The hotel industry appears to be quite glamorous and exciting to all of us. Top class hospitality, well-equipped rooms, fancy facilities, etc. – all this is done with an aim to create a seamlessly pleasant experience for guests. Needless to say, all this comes at a price which the guest actually has to pay.

However, at the back end of the hotel, things are a little more complex and tricky. The revenue leaders are often grappling with a lot of insights and information to come up with best practices for the benefit of the guest. A host of technology-driven hotel revenue management systems and processes are required to be put in place, and some good people and procedures need to be employed to ensure that the customer gets the best share of offerings, price being the most important component.

The practice of hotel revenue management has assumed a significant role in the recent years, with the techniques of revenue management being increasingly adopted by all kinds of hotels, big or small, helping them to stand out in the clutter and steer their way forward. Essentially, it is a practice wherein hotels, by the use of different tools and actions, try to achieve an optimal level of net revenues.

Pricing is certainly critical to the success of all hotels and a well-designed hotel pricing strategy can do wonders by giving a strong push to the hotel revenues. What is important is how you derive at the appropriate pricing and what kind of strategy you choose. Hence, revenue management is the new way of doing business in the hospitality industry.

Appropriate pricing strategy is a key ingredient and an important step towards hotel revenue maximization. A good price can be an indication towards healthy profit margins, which confirms growth. To a consumer, a price might seem to be just a plain number quoted by the hotel, which they might choose to vary from guest to guest or from time to time. But the reality is different.

Hotel Pricing Strategy #1- Demand-Supply Balance

The revenue leaders delve deep down into their pricing strategy to derive a perfect sense of this important aspect. One of the most important factors which is to be taken into consideration while setting the prices is the demand-supply balance i.e. demand is to be matched with the available inventory, and then an optimal price is derived by making use of data analytics. If the demand shoots up, a high pricing appears as the best solution, and vice-versa. The economics of demand and supply also suggests that lower prices lead to more bookings, but at the expense of generating high revenue. On the other hand, higher prices could lead to more rooms staying unoccupied. Price is clearly, one of the most effective variables that can be manipulated to encourage or discourage demand in the short run.

Hotel Pricing Strategy #2- Pricing Quoted by the Competition

Another key factor to be taken into account in the highly competitive market scenario is the pricing quoted by the competition. The price offered to the consumer by any hotel is most often compared – with other hotels or with different aggregation channels which are known to offer the best rates in the industry most of the times. Yes, it is important to make sure that there isn’t a high fluctuation in the price range across different channels in the industry. If the competition is offering lower prices than you, it might mean a loss of a significant chunk of your business. Thus, it is important to be updated with the industry trends and act in line with them.

Hotel Pricing Strategy #3- Hotel Images

The pricing strategy must be in line with the hotel image. Setting your prices without a thorough grasp of your overall objectives can destroy any brand-building efforts. A three-star hotel offering the rates of a five-star property is likely to confuse the customers who might choose to move away, causing a permanent damage, possibly beyond repair.

The emergence of multiple channels of online booking has led to a greater transparency in the price offerings, helping the consumers in decision-making. Any deviation in prices from the ongoing market trend catches the attention of the travellers very soon. It is a common behaviour of all consumers to raise eyebrows on any quoted price and to compare the same on different channels with an aim to steal the best offer. The online medium has made this simple.

Well, pricing is certainly critical to the success of all hotels and a well-designed pricing strategy can do wonders by giving a strong push to the hotel revenues. What is important is how you derive at the appropriate pricing and what kind of strategy you choose. Whether you use a well-refined price-optimisation system or determine your rates manually, it is utmost essential to assess all the information carefully and thoroughly to validate your pricing decisions.

Dear subscribers, we will be talking about different pricing techniques in our next series of blogs.