What Goes Into an Effective Hotel Pricing Strategy for Boosting Revenue

Maximizing your hotel’s revenue in today’s Inclement economy is essential. With the speed of digital optimization, hoteliers can more effectively implement a hotel pricing strategy that dynamically adjusts based on factors like seasonality, pricing trends and patterns, and more.

Hotel pricing strategies work to boost hotel performance, drive more demand, and target more customers. A hotel pricing strategy is an essential part of hotel revenue management and should be based on your property’s goals, unique needs, and current market trends.

This guide talks about the elements of a good pricing strategy, how business intelligence tools can help, and why you must consider them for your hotel business.

Elements of a Pricing Strategy for Hotel

A hotel's pricing strategy must contain various elements for it to be effective.Remember that there is no universal strategy that works for every property. Always consider the following:

• yield goals
• market trends
• targeted demographics
• historical data

Integrating these elements allow hotels to optimize their revenue management and stay competitive in a dynamic and ever-changing industry.

HouseCount RMS is an example of revenue management software that can effectively maintain your hotel’s pricing strategy. Using a combination of automation, feedback control (an engineering concept—a variable is measured and compared with a target value, such as how well a pilot lands a plane manually compared to on auto-pilot)), and AI, the most effective prices can be set for rooms, theaters, attractions, and casinos.

The following are critical elements of a good hotel pricing strategy:

Open Pricing

Open pricing is one essential element of a pricing strategy, especially for hotels that are part of a parent company but operate independently. It involves establishing baseline rates for the following key aspects:

1. Room types
2. Distribution channels
3. Dates

Because there are more rate choices, hotels are able to create more accurate forecasting. Open pricing has two main benefits: flexibility and maximizing opportunity.

Flexibility

There are no fixed rates in open pricing. Hoteliers and revenue managers can adjust prices at various levels when the current situation requires it. Because rates are tailored more according to a hotel’s target demographics, there is an increased overall flexibility and freedom to change prices when deemed necessary.

Maximizing Revenue Opportunity

Open pricing also allows hoteliers to utilize more available revenue. Because the price points have a wider range, you don’t need to stress yourself with losing customers because the price points don’t meet their current budget and hotel needs.

Open pricing also means taking advantage of a customer’s perception of your room’s value and setting it as the introductory price. You can also factor in various key performance indicators.

With software like HouseCount RMS, open pricing can be easily managed without the revenue manager making constant manual adjustments. Instead, the system can dynamically change pricing based on the latest available data (as well as learnings from historical data) and provide high-quality pricing recommendations on the fly. Of course, if manual input is required or needed in some instances, this can also be set in the system.

Value-Added Pricing

Value-added pricing allows you to accurately price your rooms more according to the customer’s perceived value. With value-added pricing, you consider aspects of your rooms like view, amenities, seasonality, proximity to local attractions and events, supply and demand for the area, and much more.

Plus, packaging different services and perks with your room pricing (such as event tickets, food specials, VIP room service, and other hotel-specific offers) provides more opportunity for your guests to enjoy the full breadth of what your hotel or resort offers, as well as giving you a way to bring attention to these services and perks.

Let’s look at the main benefits of value-added pricing:

Improved Brand Image

Bundling services and perks automatically increase the customers’ perceived value of your property. Higher prices and additional perks and packages can generally make your customers feel your property offers a superior experience.

Higher Profit Margin

Value-added pricing can massively increase your hotel’s overall profitability. If you offer a discount for your value-added packages compared to buying each service or perk individually, your customers will recognize the value and likely be willing to spend more than they usually would.

Increased Customer Loyalty

When your customers love the extra perks you add to your room pricing, there’s a chance they become regulars. Loyal customers are important for word-of-mouth advertising, consistent revenue, and maintaining a positive reputation.

Discount Pricing

Discount pricing boosts hotel occupancies, especially during off-seasons. Hotel revenue managers achieve this by providing discount codes and offers to guests. Even though the prices are lower than average, you can still see a boost in revenue due to the volume of purchases.

Hoteliers can also earn more revenue through cross-selling and up-selling.

In conjunction with HouseCount RMS, LuxSell URS makes cross-selling and up-selling easy and effective by putting the right offer for the right guest in front of the eyes of the front desk or reservation agent for them to present to the customer. This software is able to consider vast combinations of up-sell and cross-sell options to craft the perfect offer every time.

Price Per Segment

Price per segment refers to generating different rates for the same product, depending on the customers you cater to. For example, you can decrease the rate for loyal guests who plan to stay in your hotel longer.

The main advantage of pricing per customer segmentis that it allows you to sell the right hotel room to the right customer at the most accurate price. It’s also a way to classify your customers as the following:

• Business travelers
• Leisure guests
• Large groups
• Backpackers
• OTA guests

Keep in mind that different guest types don’t have the same booking patterns and stay behavior.

Length of Stay

Another essential element of an effective hotel pricing strategy is the length of stay. But to utilize the length of stay properly, you must always establish accurate pricing by studying historical data on past bookings and forecasting. Doing this will help you understand the demand better.

Let’s say your hotel is nearby a venue with special events or festivals. When there is an upcoming event, try setting a minimum length of stay to guarantee bookings. Your main object should be modifying rates according to maximum and minimum lengths of stay to encourage longer stays and increase occupancy.

Positional Pricing

Positional pricing refers to price points based on three main aspects:

1. Your hotel’s brand strength
2. Reputation
3. Current position in the hospitality market

If you want guests to be more receptive to your prices, you must carefully assess your hotel’s market position. It means pricing a hotel's rooms relative to other hotels in the same area or competitive set, considering factors such as brand reputation, quality of services and amenities, location, and overall guest experience.

The goal of positional pricing is to position the hotel under three main categories:

• High-end luxury property
• Amid-range option
• A budget-friendly accommodation

The hotel's positioning can influence how potential guests perceive its value and can attract different types of customers based on their preferences and budget.

Penetration Pricing

Offering affordable rates initially to grow your customer base and overall hotel occupancy is called penetration pricing. As time progresses, you can raise the prices significantly when availability dwindles.

Initially offering affordable rates lets your hotel penetrate the market more efficiently to reach your desired occupancy. You can start introducing higher prices when your hotel has reached your preferred occupancy threshold. This is also when hotels start restricting discounts to optimize the rooms’ revenue potential.

Skimming

When a hotel sets relatively high initial room rates that are aimed at targeting early adopters or customers willing to pay a premium for the rooms, it’s called skimming. Hotels aim to capture the highest possible revenue from the market's most price-insensitive segment before gradually lowering prices to attract more price-sensitive customers.

In other words, by initially charging higher prices, the hotel aims to maximize revenue from the market segment willing to pay more, capturing the most value possible before demand softens or competitors enter the market.

As the hotel's novelty wears off or as competitors enter the market, demand from price-sensitive customers may increase. At this point, the hotel gradually reduces its room rates to attract a broader customer base and maintain occupancy levels.

How Does Your Luxury Hotel Pricing Strategy Affect the Distribution and Selling Systems?

Considering what pricing strategy for hotels will work for your specific business means evaluating how the following systems can impact your decision and revenue management:

• Central reservation system
• Property management system
• Web booking engines
• Upselling and distribution systems
• Selling systems
• Channel management systems

You must be able to assess different systems preferred pricing strategies to understand how they could work for your hotel (or not). It’s also essential to determine whether your hotel needs more training or additional tools before fully integrating a new hotel pricing strategy with your current system.

And don’t forget the cost. It’s another critical factor you must also consider. Don’t focus solely on your rooms’ upfront cost, causing you to ignore other potential ways to achieve ROI or return on investment.

Research is also important. Determine which distribution channels can generate top production volumes. Answer questions such as the following:

1. What do your hotel’s online travel agent channels accept?
2. Are minor deviations allowed?
3. When one of your online travel agent channels doesn’t work with a specific hotel pricing approach, will this affect your overall revenue?

A precise demand forecasting strategy is also critical in every pricing approach. HouseCount RMS will always consider the latest data as well as historical data on supply and demand, market rates, and length of stay to provide the best pricing option for each customer.

What Can You Learn from Other Industries About Hotel Price Optimization

Even though price optimization is currently on the rise in the hotel industry, there are still a lot of other aspects hoteliers can learn about the same concept from other fields and industries.

Let us analyze various industries to assist hotels in devising a dynamic pricing optimization strategy to help maximize revenue.

Airlines

Airlines are known for their flexibility in adjusting flight rates depending on fluctuations in demand and supply. Some airlines also consider and calculate each passenger’s lifetime values to establish incremental revenue by providing tailored offers before, during, and after flights.

And just like airlines, hotels must always consider customer demand as a significant factor in adjusting room rates. Establish pricing optimization strategies based on accurate forecasting and evaluation of hourly and daily demand fluctuations.

Moreover, when your revenue optimization platform maintains proper communication and integration with all your current systems, it’s easier to determine loyal and valuable guests to whom you can offer upsells and value-added rates.

Bank and Financial Institutions

The following factors are critical in establishing the best revenue management strategy for banks and financial institutions:

1. Pricing for Volume
2. Providing discounts based on tiers
3. Rewards for clients who make transactions during off-peak bank hours
4. Service fees and location-based discounts
5. Selling product packages or bundles
6. Cashback programs and loyalty points

Hotels must learn that personalized and tailored offerings are essential for an effective revenue management strategy that will work. Remember that relationship-oriented pricing strategies can add value to your pricing and better manage customer lifetime value. You can achieve this through cross-selling, prospecting, retention, and upselling.

There is no one-size-fits-all strategy for hotels. You need revenue management tools with the following features:

• Advanced calculation
• Intelligent pricing
• Analytics
• Reporting

Cruise Lines

Cruise staterooms, like hotel rooms, are perishable inventory. This means their values start becoming worthless as the ship begins to sail. It’s also why cruise lines often incorporate reverse yielding in their strategies, lowering fares to get more bookings and reservations for unoccupied cabins when the sail date approaches fast.

The main takeaway for hotels is that revenue managers can also consider reverse yielding to manage their inventory. It’s better to employ rate fences like opaque booking channels to avoid oversaturating the revenue through direct hotel channels.

Hotels might also consider providing discounted rates as ancillary revenue opportunities for better pricing optimization.

Restaurants

Some of the most effective pricing optimization strategies of restaurants include:

• Adjusting seating configuration to accommodate more customers hourly
• Surcharges
• Service fees
• No-show fees
• Additional charges for carbon offsets and packaging
• Upselling and merchandising for higher priced menu

Like restaurants, hotels also include mandatory resort fees charged on top of the guests’ room bills. To avoid conflict, hoteliers and the front desk must always disclose these fees to travelers when they check in or make a reservation.

Why Real-Time Market Intelligence Tools Help Improve Your Hotel Room Rate Pricing Strategy

Real-time market intelligence tools enhance a hotel's room rate pricing strategy by providing timely and relevant data on market trends, competitor pricing, and customer demand. These tools offer valuable insights that enable hoteliers to make informed pricing decisions, optimize revenue management, and stay competitive in a dynamic hospitality industry.

Here's why these tools are beneficial:

You Can Understand the Demand for Your Rooms Among Your Target MarketsReal-time tools empower hotels to make immediate rate adjustments in response to sudden changes in demand or unexpected events, helping them remain agile in their revenue management approach.

These tools can also track your guests’ booking behavior to know which rooms generate the most demand during peak and off-seasons.

It Provides Accurate, Instantaneous Data to Help Determine Hotel Room Pricing

Real-time market intelligence tools continuously monitor market conditions, including demand fluctuations, events, and local trends. Hoteliers can access the latest data, enabling them to respond quickly to changes in the market and adjust their pricing strategy accordingly.

These market intelligence tools also help accurately predict future demand based on historical data and current trends. This enables hotels to set room rates proactively, maximizing revenue during peak-demand periods and avoiding overpricing during low-demand periods.

It Improves Your Competitive Pricing Analysis.

These tools allow hotels to track their competitors' room rates in real-time. By understanding how rivals are pricing their rooms, hotels can position themselves competitively and make pricing adjustments to attract more guests without sacrificing revenue.

Generate More Personalization Opportunities

With real-time data, hotels can personalize their pricing strategy based on guest preferences, booking patterns, and customer segmentation. This approach can increase customer satisfaction and loyalty, leading to higher profitability.

How You Can Benefit From Business Intelligence Tools for a Hotel Price Strategy

The hospitality industry increasingly adopts business intelligence (BI), leading to numerous advantages. By harnessing analytics and big data, hotels and other hospitality establishments can effectively analyze booking patterns, assess the success of promotions and advertising, and evaluate customer satisfaction. Let's explore the benefits of BI in the hospitality sector.

Rate Visibility

Business intelligence tools can benefit the cost of hotel pricing by providing valuable data insights that enable revenue managers to make data-driven decisions. With BI tools, hotels can analyze market trends, competitor pricing, historical data, and demand patterns to set optimal room rates.

By identifying pricing inefficiencies, hotels can adjust rates to maximize revenue during peak periods and implement strategic discounts during low-demand periods. These tools also enable hotels to monitor the performance of pricing strategies and adapt them in real time, leading to better cost management and increased profitability.

Time Efficiency

Business intelligence tools empower hoteliers and revenue managers by offering daily reports, enabling faster responses to unforeseen situations. The ability to drill down into operational data and access customized reports provides a clearer understanding of the business's current state.

Equipped with this valuable information, hoteliers can swiftly make adjustments directly impacting business performance, eliminating the need to wait for weekly or monthly updates. These tools allow your other team members to accomplish other valuable tasks, saving more time.

Competitive Edge

The hospitality industry, especially hotels, is a competitive environment. This means you must always consider, assess, and understand your competitors, especially their pricing. Business intelligence tools can help you with data analysis. They can access market data to help hoteliers optimize pricing and generate better marketing strategies.

Reporting

Business intelligence tools can significantly aid in reporting data for hotel pricing by automating the collection, aggregation, and visualization of crucial pricing information. These tools can integrate data from various sources, such as booking systems, revenue management platforms, and competitor pricing data, to create comprehensive pricing reports.

With BI tools, hotels can generate real-time pricing performance dashboards, historical pricing trends, and competitor benchmarking reports, offering a clear and concise view of pricing strategies' effectiveness.

This enables revenue managers to make informed decisions, identify opportunities for optimization, and adjust pricing strategies promptly to maximize revenue and maintain competitiveness in the market.

Real-time Market Data

Hotel bookings can be sourced from various channels, including websites, online travel agencies (OTAs), local travel agents, and global distribution systems (GDS). Analyzing this raw data individually can be challenging.

Hotel business intelligence simplifies the analysis of raw data, enabling you to identify the most profitable booking sources. This valuable insight empowers your management team to make informed decisions about marketing strategies and target demographics more effectively.

Forecasting Demand

Big data analytics in hotels enables the integration of historical, current, and predictive data, providing a comprehensive and extensive view of business insights. This approach is vital for efficient hotel operations, as it allows learning from past experiences and strategic planning for the future.

Hospitality business intelligence tools facilitate the comparison of various metrics across different timelines, enabling hotel management to assess the effectiveness of their strategies and take timely actions to prevent potential issues.

Whether it's analyzing occupancy rates, pricing strategies, or the volume of reservations from specific sources, having informed insights on these factors is crucial for the success of the hotel business and helps in making informed decisions accordingly.

Ease of Use

Most business intelligence tools are designed to be user-friendly, with intuitive interfaces and drag-and-drop functionalities, making them accessible to non-technical users. These tools often provide pre-built templates and dashboards for common data analyses, enabling users to get insights without extensive technical knowledge.

Hotel Pricing Strategy Example

Hotel pricing strategies vary, but it’s always best to incorporate several for better efficiency. Let’s look at examples of pricing strategies that can work for most hotels.

Best Hotel Pricing Strategy Tools

Hotel pricing strategy tools are dynamic platform solutions hoteliers and revenue managers can rely on to create the best pricing optimization strategy to generate the most revenue. We’ve created a list below to help you find the best tool for your property.

How HouseCountRMS Can Help With an Effective Hotel Room Pricing Strategy

HouseCount RMS offers a real-time dynamic pricing solution to maximize your hotel’s pricing optimization opportunities. It’s a cloud-based platform that guarantees accuracy and precision in analyzing historical data and forecasting. This way, you know your rates are based on a substantial amount of reliable data analytics.

HouseCount RMS feature four types of pricing solutions:

• Accurate pricing
• Automatic and real-time pricing
• Inventory type pricing
• Autopilot pricing

HouseCount RMS provides a central platform for managing hotel operations, reservations, and guest information. Having all this data in one place allows you to make more informed pricing decisions by considering historical occupancy rates, booking patterns, and guest preferences.

HouseCount RMS allows you to set and adjust room rates for different room types and periods. This introductory rate management functionality enables you to respond to changes in demand and seasonality.

Conclusion

Creating a successful hotel pricing strategy is crucial for any property, whether it's situated in a busy city or a serene countryside setting. Consider your hotel's occupancy targets, desired rates, and revenue objectives, then select the pricing strategies and room rate management approach that aligns with your property's unique characteristics.

Implement these strategies to optimize your hotel's performance and achieve your financial goals. Choose a hotel pricing strategy tool like HouseCount RMS for optimum efficiency and effectiveness. Contact Luxe Pricing today to schedule a demo.