Hotel Pricing Strategies: Essential Tactics for Success

Pricing strategies in the hospitality industry are the key to unlocking your property’s profit potential. When implemented correctly, pricing strategies allow hotel owners to optimize room rates, bolster profits and keep occupancy high. Some of the most effective strategies can be grouped into two categories: dynamic pricing – which is based around market conditions – and promotional techniques.

The Importance of Effective Pricing in Hotel Revenue Management

Dynamic pricing can have a major impact on a property. Check out this example between two fictional hotels, Aspire Hotel and Basic Stay Hotel, to see what a difference it can make.

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Aspire Hotel is run by a savvy operator who conducts thorough market research and adjusts rates based on demand, competitor pricing, seasonal trends and more. During peak seasons, the property strategically optimizes rates to maximize revenue, which it balances with targeted promotions to boost occupancy during their low seasons.

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In contrast, Basic Stay Hotel relies on a fixed pricing model, disregarding market fluctuations and competitor activity. They maintain the same rates year round, missing opportunities to capitalize on high-demand periods and struggle to fill rooms during off-seasons. When they do offer discounts and packages, they do so without considering customer segments or market conditions.

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Both hotels have the same number of rooms and are located in the same market, but Aspire Hotel consistently outperforms Basic Stay Hotel in occupancy rates and revenue. Why? Aspire Hotel understands the power of effective hotel pricing strategies. Next, let's examine some key factors to consider when crafting your own property’s pricing approach. 

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Key Factors That Drive Pricing Strategies for Hotels

When it comes to setting your hotel’s prices, the first step is to identify a goal. Are you aiming for a higher average daily rate (ADR), boost occupancy or increase revenue?

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Once you pick a goal, conducting thorough market research and competitive analysis is important for identifying pricing opportunities and challenges. You’ll want to consider demand patterns of customer segments – leisure, business, group bookings – to stay ahead of the curve, and you’ll want to understand who your ideal guest is. You also need to keep an eye on the rates of your compset, using benchmarking techniques to help you gauge where you stand and tailor your prices accordingly.

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Proactive reputation management is another key to creating your pricing strategy. To command top dollar, you need to reign supreme on key online travel agencies (OTA) and third-party platforms like Tripadvisor and Google. One easy solution for increasing rankings is to use an advanced mobile check-out tool that encourages guests to leave positive reviews on these sites. This can work wonders for your online reputation — and ultimately your pricing power.

4 Dynamic Hotel Pricing Strategies for Maximum Revenue

There can sometimes be confusion between dynamic pricing, variable pricing, and hotel yield management. Variable pricing is about adjusting rates based on factors such as room type, view or amenities. Yield management, on the other hand, focuses on adjusting prices based on occupancy variations. Dynamic pricing, illustrated below, can take revenue management in hotels to the next level by adapting to market trends and demand in real time.

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1. Seasonal Pricing
   Imagine it's peak season and your competitors are filling up fast. With dynamic pricing, you can adjust your rates on the fly to capitalize on that demand. Alternatively, during periods of lower demand you have the flexibility to strategically adjust your rates to attract more guests, ensuring your rooms are filled rather than sitting empty. For instance, if your standard rate is $150, you may drop it to $120 during low and shoulder seasons to entice budget-conscious travelers.
2. Event-Based Pricing
   Staying on top of major events and conventions occurring in your market allows you to take full advantage of the opportunities they present to adjust rates. For example, if a major music festival is coming to town, this provides the perfect opportunity to increase rates and make the most of an influx of travelers.
3. Booking-Based Pricing
   Dynamic pricing can also account for reservation-related factors such as length-of-stay, popular days, and booking windows. For example, if you operate a leisure hotel that sees the majority of your bookings occurring on weekends, it may be beneficial to offer a discounted rate on Thursday nights to encourage longer stays.
4. Forecast-Based Pricing
   By leveraging historical and market data, you can predict demand for future dates and adjust rates in response to that information. This is where pricing tools and software, such as a guest experience platform and revenue management system (RMS) come into play. An advanced RMS plays a pivotal role in optimizing room rates by offering real-time insights that empower data-driven decisions, giving you the ability to respond to market changes quickly.

Promotional Pricing Techniques to Power Profitability

Dynamic hotel room pricing strategies provide one avenue for increasing revenue, but discount and promotional offers are another key tool in your revenue management toolbox. Just like dynamic pricing strategies, these techniques can help you attract more guests, boost occupancy and drive revenue during slower periods.

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Cancellation Policy Pricing

One strategic method for promotional pricing is offering different rates based on the flexibility of your cancellation policy. You may offer a lower rate for a non-refundable booking, and a slightly higher rate for a flexible cancellation policy. This way, price-sensitive visitors can opt for the lower rate while those who value flexibility can pay a bit more for peace of mind.

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Special Offers

Another way to apply this technique is to attract customers by offering a special deal. For instance, you may offer a 10% discount for bookings that are made at least 30 days in advance, or offer a “stay three nights and get the fourth free” promotion. These types of offers can be especially effective during slower periods or for specific target markets, like families.

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Upsells

Upselling offers allow you to make the most of your property’s different room types. If you have a guest who booked a standard room coming in with three young children and you know they'll likely be more comfortable in a suite, you could offer an upgrade for a slight upcharge each night. This will not only boost your ADR but also provides guests with a more personalized experience. To learn more, get our free ebook for the hotelier’s guide to modern upselling!

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Cross-Selling

While upselling often focuses on room upgrades, cross-selling is all about those little extras that can make a guest’s stay go from good to great. Consider offering visitors a discounted spa package or the option of adining credit when they book their room. By including these add-ons at a special price, you can lock in some incremental revenue before guests even set foot in your hotel.

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Packaged Rates

Bundling services into packaged rates is another great way to create value for your guests while simultaneously driving higher revenue. You might offer a romance package that includes a deluxe room, champagne, and a couple’s massage, or you create a family package featuring tickets to a nearby theme park, a family-friendly room, and daily breakfast.

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Loyalty-Based Pricing

The cost of acquiring new customers can be up to 25 times more expensive than retaining your existing customers. In addition, loyal customers spend 43% more money at the businesses they love. You can encourage repeat bookings from your most loyal customers by offering special rates or perks.

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One great example is offering tiered discounts based on a guest's loyalty status. For instance, you could offer a 5% discount to guests who have stayed with you three times, a 10% discount to those who have stayed five times, and a 15% discount to your VIP guests who have stayed 10 or more. This type of tiered approach not only rewards your most loyal customers, but also encourages others to book with you often to unlock those higher discounts.

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While this is a great strategy that can enhance direct bookings, you also want to be cautious not to reduce your ADR by offering discounts to guests who would have otherwise paid full price. If this is a concern, another option may be to offer your loyal guests exclusive benefits in lieu of financial discounts, such as free room upgrades, late checkout, or a complimentary bottle of wine upon arrival. These little extras can go a long way in making your loyal guests feel valued and appreciated, while incurring minimal cost.

Hit the Sweet Spot Between Price and Profit

These strategies provide a helpful toolkit for creating hotel pricing strategies, but setting rates is a continual process. It’s vital to regularly monitor market trends and competitor prices to balance driving steady revenue while staying competitive.

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Additionally, pricing strategies for hotels are about more than just room rates. You need to consider total revenue management, which includes all the revenue streams flowing into your hotel, from your restaurants and bars to your spa and event spaces.

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Whether you operate a limited or full-service property, if you’d like to unlock the secrets of strategic pricing, total revenue management and maximizing profits, download Canary’s free ebook, “The Hotelier's Guide to Modern Upselling” and our guide to total revenue management.