Determining the right accommodation price

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?

Discount or surcharge?

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.

Examine your identity

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:

• What audience do you want to reach, and what is their spending pattern? Why do they stay in your hotel?
• What is the condition of rooms and the hotel overall?
• Size of rooms and facilities, including those in the hotel itself
• Service and quality of staff

Only looking at competition is not enough; combining guest experience with competition is the foundation of pricing.

Forecasting

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:

• Weather conditions (this is solely for the short term);
• Activities and events in the area—are there (extra) reasons to stay with you?
• Competitors' occupancy in the area; during full occupancy, guests will likely look further afield and consider your hotel;
• Holidays and other occurrences.
• Etc.

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.

Higher rates for more exclusivity

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.

Dare to play with prices

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:

• Better to generate limited revenue than no revenue at all;
• More guests increase the chance for word-of-mouth marketing and repeat stays;
• Higher occupancy provides a better impression for other guests;
• Daily revenues during stays can potentially increase with additional spending during the visit.

Work with restrictions

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.