Here Are The 8 Hotel Pricing Strategies You Should Implement!
You want to go on a trip. You pack your clothes, decide on the places you will visit and also book the flight ticket. You also pack all the essentials such as medicines and toiletries with you. However, when you land at your destination, you realise that you have forgotten to do something. You have not booked a hotel! Sounds comedic, isn't it? This is how hotels feel when they do everything right but don’t devise good hotel pricing strategies.
A pricing strategy is everything. Without it, you will not be able to generate the necessary revenue to run your hotel, and will not be able to earn profits to make your business remunerative and expand. It is an integral part of hotel revenue management since, without proper pricing, revenue management is already on shaky grounds.
A proper pricing strategy is essential for getting customers as well as maintaining a favourable position amongst the competition. Here, we will be discussing the various hotel pricing strategies hoteliers can apply to generate revenue and grow their business.
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Introduction To Hotel Pricing Strategies
Room is the most important product sold by the hotel and nailing its pricing is essential for hotels to stay in business. Without coherent hotel pricing strategies, you will not be able to get the customers you desire and lose out on revenue. Revenue is the first step. The next step is profitability. Profitability is essential for any business to encourage the business owners, and shareholders to be invested in the business and grow it.
You cannot implement a strategy without formulating it based on consumer behaviour. Here are a few steps you need to follow to devise a hotel pricing strategy:
1. Understand Your Target Audience
Different customers have different needs. If you group customers according to their demographics, psychographics and lifestyle choices, you will realise that customers can be divided into different segments. The segments which are targeted by a company are known are its target audiences. The hospitality industry has to especially understand target audiences since the segment has different expectations regarding hospitality.
For example, you are a hostel. Your target audience will be youths aged 18 - 24, with a few audiences from age 25 - 29 as well. They don’t have a huge budget and want to spend as little as possible on stay.
They just want a good hostel with comfortable single beds, cleanliness, and a great spot to work, hang around and interact with other youths. Your hotel pricing strategies need to take the target audience's pov into account.
2. Understand Your Guest Demand
After you have figured out your target audience, understand what the target audience wants. For example, Hostel guests are young, have no grand expectations and just want a nice place and good times. You will need to price your hostel beds accordingly and determine which amenities you will include in the hostels.
3. Analyze The Data
If your business is already in existence, you should analyze the data of the guests, which rooms they have selected, what were the prices of the rooms, which were the most popular in the inventory etc. Then analyze why your rooms are performing or underperforming, and what should you do to make your room inventory more lucrative for your business.
Only after analyzing the data, one can formulate a hotel pricing strategy that will generate the most revenue and profit for your hotels.
Factors That Affect Hotel Pricing Strategies
Hotel Pricing Strategy is a complex business concept that is influenced by many different factors. It cannot be viewed in isolation since any strategy you formulate needs to keep ground realities into consideration, including the business environment. Some of the factors are as follows:
1. Operating Cost
A business cannot avoid operating costs, one needs to spend money on resources required for operating the business. It is even more evident in the hospitality industry which has to incur many expenses of diverse nature. Hotels have to incur expenses on salaries, utilities, raw materials, perishable goods, sales and distribution, marketing and maintenance.
A hotel pricing strategy should be such that a property is able to meet these expenses as well as earn additional revenue in the form of profits over these expenses.
2. Market Demand
Hotels operate in a market and hoteliers need to understand the market and the demand of customers before they decide which rooms to offer and at what pricing. Prices have to be modified as per demand. Before you formulate and implement a pricing strategy, you need to decide which type of rooms the hotel or any other property should keep in its inventory.
3. Government Regulations
Along with the business environment, hotels also operate in a legal environment determined by the government. There are many rules and regulations hotels need to follow including pricing, compliances, safety measures etc - which adds to the cost. Your hotel pricing strategies need to take that into account.
4. Unexpected Circumstances
As Covid - 19 has proved, things can go wrong unexpectedly and you will need to have a contingency plan to deal with it. Earthquakes, tsunamis, storms, demonetization, new tax regimes etc can change demand abruptly. Hoteliers need to be prepared to make changes in these events.
Top 8 Hotel Pricing Strategies To Generate Maximum Revenue
Here are the top 8 hotel pricing strategies to maximise your revenue and make the most out of your room inventory.
1. Market - Competition-Based Pricing
This strategy is especially useful if you are new to the business. You need to first analyze your competitor's hotel pricing strategies in the market. Understanding your competition is the first step in formulating any marketing strategy, and pricing is no different.
Hoteliers will be able to understand how much the customer is willing to pay for a type of room only after checking out how much is the competitor charging for the same room. You can determine and identify your competitors based on various factors such as property type, room amenities, location, star ratings etc.
Your competitors should be similar to your hotel or 1 - 2 notches above you. It is only after you identify your competitors that you can determine the pricing strategy for the hotel. Ensure that you price your hotel neither too high nor too low compared to competitors.
2. Occupancy Based Pricing
Hoteliers can determine the price of the rooms based on occupancy. For example, if some hotels rooms are unoccupied during the peak season, you can slightly decrease the price of the rooms to gain more customers. If you want to establish a name in your area and you will surely get hotel guests, you can increase the rate to get more revenue out of the hotel room. During the off-season, you can decrease the rates of your rooms and offer special deals to get more customers.
3. Forecast Based Pricing
All hotel businesses need to forecast to make the most out of the upcoming dates. Forecast needs to be based on previous bookings based on season, market demand, promotions, and various other factors. For example, your deluxe room is more popular than the super deluxe room.
You can then change your hotel pricing strategies and increase the pricing for deluxe rooms to get more revenue based on higher demand. For a super deluxe room, you can figure out how to improve and promote it better.
4. Segment Based Pricing
Different Guest Segments prefer different rooms and different prices. You should set lower prices for corporates and groups since they book the rooms in bulk and will mostly stick with your booking because for them, changing the hotel is more difficult. Couples and Individual travellers have more flexibility and hence, can cancel much more easily.
Larger groups naturally generate more revenue so you can charge lesser per person to encourage revenue in bulk. Hoteliers should adjust their pricing according since 1 size doesn’t fit all.
5. Length Of Stay Based Pricing
One of the popular hotel pricing strategies is to implement is to adjust the rate based on the length of stay of guests. This strategy is best for homestays and vacation rentals, where guests usually book to stay for a longer time. Not only that, but you can also offer special deals based on the length of stay. The advantage is that the one rate is offered for their entire stay based on the number of room nights.
This strategy is based on vacations and festive holidays, one can compensate for a lesser number of bookings with a larger number of room nights sold to fewer guests.
6. Cross-Selling And Upselling Based Pricing
Customers always want something more, and something better too! Cross-Selling means selling additional products and services along with the flagship one and upselling involves selling a higher range of products compared to the existing one.
As a part of the cross-selling strategy, you can offer breakfast, restaurant coupons, and spa as a part of your deal. For upselling, you can offer a discount for upgrading to a higher level room or even upgrade it for free. These deals don’t cost a lot and will also help in getting more revenue.
7. Loyal Customer-Based Pricing
Rewarding your loyal customers is essential for any hotel marketing and revenue strategy since it's a give and take relationship. Hoteliers can reward loyal customers by giving them special deals and offers. You can also give them a loyalty program membership wherein they can get cheaper rooms and add-ons.
8. Cancellation Policy-Based Pricing
Cancellation policies are an integral part of hotel pricing strategies and revenue management. If you are too rigid on your cancellation policy, guests will be reluctant to book your property. Be too lenient and you will lose revenue. For example, you can sell rooms at a lower rate on the condition that no refund will be given if cancelled.
You can have a no-cancellation policy during peak season and you can allow cancellations with a refund up to a certain gap in the off-season.
With these hotel pricing strategies, your hotel will surely be a success in attracting guests and generating revenue, making your business profitable. You can learn about the hospitality industry, its strategies and tools by reading our blogs. Bigfoot Hospitality is a revenue management company providing solutions for hotels, resorts, homestays and various other properties.