Pricing strategy basics to make the most of every hotel booking

Whether you run a high-end hotel, a budget apartment or something in between, sooner or later you’ll need to decide on a pricing strategy.

How much should you charge for your rooms? When should you vary those rates, by how much – and for which guests?

If you want your business to be successful, you’ll need to face these revenue management challenges and find solutions that suit your property. After all, setting the right prices will help you secure more bookings and make more profit.

In this article, we’ll look at some of the most common approaches to pricing, and evaluate their pros and cons.

Five common pricing strategies

1. Single rate

This is the simplest approach possible, with one rate available for the whole year. It’s easy to implement, but properties that use a single rate miss out on a huge amount of profit every month.

2. Weekend/weekday pricing

This involves a basic split between weekday and weekend prices. Generally, weekend prices would be higher – but if a property caters to business travellers, they may set higher prices during the week. This approach is the starting point for many properties’ pricing strategies.

3. Seasonal pricing

With seasonal pricing, you adjust your rates according to the demand at different periods of the year. If you’re in a summer-holiday destination, it makes sense to raise your prices for that period. Conversely, to attract bookers during low season, you’ll usually need to offer lower prices.

4. Budget-driven pricing

Everyone has their own financial targets. But when you focus solely on these without looking at the market, you can often end up selling yourself short – either because you over- or under-price your rooms. Of course, you’ll have to consider your property’s needs and resources – but this information has to work in combination with other factors.

5. Length-of-stay pricing

These are deals for guests looking to stay for a specific length of time. For example, you could offer a cheaper price for three-night stays as a way of attracting bookers who tend to travel for long weekends. You could also set up three-night prices for special events like New Year’s Eve. While this can be a good way of securing extra bookings, it can also be restrictive because you may not be catering to the most dominant target audience in your area.

Once you’ve mastered the basics, you can move onto smarter ways of getting more profit out of every booking.

Selling online gives you an amazing opportunity to access a lot of data. Not only data about your guests, but also seasonal trends, competitors’ rates and day-to-day demand.

Dynamic pricing

Let’s start with dynamic pricing, so called because rates are less fixed than with traditional pricing methods. That’s because this approach is more dependent on demand in different countries and segments. Essentially it’s a more sophisticated way of working out the most profitable rates for your business – depending on who you’re selling to, and when.

Dynamic pricing tends to use the best available rate (BAR) as a base. That’s the lowest standard rate that you’re prepared to offer to all guests. Generally, all other rates will then work off this figure, often as a percentage.

For example, you might offer a 20% discount for OTAs (online travel agents) and a 10% discount to loyal customers. Whenever you change your BAR (based on factors like day-to-day demand), the other rates will change with it.

On top of that, you can include certain in-built thresholds, so if your property hits 50% or 70% occupancy, the conditions would change. Some of your channels would automatically close, and other restrictions such as minimum length of stay would also automatically come into play. These are conditions that you can set up in the system beforehand.

Using this kind of dynamic pricing is attractive because it’s simple – you set up your conditions and your base rate, and off you go. However, it does mean that you can miss out on revenue because of closed channels, or because your set percentage discounts on OTAs are greater than they should be on high-demand dates.

Open pricing

The solution to that is known as open pricing. Because hotel technology now allows you to track and bring together data from a lot of different sources, you can now be even smarter with your rates. Open pricing is based on different rates for each offer, room type and even segment on a daily basis.

When your occupancy hits those thresholds of 50% or 70%, instead of closing off channels (and losing potential bookers), you can simply raise the price across the board – and get even more value for your remaining rooms. With this system, your prices can shift up as the demand increases, meaning you bring in more revenue from guests who are willing to pay a bit more.

If you’d like more detail on how open pricing can help you maximise revenue for each and every room, have a look at these tips.

Until recently, a strategy like this would’ve been almost impossible to carry out. There would’ve been too much data, from too many sources – and the data would’ve been constantly changing, making it difficult to keep track of. However, nowadays properties of any size can take on sophisticated approaches like open pricing thanks to ever-evolving technology in the accommodation industry.

BookingSuite’s RateIntelligence brings together useful data like your competitive set’s rates, local events, demand trends and more – giving you all the information you need to set your rates with confidence.

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