In every sector of industry pricing has a very important part to play, but it affects most of all those companies operating in sectors where there is a large amount of competition. These situations can be seen in the fashion industry, in the gastronomic sector and, above all, in the hotel and travel sector.
Hospitality industry has a lot of pressure because it depends, not only on how they perform but a lot of external factors: the season, the competition or the economic situation. In order not to be affected by this situation, companies must prepare a pricing strategy that has a solid and constantly updated basis.
What is a hotel pricing strategy?
Hotel pricing strategy refers to the approach that hotels use to determine the price of their rooms, services or facilities. The main objective of this strategy is to maximize the profits and revenue and to be competitive in the hospitality industry. An incorrect pricing strategy can result in lost business and reduced profitability. In this post, we take a look at some pricing strategies that hotels can use to improve their performance.
Important factors determining the creation of a pricing strategy for hotels
Developing a hotel pricing strategy requires careful consideration of various factors that can impact the hotel’s profitability. Here are some key factors to consider when developing a hotel pricing strategy:
- Target Market: this is a crucial factor to consider while creating the pricing strategy. Customers are the most important thing to take into consideration and getting to know your target market is a necessary step. Different customer segments have different price dispositions, which can influence pricing decisions.
- Seasonality: it means the variation in demand and occupancy rates over the year. Understanding seasonality patterns is essential for establishing appropriate prices during both peak and off-peak periods. It’s also important to consider local events and holidays that can impact demand.
- Competition: competitor’s price can have a significant impact on a hotel’s revenue. It’s important to monitor competitor’s prices and adjust accordingly to remain competitive. This could involve price matching, offering unique value propositions, or offering differentiated product services.
- Room types. Not every room is the same and not every price should be the same. Understanding the value proposition of each room type, occupancy rate per room and the demand of it, can help to optimize pricing for each room type.
- Revenue management system: those types of systems can provide important insights and data to improve pricing decisions. This can involve analyzing demand patterns, tracking competitor pricing, and predicting future demand.
- Customer loyalty: guests who repeat at the same hotel and loyalty programmes influence pricing behavior. Offering discounts or loyalty benefits can incentivize repeat business and increase revenue.
In general, an efficient hotel pricing strategy development requires a deep understanding of the market, competition and customers.
Some pricing strategies
- Dynamic pricing: one of the most used by hotel companies. It is the process of adjusting prices according to demand, seasonality, etc. With this strategy, hotels can increase their prices during peak seasons, when the demand is at its highest, and reduce them during non-peak periods in order to attract more customers.
- Length of stay pricing: considering the length of stay (LOS) in a hotel’s pricing strategy can help hotel managers to strategically target guests to book profitable stay patterns. Hotels can track data in order to offer LOS and discounts for extended days based on all the information collected. It can also be applied in the opposite way, by restricting the minimum number of days per stay. This option is increasingly common in luxury hotels or other types of holiday rentals.
- Value-based pricing: with this strategy, hotels can set prices based on the perceived value of their products and services. For example, if the room has a large balcony with amazing views, they can increase the price due to its value. To apply this strategy, hotels should understand what guests appreciate the most and be able to communicate it effectively.
- Price Bundling: this one consists of offering packages that include multiple products or services at a discounted price, like a package that includes a room with breakfast and spa treatment, cheaper than if they buy everything separately. This option helps to increase revenue because the aim of guests is expending more money on the hotel. It can also be a differentiator from your competitors.
- Seasonal pricing: this is a strategy whereby hotels adjust their prices according to the seasonal demand. During summer months it is quite normal that hotel’s prices increase because of the high demand. This strategy can look similar to dynamic pricing but the difference between them is that seasonal pricing is only focused on the season while dynamic pricing is about more factors (including the season).
- Group pricing: hotels offer discounts to groups that book a certain number of rooms, like business trips or school excursions, etc. Group rates can help hotels attract more guests by offering discounts to larger groups. It can also help hotels fill rooms during lower seasons.
- Day of week (DOW) pricing: when the hotel can identify the weekly travel patterns in its market or the busiest days of the week in each month or if the hotel is located in an area that experiences a shift in travel demand or ADR between weekdays and weekends, applying a DOW pricing strategy to optimize the hotel’s ADR can be a good option. Establish hotel pricing strategies and apply booking restrictions based on weekday and weekend booking patterns.
In summary, a well-planned and executed pricing strategy can be a powerful tool for driving a hotel’s performance. By carefully considering key factors and using appropriate tools, hotels can strike a balance between profitability and customer satisfaction, ensuring their long-term success in a competitive and constantly evolving marketplace.