We’re sure you recognise this: you’re setting your prices for the upcoming period, and every time, you ask yourself if there isn’t a predefined strategy you can use. The answer is simply no. Fortunately, there are several methods to achieve the highest possible revenue. In this article, we will inform you about five different pricing methods.
No time to read the whole article? Click directly on the price strategy you want to learn more about:
- Based on occupancy
- Based on forecast
- Based on market competition
- Based on the target group
- Based on rate type
What is a pricing strategy for hotel rooms?
A pricing strategy is a specific approach to sell hotel rooms as effectively as possible. A good pricing strategy increases your ADR, RevPAR and profits.
To determine the right tactic, you need to know who your target group is and what the results were from previous periods. By analysing the data beforehand, you can better justify the choices you make.
It also helps to keep an eye on some other factors, with which you can make well-considered choices. Factors that have an impact on the price are:
- High and low season
- Days of the week
- Events or other activities
- Unforeseen circumstances
- Natural disasters or virus outbreaks
- Changes in government laws
- Supply and demand ratio
- Remaining number of rooms
- Segment of the target group
- Market competitors
- Hotel related
- Types of rooms (basic/comfort/suite)
- Value of the services offered
- Operational costs, including sales and marketing
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Why is a pricing strategy important for my hotel?
The answer to this question is quite simple: a good pricing strategy ensures that your accommodation continues to grow and evolves in a mature market. It gives structure to your hotel room prices, and your approach becomes more systematic.
What is a profitable pricing strategy for my hotel?
By now, you know what a pricing strategy can do for you and why it’s so important. You also know how to prepare yourself and which factors you need to take into account to come to a good plan.
But how do you determine your hotel’s pricing strategy? There is no one size fits all option. You’ll have to try out what works for your target group and your location. Below we have drawn up five different pricing strategies that can help you on your way to making the final decision.
1. Pricing strategy based on occupancy
This strategy based on occupancy is the most used tactic and is focused on the supply and demand of travellers. For example, when there are 10 rooms available out of 40, you can choose to increase the prices and thus boost your ADR and RevPAR. Are room sales not going well? Then you can decide to lower the room prices and attract more bookers.
2. Pricing strategy based on forecast
To implement this pricing policy, you will need data from at least one year ago. By analysing this data, you can make a forecast for the coming period. In which weeks did the sales drop and can you see why the room sales in other periods went better? Also, examine the dates (per season) when promotions and special holidays took place.
Not only keep past data as a guide for your pricing but also look to the future. Holidays, weather forecasts and new trends in the market are relevant themes to keep an eye on.
3. Pricing strategy based on market competition
Competing with other local hoteliers is also an option. Not only look at the competitor’s price but also compare the service, location, reviews and types of rooms. When you have all the necessary knowledge, you know what the traveller is willing to pay, and you can adjust the prices accordingly.
Be careful not to lose sight of the bookers while competing with the opponent. Increasing the prices is interesting, but there is a limit to how much the booker is willing to pay. That being said, the room prices still have to give you a turnover with which your company can continue to exist.
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4. Pricing strategy based on the target group
A pricing strategy based on the income and wishes of the target group is another option. For example, a target group in a higher segment is probably willing to pay more for a room but expects more services as well. A guest in a lower segment does not want to spend too much but will not ask for more than a basic service. By adjusting your prices to the segment, there is a suitable room rate for everyone.
Some target groups are more prone to status, which makes them willing to pay more if your hotel has an impressive reputation. That can also be interesting to consider when setting prices.
5. Pricing strategy based on rate type
In addition to the strategies mentioned above, you can also set your prices in other ways. Think of using different rate types. For example, you can differentiate your prices by offering a basic rate, a non-refundable rate, a last-minute rate and an early booking rate.
By trial and error
It’s time to put your knowledge into practice. A price strategy will not come out of thin air, and you will find out with trial and error what is the best method for you. Make sure that you regularly check the results and adjust them when necessary. You’re not bound to apply just one strategy; many hotels change the game plan per promotion and price type and therefore use multiple strategies at the same time. Good luck!
For more than 16 years, SmartHOTEL has been helping hoteliers navigate the exciting world of online distribution. From our office based in the Netherlands and the United Kingdom, our team serves independent hotels, hostels and chains worldwide by providing channel management and tailored online distribution solutions. A lot has changed over the last years, but our goal remains the same: simply connect hotels to the world. For any questions regarding our services, please contact us at firstname.lastname@example.org or call +31 (0)182 75 11 18.