As an hotelier, you are always wondering about what you can do next to increase your hotel’s revenue. You can take numerous initiatives to boost your top line, but probably one of the simplest ways is by taking the price optimization approachCharging the right price, for the right offering, to the right customer, at the right time.

The question is – how do you arrive at the right price, or rather, the right set of prices? After all, the optimized price would keep changing based on dynamic market conditions.

An optimized price is one at which a guest appreciates the quantum of value that they are paying for at that point in time. A price point which is truly optimized will lead to earning more revenue or RevPAR (revenue per available room), not just increase your occupancy, or ADR.

Revenue managers have used a variety of approaches to price optimization. However, most of these approaches are only suited for increasing occupancy or ADR. To drive meaningful gains in RevPAR, many of these approaches are insufficient.

In fact, the only reliable way to consistently determine optimum prices that will maximize your hotel’s revenue is to employ a scientific pricing methodology. A robust methodology that is based on sound principles of logic, economics and scalability.

To sum it up, scientific pricing is no longer a luxury, it’s a necessity (In fact It’s a Lamborghini you can buy, immediately and the best part is that it pays for itself – how cool is that?). Technology has made is easy to implement pricing that helps you increase RevPar, ADR and occupancy without investing a ton of time, effort or money for that matter.

To understand better what the scientific pricing methodology is, let’s begin by examining what it is not.

Here are a few approaches which are not scientific…

Using gut feeling

Relying on gut feeling, or intuition is simply not enough to determine optimum rates nowadays.

There are too many factors which influence pricing and using gut feeling is completely ignores these factors. Besides, your competitor is probably using a far more systematic method to arrive at their pricing which would be far more successful.

Using historical rates only

Historical rates can be an indicator of pricing trends, but that’s all. Pricing trends is hardly the same as pricing. Referring to historical rates can give you an idea of the direction of pricing, but not the optimum rates, at which you would maximize revenue. Following historical pricing also assumes that the price charged in the past is optimum, which is a flawed premise.

Using only competitor rates as the basis

The problem with using only competitor rates is that they only look at a single aspect of pricing. Your optimum price is subject to factors like supply constraints and online reputation too. Not taking those into consideration will give you a limited perspective of what your pricing should actually be.

Depending on spreadsheets to calculate rates

Revenue managers create spreadsheets often incorporating different sources of data and create their own algorithms to calculate optimum rates. However, this approach is hardly scalable in a world where huge volumes of data needs to be crunched to arrive at optimum rates. It’s also important to note that working on spreadsheets can hardly keep pace with rapid price movements that characterize today’s markets.

Now that we know what does not constitute a scientific pricing methodology, let’s examine what is scientific pricing.

Such a methodology…

  1. Would take the relevant factors into account in calculating an optimum price, and would therefore be logically sound, as well as accurate. More about these factors in a minute.
  1. Would be process driven: Which means that a revenue manager would consistently follow the same process in determining the optimum price.
  1. Would be scalable: A revenue manager should be easily able to continually replicate the process and scale it up, irrespective of the number/ type of rooms in the property.
  1. Would be fast: The methodology can be applied at a speed which would match the pace of market movements. Market factors change rapidly, and if revenue managers aren’t fast enough, they will not be able to determine the right price in time to distribute those prices.

What about the factors which we spoke about earlier?

A scientific pricing methodology needs to take into account the following factors:

Competitor prices:

You select a competitive set of hotels and use their prices as a benchmark to arrive at your rate.

Reviews and Ratings:

Few travelers make a booking today without going through reviews. The reviews about your property impact the prices that customers will be willing to pay to become a guest.

Market compression:

Prices are determined by the interplay of demand and supply. The supply of available rooms in the market increase or decrease the choices that customers have. Therefore, supply plays an important role in the price equation.


How much you charge will also be a factor of your desired occupancy level.

The key thing to note should be that prices today are influenced by technology – mobile devices, booking sites like OTAs, mobile sites, hotel brand sites, metasearch sites; review sites, social media, automated booking systems. We are operating an ecosystem of technology which has a life of its own, which is reaching levels of complexity that cannot be deciphered or analyzed with manual means. The only way to thrive in such a world is to use technology to understand this world.

Take the Technology Advantage

Therefore, a scientific pricing methodology must inevitably be based on technology. A Price optimization software, like RateGain’s RevGain, has the ability to crunch enormous volumes of data across multiple factors, which is clearly impossible through any manual or spreadsheet-based means. Employing a software is also the only way you can take complex pricing decisions at speeds which match the rush of the multiple market dynamics at play.

The hotel price optimization landscape is only going to become increasingly complex day after day. However, that’s not something that you need to be concerned about any more. Not if you use software that lets you take scientific pricing decisions, and helps you make more revenue every day. It’s time to move beyond outdated pricing methodologies and embrace the exciting new world of scientific pricing.