Pricing is one of the most challenging aspects of running a successful hotel – or for that matter any successful business.
Price too high and you lose customers. Even if you have a lovely new hotel, if you’re pricing way above the next best hotel in the area, fewer bookers will try you out!
If you price much lower than the competitor set, you are leaving money on the table. And if you price too low, the overall costs of running the hotel goes up, impacting profitability.
As we all know the reason why pricing assumes added significance in the hotel world is because of the perishability of the product – if you don’t sell a room for a night you have lost the revenue forever.
Equally, there is a sweet spot to be achieved between occupancy, average daily rates (ADR) and the operational cost of maintaining a room – which means that having a full hotel all the time at a lower ADR may not be a profitable strategy in the long run.
Pricing factors to consider
- Positioning – how is your hotel positioned in the minds of your target audience? Is it matching with what you have set out to do?
- Impact of the brand – are you heavily invested in your own brand or as part of a bigger brand. If yes, what does that brand represent?
- Competition – understand who your competitors are and what prices they charge for a period of time.
- Location – is your hotel in a city location which attracts transient travellers or a resort location where travellers specifically visit to enjoy the location?
- Seasonality – what is the impact of seasons on demand for your hotel and the destination? This could vary based on weather, events and festivals etc
- Market segments and sub-segments – what are the various market segments that your hotel is targeting?
- Source markets – where do most of your guests come from?
- Guest behaviour (eg: long stay) – does your target audience prefer short stays or long stays?
- Your room types – does your hotel have a range of room types that offer distinct differences in terms of the stay?
- Price value proposition – is your hotel perceived as good value for money compared to the competition?
- Average occupancy in the market – how is the overall market doing in terms of occupancy trends? Which type of hotel is doing well?
- Demand and supply in the local market – does the local market provide one of your target segments and how is that performing?
- Demand differences on days of the week – which days of the week does your hotel experience most demand?
- Operating cost of room/hotel (Amenities in the room, laundry, power and water, staffing, costs of 3rd party services like wi-fi) – what is the cost of servicing an occupied room versus an unoccupied room?
- Distribution cost of channels – how effective is your online and offline distribution strategy? And which channels deliver the best business quantitatively and qualitatively?
Pricing – planning the rate structure
Establish a price range
Using the information above, identify a price range for each major segment. A lot of competitor information for public channels like Online Travel Agencies and brand websites is available online. You can also gather additional detailed insights about competition and pricing from 3rd party reports like STR and Travel 360. Consider the operating cost of selling the room while establishing the rate range. For a new hotel, you may consider this of less relevance while you try and gain visibility through introductory offers. However, this cost will continue to play a key role in your hotel’s profitability and therefore should be factored in.
Understand booking cycles/patterns
Depending on the mix of target bookers for your boutique hotel, review the booking patterns of each segment and sub-segment. For example, if your hotel is in India and targets travellers from the UK, there will be distinct periods of high interest that is likely to be in the winter months in the UK. Other factors to consider include the average length of stay and spending patterns.
If however, business travellers are part of your mix, then this may have year-round demand but on specific days of the week. Length of stay is also likely to be different.
As different segments behave very differently, you will need to consider different rates and rate plans that are appropriate for each segment.
Review product and value proposition
Pricing is directly related to the perceived value of the product. So how your hotel has products that suit a specific segment eg: sea view rooms for couples or an executive lounge for business travellers will also influence the pricing. It allows your hotel to vary rates based on the value proposition.
Rate Parity & Rate Integrity
Managing and protecting your hotel’s rates consistently is key to the effectiveness of all pricing strategies. The impact of achieving consistent rates across public channels while managing to distinguish your offering on a direct channel like your brand website is necessary.
As a boutique hotel, you will want to drive as many bookings through your own brand website; however, online travel agencies (OTAs) and niche OTAs will play a key role. You may possibly also work with wholesalers and tour operators. Understanding the complex web of third-party distribution and the importance of a consistent rate strategy is key to driving more revenue and managing cost of sales through each channel.