In the revenue management process of hotels and accommodations, determining the right accommodation price is an ongoing task. Significant revenue increases within hotels can result from accurate pricing.
Gepubliceerd op 15-06-2020
Determining the right price for hotels and other accommodations within the revenue management process is an ongoing job.
Typically, hotels with over 40-50 rooms are continually fine-tuning their pricing. Smaller hotels and bed and breakfasts, on the other hand, usually maintain the same rates. This is unfortunate because the average price per night for sellable rooms (RevPAR) can significantly rise with the right dynamic pricing.
The reason this process often receives insufficient attention is largely due to the fact that determining the correct accommodation prices is complex. When you ask hoteliers how they price their offerings, you often receive responses with limited justification, such as “gut feeling, experience, and competition.”
How do you determine the best price for a night in your hotel/accommodation?
It’s all about the presentation. Is the glass half full or half empty? Are you offering a discount or applying a surcharge?
The way pricing is communicated is important to avoid any misunderstanding. Which sounds more appealing: offering discounts during weekdays or applying surcharges on weekends? While both methods result in the same amounts, discounts are naturally viewed as more attractive.
A logical first step in revenue management—or even pricing—is reviewing competitors' pricing in the nearby area. You do not want to price yourself out of the market. Still, it's important to consider your own identity:
Only looking at competition is not enough; combining guest experience with competition is the foundation of pricing.
This again highlights the importance of measuring and registering the occupancy rate. Not only to determine the correctness of pricing afterward but certainly to determine prices in advance. By using occupancy results from the past, a cautious expectation can be forecasted for future occupancy. Pay attention to:
There are plenty of options to combine past results with a forecasting model based on external influences. By examining both back- and forward-looking metrics, we can optimize accommodation revenue.
A common trick is to raise prices as occupancy increases. For instance, if you have ten rooms available for a period that generally underperforms, you expect an occupancy rate of 50% (therefore 5 rooms) when comparing with the same period from the last two calendar years. We want to exceed this, so we start with a lower room price. This is likely to bring in bookings for that period. Once some rooms are booked, we can carefully begin to tier and gradually raise the prices. This creates scarcity and we try to maximize revenue from that period. If we can't fill the period, a last-minute promotion is always worth a shot. This doesn't always have to mean bottom pricing; it can also be an offer change—like a free breakfast or a partnership with a local business, for example.
An active revenue management process will almost always yield positive results. Therefore, feel free to experiment with pricing; it is not uncommon to operate below cost occasionally. This should not become the regular practice, but it can definitely be utilized sporadically and provide benefits:
Applying limitations or, alternatively, flexibility can influence pricing. A non-cancellable reservation presents low risk and can benefit from a more attractive amount. A longer stay reduces overhead costs and is therefore beneficial. Advance payments can also give a hotel leverage over actual payments and revenue.