Guest Loyalty

 

Location-based pricing may boost revenue, but it comes with risks. Guests expect transparency and fairness. When they feel exploited, they take their business elsewhere. Hotels must adopt pricing strategies that build trust, not break it.

 

Success lies in pricing that reflects value, not assumptions about wealth. By focusing on personalisation and ethical strategies, hotels can drive profitability without losing guest loyalty.

 

Now is the time to refine your approach. Need help aligning your pricing with guest expectations? Let’s chat. Together, we can create a smarter, more ethical strategy that strengthens both profits and reputation. Reach out today—we’d love to hear your thoughts!

 

For a comprehensive view of building a great pricing team to prevent loss in revenue, Download a complimentary whitepaper on How to Improve Your Pricing Team Performance.

 

Are you a business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 9000 1115.

You can also email us at team@taylorwells.com.au if you have any further questions.

Make your pricing world-class!