Pricing 101: A Guide for Independent Hoteliers

One of the most challenging things for hoteliers is determining how to price inventory. Charging too much will deter customers and increase vacancy, while charging too little can significantly undercut your revenue. It’s not an easy problem to tackle, and there are a few different approaches that can be taken. Here’s a quick overview of the various pricing strategies utilized by lodging operators.

Cost-Based Pricing

Cost-based pricing strategies are the easiest to implement. Hoteliers simply calculate the sum of all expenses involved in running their hotel, divide that cost by the number of units at the property, and then markup each unit based on the profit they hope to make. This is a logical approach to pricing that aims to ensure expenses are always covered, but there are certainly some drawbacks. Without accounting for the state of the market or the perceived value of what you have to offer, opportunities to maximize revenue could be missed.

Customer-Based Pricing

Taking a customer-based approach to pricing is a bit more labor intensive. This strategy requires a hotelier to understand who their customers are and determine what they are willing to pay for a particular room or package. Because rates are determined by the perceived value of a unit (as opposed to the actual cost), adopting this type of pricing offers the best potential for maximizing profit. But make sure your pricing decisions are backed by thorough analysis. If you over-estimate the perceived value of a stay at your establishment, customers won’t have a problem choosing a cheaper competitor.

Competitor-Based Pricing

Another approach for determining appropriate pricing is to base decisions on competitors within your market. Hoteliers that use this strategy do a complete audit of rates offered by similar operations in their area and then adjust their own accordingly. To use this method effectively, it’s imperative to make appropriate comparisons (single rooms to single rooms, and so on) and then decide how you want to respond. Depending on your property and the market, you may choose to:

Price match>> This strategy involves setting room rates at the same price point as a competitor offering a similar experience (although you don’t necessarily need to do this for all unit types). Price matching ensure you’re in the running for customers looking for the best deal.

Price high>> Setting your rates higher than other operators signals to browsers that your property has a higher value. If the customers in your market prioritize quality, this could encourage bookings and improve your average daily rate (ADR). If you use this pricing structure, make sure to justify your higher rates with superior service and amenities.

Surround the middle market>> Another strategy involves setting your most basic room as the cheapest in the market while pricing the rest similar to the first available rates offered by your competitors. This is called “surrounding the middle market.” Essentially, it allows you to get customers looking for the best deal while also snagging those willing to pay a little extra.

A Combination

Many operators use a combination of these approaches. You may start with cost-based or competitor-based strategies as a new operator but later transition to customer-based pricing once you have the means to do a proper analysis.

Psychological Pricing

Whatever strategy you choose, avoid round-number pricing. For example instead of offering a room for $100, offer it for $99. Instead of setting a rate at $150, set it at $149, and so on. People associate the number nine with getting a deal and studies have shown that room sales increase when establishments adhere to this commonly used structure.

 

There are many different approaches to take when setting pricing for a hotel. Each has its advantages and shortcomings and not all work for every type of property. As you play around with different strategies, use reporting to determine what works best for you.

 

Five Habits of a Successful Hotelier

Whether you’ve been running a hotel for decades or are brand new to the game, reflecting on your practices as a hotelier is always a valuable exercise. Nobody’s perfect, but taking the time to consider your methods, and making improvements where you can, will get you pointed in that direction. Curious if you’re doing everything in your power to help your lodging operation prosper? Read on to discover five habits of a successful hotelier.

Focuses on communication

Hospitality is an industry about people, which makes communication particularly important. It’s not just about being professional and engaging with your guests, but also being open and approachable with your employees. A hotel staff is a team, so everyone is (and should feel) valuable. Great hoteliers have safe, open lines of communication with their employees, offer regular feedback, and often involve staff in decision-making. A healthy company culture will directly affect the experience you provide for your guests.

Knows their customers

It’ll surprise no-one that prioritizing customer relations is essential to finding success in the hospitality industry. But it’s not just about having genuine in-person interactions with your guests (although that’s certainly important!).  Great hoteliers go above and beyond by learning about and keeping track of who their customers are as individuals. With a powerful PMS or CRM, it’s possible to log details about returning customers’ interests and preferences to surprise and delight. Is a guest consistently traveling on business? Throw in free Wi-Fi or offer recommendations for comfortable workspaces. Do you know a customer’s birthday? Send them a quick email wishing them a happy day. Personalized experiences make guests feel appreciated, and go a long way in nurturing loyalty.

Assesses the competition

Lodging operators have a lot of competition. But instead of seeing that as an obstacle to overcome, successful hoteliers use it as a means to make their operations better. Make a routine of checking out competitors’ websites, social media platforms, and physical property. What are they doing well? Where could they improve? Noticing patterns across successful operators (or similarities between unsuccessful ones for that matter) can offer critical insights which may prove exceedingly beneficial for your own business.

Keeps their head in the game

Even when their property is running smoothly, great hoteliers don’t get complacent. Hospitality is an ever-changing arena, and it isn’t good enough to simply play defense. Read articles and network with other professionals to stay on top of new trends, changes in the market, and emerging technology. And be proactive about evolving and improving your business. It’s important to set long-term goals and construct a step-by-step action plan to realize them. The most successful people (and businesses) are never satisfied merely resting on their laurels.

Recognizes the role of technology

There is a lot that technology can do for a business, and a good hotelier embraces that. Property management, reputation management, and revenue management software are only a few examples of what’s available to help streamline operations and maximize revenue. And let’s not forget the marketing potential of social media platforms. A hotel that shies away from all new technology misses out on some unbelievable opportunities to improve their business.

Now, that’s not to say you should be adopting every new system that crops up. Every business is different, and using tech for tech sake doesn’t do anybody any good. What makes an hotelier successful is their open, yet discerning, consideration of new technology that becomes available.

It’s never a waste of time to reflect on your habits as a business owner. If you’re looking to improve your practice (or are just starting out and need a few tips), consider adopting these five strategies of highly successful hoteliers.