The Basics: Variable Pricing

The first pricing strategy is to recognize the value of your rooms compared to each other. If one room has access to more amenities than others, or has an ocean side view, or has two king beds, then those are factors that add value to the room. 

Remember, customers who want a premiere product will pay more money for it. So consider which rooms in your hotel offer a premiere value. Is there a way that you can add value to some of your existing rooms to make them more enticing? Offering choices to your guests allows them to decide what’s worth the extra cost to them, and what isn’t. These choices provide greater guest satisfaction and more revenue for your business.

The Basics: Dynamic Pricing

Being knowledgeable about your busy, shoulder, and off-seasons is an important piece of your overall pricing strategy and revenue management. After all, if a product is in greater demand during a certain time period, then the price should increase to reflect that. And when demand is low, you still want to make use of your inventory, so a decrease in price will keep the guests coming in.

Weekends, holidays, local school breaks, conventions, and large entertainment events are all good opportunities to adjust your pricing to match the increase in demand. And during slow seasons, it’s better to have some business at a lower rate than no business at the normal rate. 

Let’s take a more indepth look at some of the most basic use cases in which your hotel should implement dynamic pricing. 

Start with Weekend Rates

Perhaps the most common example of dynamic pricing is “weekend rates,” which charge guests slightly more for booking outside of normal weekdays. This incentivizes people to book during the mid-week, which shores up your occupancy during these off-days, and provides more availability for those who prefer to travel on weekends, even if it means a higher price tag.  Remember, a room on a Tuesday is a different product than the same room on a Saturday. 

Don’t Underestimate Sliding Rates

Everyone knows that buying in bulk means you’re getting a cheaper price than you would from buying the same quantity in individual purchases. That’s because it’s a tried-and-true method of encouraging customers to spend more than they might have otherwise. Sure, you could buy one can of soup for $1.50, but if you buy ten cans of soup they’re only $1.00 each!

The same concept applies to hotels. If you offer a discount to guests if they reserve a room for a greater number of nights, you’re providing them with an enticing incentive. Plus, it’s always nice to give your guests a good reason to extend their travel plans.

Minimum Nights Make It Worth Your While

As a hotel, the weekends are your most important days. So if someone wants to reserve a room for Saturday night only, they might be blocking a slot for someone who might want to book Friday through Sunday. That means you could be missing out on two days worth of income for that room. A boutique hotel peppered with one-day bookings during their busy season isn’t very efficient, and could block guests who want a longer stay.

Minimum nights are the solution. You might institute a rule that says any guests must book a minimum of two nights, or that guests who book Friday through Saturday must also book Sunday–especially during your busy season. This helps you make the most of those important weekends, and discourage one-day stays that consume staffing resources for relatively little revenue.

Let’s move on to the last pricing aspect of revenue management.

The Basics: Occupancy-Based Yield Management

Think about it: the higher your occupancy, the more exclusive the remaining available rooms are. With a smaller supply sample comes higher value. Guests who are late to book are vying for a high-demand product, since there are only a few left. And where there’s high demand, the price should reflect that.

Conversely, if your availability is largely open, then it’s a low-demand product at the given price. 

Accounting for these occupancy variations with price adjustments is called yield management. This can be put into effect with a few simple rules. Here’s an example. When your occupancy is at 30% or lower, decrease your rates by a certain dollar amount or percentage. When your occupancy is at 70% or higher, instead increase your rates. 

It’s a very simple method, but shockingly effective. This can help to account for the shifts in demand that you can’t predict. So when there’s an unexpected surge in travel on a particular weekend, you’re remaining competitive and priced appropriately.

17 Hotel Pricing Strategies: A Deep Dive

1. Occupancy-based pricing: This dynamic pricing strategy aims to maximize occupancy in your hotel. When occupancy on a given date is low, your rates drop to capture additional reservations. As occupancy increases, so do your rates. Every date is priced independently to capture the highest possible occupancy, with the goal of selling out.

2. Segment-based pricing: The old revenue management adage says you should sell the right room at the right price, but segment-based pricing asks you to sell the right room at the right price to the right type of guest. When you look at your various guest segments, like corporate travelers, groups, and OTA guests, they each have different stay patterns and willingness to pay. Segment-based pricing sets different rates for different segments.

3. Length-of-stay pricing: This pricing strategy enables you to set different rates based on how many nights the reservation includes so you can optimize for ADR or occupancy. For instance, if you know your hotel gets high demand on New Year’s Eve but struggles to fill rooms on January 1st and 2nd, you could set more competitive pricing on 3-night stays over New Year’s Eve in an effort to grow length of stay over that period.

5. Day-of-week pricing: Like length-of-stay pricing, day-of-week pricing aims to shift stay patterns to achieve better RevPAR. If data shows that Sundays have consistently low occupancy, for instance, you might choose to deploy lower rates for Sunday nights in an effort to increase occupancy on that day of the week. Similarly, you might choose to increase rates on the days of the week that get consistently higher occupancy.

6. Cancellation policy pricing: The most popular way to run a cancellation policy-based pricing strategy is to offer a discount on non-refundable rates, but that’s not the only option. You could also give guests the choice to pay a standard rate for a moderately flexible cancellation policy while offering an upcharge for a fully flexible policy. The main guiding principle with cancellation policy pricing is that more restrictive cancellation policies come with lower rates.

7. Forecast-based pricing: A prerequisite for forecast-based pricing is adequate historical and market data that allows you to paint a picture of what demand will look like for future dates. Based on this forecasted demand, you can set prices accordingly. This pricing strategy works to capture the optimal balance between occupancy and rate to maximize your RevPAR.

8. Competitor-based pricing: Why go to the trouble of developing an intricate pricing strategy if you can let your competitors do all the hard work? With a competitor-based pricing strategy, your hotel’s rates mirror the rates your compset is selling. While this can be an effective strategy, you need to have a reliable rate intelligence tool that will shop your competitors and adjust your prices up or down in response to changes in your compset’s prices.

9. Demand-based pricing: If you’re intrigued by forecast-based pricing but lack the necessary historical data to build a sound forecast, then a demand-based pricing strategy can be the best approach to set rates that respond to the peaks and valleys of compression in your market. As you develop this strategy, you’ll want to thoroughly research events that drive demand in your market, such as concerts, conventions, sports games, and holidays.

10. Penetration pricing: Another pricing methodology that focuses on capturing at least your fair share of market occupancy is penetration pricing. In this strategy, you start with lower rates than your competitors far in advance. This way, you fill up rooms faster than your competitors do, and you gain more penetration in the market. As the check-in date approaches, you bump up rates, but you’ve already gotten a head start on occupancy compared to other hotels in your market.

11. Rate parity pricing: The goal of this strategy is to maintain rate parity, which is the practice of selling exactly the same rate on every booking channel, from your own website to the OTAs. Rate parity pricing will help you stay in the good graces of the OTAs, who often penalize hotels with cheaper pricing elsewhere by pushing their listings lower in the search results. This strategy can also convey trust to guests when they see you are maintaining the same prices everywhere.

12. Discounts and promotions: A promotional strategy can be an excellent way to secure additional occupancy over need periods. The difference between deploying promotions and simply dropping rates is that guests actually know that promotional pricing is special, thanks to merchandising like strikethroughs or discount tagging. When you simply drop rates, and no merchandising is visible, guests don’t know that the rate they are booking used to be higher. Promotions are flexible enough to use on specific booking dates, travel dates, room types, rate plans, and even on specific channels.

13. Loyalty-based pricing: Reward your loyal guests with special rates according to a loyalty-based pricing strategy. One way to execute this strategy is to set up an email campaign that sends promotional codes to guests who are part of your loyalty program or have already stayed at your hotel a number of times. While this strategy can help you boost your direct bookings, you want to be careful to not dilute ADR by giving discount codes to guests who would have paid full price.

14. Upselling: If your hotel has many room types, one effective way to raise ADR can be to implement an upselling strategy. This kind of pricing strategy involves offering room upgrades to guests for an additional nightly fee. The offer is typically made soon after booking (like through a pop-up on your website or via email) or upon check-in.

15. Cross-selling: Similar to upselling, cross-selling can be another exciting initiative to boost ADR. A cross-selling strategy would deploy special offers for guests to book add-ons like spa services or F&B credits in addition to their room rate. These add-ons might be available at a special price when reserved ahead of time, so you can lock in incremental revenue at the time of booking.

16. Packaging: Another path to growing ADR is selling packaged rates, especially if your hotel gets a lot of leisure demand; these packages could be classics like a romance package (room rate plus amenities like a bottle of champagne and chocolate-covered strawberries) or a parking-included package (room rate plus a discounted parking fee), or you can get creative with truly unique packages that guests can’t find at your competitors. Either way, packaging can be a great way to increase ADR and drive direct bookings, since packages are usually only available on your own website and not on OTAs.

17. Booking window pricing: A booking window-based strategy is a great way to lock in base far in advance. This strategy involves offering discounted rates on reservations booked weeks or months before the check-in date. You might choose to offer these discounted rates only on non-refundable reservations to truly lock in the occupancy.

Here's Why it's Important for Hotels to Test & Experiment with Different Pricing Strategies

Hotels need to test different pricing strategies to develop an effective hotel room pricing strategy that can increase revenue and boost occupancy. Effective hotel revenue management strategy requires hotels to use historical data, occupancy-based forecasting, and real-time market demand to determine the right pricing for their hotel room rates.

Hotel pricing strategies involve setting different prices for different rates, room types, and guest segments. By testing different pricing strategies, hoteliers can optimize their ADR (average daily rate), RevPAR (revenue per available room), and bottom line by finding the optimal pricing that balances operational costs with market demand.

Different pricing strategies can include dynamic pricing, peak-season pricing, off-season pricing, competition pricing, and occupancy-based pricing. Additionally, hotels can use different pricing for different distribution channels, such as OTAs, travel agents, and direct bookings, and use additional services such as cross-selling and upselling to increase revenue.

Testing different pricing strategies can also help hotels to determine the impact of factors such as cancellation policy, length of stay, repeat guests, social media, and discount codes on their bookings and revenue. By adjusting their pricing based on these factors, hotels can increase revenue and boost occupancy.

Overall, effective pricing strategies are essential for an effective hotel business, and testing different pricing strategies can help hotels to find the optimal pricing for their target market and increase their revenue.

Conclusion: Experiment and Measure Your Results

Remember, your prices don’t have to be written in stone, but should instead flow with market demands based on the basic revenue management principles of Variable Pricing, Dynamic Pricing, and Yield Management. An effective revenue management strategy is one that evolves over time, and there’s no better time than the present to start.

Which pricing strategies will work best for your hotel? Where do you see areas of opportunity in your occupancy or ADR performance? Based on your hotel’s unique market positioning and business goals, you should apply a few pricing strategies that will help you hit the targets that matter most.