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.
Common pricing strategies
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.
This approach is the starting point for many properties’ pricing strategies. The idea of demand forecasting is to put together a picture of how high demand is likely to be at any given time, so you can change how much you want to charge accordingly.
This involves looking at historical occupancy and rates, as well as other factors like average spend per room, competitor information and local events. You can also learn about current travel trends and use the bookings you already have to help you.
A good example of demand forecasting in action is seasonal pricing – when you adjust your rates at different periods of the year.
If you’re in a summer-holiday destination, it makes sense to raise your prices for high season, while during low season you might want to lower them again. Or perhaps you want to raise prices for low demand periods so you get more value out of a smaller customer base? When you have all the facts, you can make an informed decision.
Another example is weekend vs. weekday pricing. Generally, weekend prices are higher – but if you cater to a lot of business travellers, you may realise it would be better to raise your prices during the week.
Dynamic or time-based pricing
Next, we have dynamic pricing – so called because rates are less fixed than with traditional pricing methods.
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.
Segment based pricing
Segment based pricing is offering the same room to different customer groups at different prices. Here are some examples of different segmented rates you could set:
Advance purchase, non-refundable
Competitive pricing combined with a non-refundable policy to lock bookings in ahead of time.
Standard rate, more flexible on cancellation
Your standard room price, with a reasonably flexible cancellation policy. You could even include breakfast if you want to make it more attractive. This rate should be good value for your guests and good for you, too.
Your highest rate, even more flexible on cancellation
Your highest rate, with free cancellation – or the most flexible cancellation policy you’re willing to offer. This rate will make the price of your standard rate look better. We’d also recommend including breakfast with this one.
Business traveller rate
A special rate for corporate travellers. Offering this kind of rate can help you attract guests who travel on weekdays all year round. Happy business travellers also tend to be repeat guests.
A discounted rate for guests who book last-minute. This will help you to fill up any empty rooms and make last-minute bookers more likely to choose your property.
Another form of segmented pricing is based on the length of stay. This means setting a deal for a particular number of nights. For example, you might offer a cheaper price for a three-night stay to attract guests looking to take a long weekend. The same applies for special occasions like New Year’s Eve. However, you should be careful how you use this, and make sure you are catering to the right audience for your destination.
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.
Rate parity involves maintaining consistent rates for the same room across all channels – so on OTAs, your own website and any other places guests can book a stay. Taking into account the commission you pay to OTAs, having the same rate on your own website can actually make you more profit per reservation.
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.
One way to take advantage of that is 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. An open pricing strategy 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, take a look at these tips.
How far in advance should you be bookable?
12 months ahead is the ideal – but that’s not to say you should set your prices a year in advance and not touch them again. Make sure to keep an eye on the market and regularly adjust your prices according to your strategy. This might seem like a challenge to master, but not if you choose the right pricing tool to help you.
Using tech to tackle more complicated pricing strategies
Until recently, more complex strategies would’ve been almost impossible to carry out for small-to-medium-sized independent properties – at least without the help of a revenue manager.
Luckily, that’s not the case anymore! Properties of any size can take on approaches like dynamic or open pricing thanks to the ever-evolving technology in the accommodation industry. And with stats showing that more than 80% of hotels aren’t using any sophisticated tech to help them with their pricing strategy – there’s still plenty of room for you to get ahead of the game.
If you’ve been inspired to try a new approach to pricing and rate management, you can explore solutions in the BookingSuite App Store.