However, there’s no one right answer when it comes to pricing strategies in the hospitality industry. That’s because the price you charge depends on a variety of factors.

Does that mean coming up with the right pricing strategy for your hotel will be horrendous?

Not at all! 

In this article, you’ll know why as we discuss the most effective pricing strategies you can apply to boost your property’s revenue and stay competitive.

Importance of Hotel Room Pricing

Pricing strategy is the most important and basic one that any hotelier should consider, in order to improve revenue.

For accommodations to sustain and grow, it is necessary for them to understand the importance of pricing in the hospitality industry.
Hence, the answer to the question is simple – if you don’t want to lose your customers and competition in the market, you must set a pricing strategy. It will not only increase ADR and RevPAR but also the overall profitability of your hotel business.

What are the Basic Steps to Implement a Pricing Strategy for Hotels?

Just starting up with a pricing strategy won’t work if you’re not aware of the fundamentals of how to set hotel room rates. Below are the steps necessary to consider for creating a proper pricing strategy for your hotel:  

1. Know your target audience
2. Understand your guests’ demand
3. Analyze the data to formulate a strategy

Once you have this information in hand, it will be extremely easy to decide on your hotel room pricing models.

What are the Factors That Impact Hotel Room Pricing?

This whole game of the pricing strategy in the hotel industry becomes complex as you need to consider several factors that impact room pricing. Some of them are:

Operating cost

Operating costs include fixed monthly overheads like staff salaries, electric and water bills, internet costs, maintenance expenses, raw materials, selling and distribution overheads, cost of advertisement and sales promotion, etc. Hence, it is necessary to analyze all the costs before setting the prices to negate the losses.

Demand and market structure

Market demand has a great impact on room pricing. One has to change the prices as per demand. Someday, the demand is severely low, while on other days it is high. However, different guest segments may react differently to price changes.  

Laws and regulations by the government

In many nations, pricing is governed by rules the government sets. This prevents hotels from unreasonably hiking the prices.

Seasons

Peak and weak seasons cause fluctuation in the number of travellers to a destination. Hoteliers must account for these and change their prices accordingly to make optimum revenue.

Unanticipated circumstances

No one can predict the actual perimeter or effects of any natural calamities like earthquakes, tsunamis, landslides, cloud bursts, etc. before they occur. Announcements from the government like demonetization, a new tax regime, curfew, arrest of a VIP, etc. can also trigger a change in demand.

Now that you know the factors and basics which affect your room pricing, let’s see the best strategies you can adopt from now onward to boost your hotel revenue.

Best Pricing Strategies for Hotels to Increase Revenue

Here in this section, I have listed some of the useful hotel pricing strategies along with the factors that affect them. I’ve also given examples to help you understand and implement them better.

1. Occupancy-based pricing

Occupancy-based pricing strategy is about setting hotel room rates based on demand and supply.

Example: During the peak season, if your 7 to 8 rooms are still unoccupied, you can increase the room rates of the same for more business profit. Similarly, when there is off-season and you want to fill your rooms, you can charge less to encourage bookers to book at your hotel.

2. Forecast based-pricing

Forecasting is an important factor to consider for setting the prices of the rooms available for future dates. However, one needs a booking history of the previous months based on season, events, demands, and promotions to make an accurate forecast.

Accordingly, you can change the room rates based on the upcoming demand or expected occupancy. 

Example: If you found that you earned more revenue in last December, then you can set the pricing strategically for the coming December to earn more profit for the business.

Let’s understand it better with another example. 

When analyzing the previous data, you observed that most of your guests generally book a simple room rather than a luxury room, then you can charge a bit higher for simple rooms than usual, and even include them in your packages and promotions to sell them better.

3. Market competition-based pricing

What your competitors are doing or offering is one of the foremost things that you need to take care of to compete in the market. For that reason, you constantly need to monitor your competitors’ room rates and understand their pricing strategy. Keep in mind to compare that with your room rates to get a clear idea of how the market is trending.

When monitored properly, it will help you know what guests are paying or willing to pay for a hotel room. On the basis of all this data, you can devise your hotel pricing strategies to gain a head start among your competitors.

You can define your competitors based on factors like; property type, room rates, star category, offers or discounts, or promotion channels. Hence, it is important to consider all these factors and oversee relevant competitors to set a pricing strategy that will help you compete with them.

Further, we have an in-depth blog on competition analysis. It covers almost all the aspects of it. Give it a read to get a clear idea.

Example: When checking up with the competitors, you come to know that they’re offering a complimentary service (like one-time free breakfast or spa) to those who’re booking well in advance and long-staying guests to make more profit. Hence, you can set pricing and even create packages accordingly.

4. Segment-based pricing

Frank Zappa once said, “One size does not fit all.” 

Similarly, when it comes to pricing strategies in the hotel industry, one price cannot govern all the segments you sell your property in.

The price for corporates, FITS (fully independent travellers), groups, and OTAs will always differ from each other in terms of volume, frequency of guests, cancellation ratio, etc.

For example: Hotel Denish always sells their rooms for $100 to regular guests. However, when a company books a few rooms for their upcoming event, the hotel charges $90. The reason is hotel Denish knows that corporates usually book more rooms and giving them a discounted price will improve the hotel’s occupancy.

5. Length of stay-based pricing

In this hotel price optimization strategy, you can adjust pricing based on the length of stay of your guests. The length of stay ideally depends on the number of night packages you’re offering to your guests. An advantage of the length of stay pricing is that they are offered one rate for their entire stay based on their arrival date and total reservation night length.

The best time to apply this strategy is during festivals and vacations. Here, you want guests to stay for a minimum of a few days at your hotel so that even if you receive fewer bookings, it doesn’t matter much as the nights stayed will increase.   

The main aim of a revenue manager is to modify the room pricing based on the maximum/minimum length of stay to increase occupancy and business ROI in most cases.  

Example: Let’s say, you know that guests tend to stay for a longer period during school vacations. Or say you got a booking inquiry from a guest willing to stay for a longer period. Accordingly, you can set different packages for 1, 2, or 3 nights for the upcoming guests as per the demand or occupancy.

6. Guest type-based pricing

To build an effective hotel pricing strategy, it is necessary to understand the different market segments. You can sell the same room at a different price for different guests. Analyze the different types of guests who are visiting your hotel. 

The guests can differ as per their age, taste (of the hotel room), the purpose of visit, class/lifestyles, location, or occupation. You can observe the type of guests at your hotel, then plan and set a pricing strategy for those who bring you good business.

Example: For guests of a higher class, you can charge more for a room that is sea-facing and have all the in-room facilities. Similarly, for business travellers, you can offer a studio apartment (if you have one), or a room with meeting space or work desks at a higher rate. Whereas, for guests who have a limited budget and can afford only simple rooms, you can set pricing to charge them lower.

7. Cancellation policy-based pricing

Though it is surprising, a well-planned non-refundable cancellation policy can help you increase your revenue as it is considered one of the top hotel room pricing strategies. It is one of the most vital factors that you can include in a pricing strategy. 

A hotel room pricing strategy for hotels that is based on a cancellation policy helps in reducing loss and selling rooms at a profitable level. 

Example: You can offer a lower rate for a longer stay with a condition of no refund in case of cancellation (this will help you sell the room again if cancelled). You can set a rule of the no- cancellation policy during peak seasons, and a refundable policy (to a certain limit) during off-seasons.

8. Upselling-based pricing

Upselling is a great inclusion when you are creating a hotel price optimization strategy. In this, you can offer the “upgrade” options to the guests while they’re choosing a hotel room. Upselling encourages guests to spend more at the time of booking. 

Example: You can encourage guests to pay slightly more for a better room (with good views) with better facilities. This will also improve their experience with you.

9. Cross-selling-based pricing

Cross-selling has now become a popular factor in pricing strategies in the hotel industry. It excites customers to make additional purchases apart from the one they already booked in advance. It is also most effective while sending the reservation confirmation email to your guests. 

Example: You can offer additional services like massage, gym, popular tours, pick up and drop off services through regular promotional emails

10. Loyal customer-based pricing

This is an effective hotel pricing strategy if used correctly. There are high chances of existing guests visiting your hotel.

However, to attract repeat guests and earn revenue through them, you need to apply a proper pricing strategy. You can use discount codes (via promotional emails/SMS) for your repeat guests which can encourage them to book with you directly in the future. You can also include your hotel loyalty programs (if you run any) to welcome repeat guests and direct bookings for your hotel.

Example: You can email all your guests with some discount on vacation tours or offers to stay for 2 nights with a lower rate package on their birthdays/anniversaries on booking directly with the hotel. In addition, if the guest is a business traveller, you can add them to your list and offer special rates when they visit the city again.

So here, these are the most effective pricing strategies from my end, which you can implement easily to get more bookings.

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