The right pricing strategy is crucial when managing a hotel. If the rate is too high, customers will turn to competitors, that offer better price/quality ratio. If you charge much less than your competition, you may not cover the hotel operational cost.
Make the necessary room rate adjustments to reach the ultimate business success. In order to do that, avoid the 10 most frequent mistakes that hoteliers make when pricing.
Mistake 1: Selling rooms and services separately
You do not offer customers to pay for more than just a room: breakfast, transfer or city tour. By ignoring added value, you miss another chance to offer the best deal to those who book on the hotel website.
How to fix: Sell more products at the same time in packages. Make the rate for the actual room lower than the identical one, if booked on its own. Offer extras like SPA-treatment or meals to guests as a packaged deal. This will not affect the price parity, as the price of a room is "hidden" behind other services.
Mistake 2: Leaving an upgrade out
You do not encourage guests to spend more on the current booking. This prevents you from getting higher average bill.
How to fix: Offer upgrading options during the booking process. Let guests pay slightly more for a room with a view and better facilities or a bigger size bed.
Mistake 3: Forgetting about extras
You do not sell extras on top of the booking that guests already made. This is called "Cross Selling".
How to fix: Sell local tours, massages, meals or car rental after a booking has been made, but before a guest arrives. For this purpose, send promotional emails a couple of days before a check-in or a welcome-letter along with links for booking additional services.
Mistake 4: Same conditions for all types of guests
You do not divide guests into segments according to the purpose of visit, frequency of stay and cancellation ratio. Thus, you do not lower the rates for the segments that you make the most profit of in order to attract them.
How to fix: Lower prices for corporate guests and travel parties, especially if they book a significant number of rooms/meals at once. Partner travel agents and offer them a different rate, so that they sell your rooms in packages.
Mistake 5: Having LOS out of control
You do not modify the room pricing based on minimum or maximum length of stay to increase occupancy. This makes you lose more opportunities for revenue, as guests are not encourages to stay longer.
How to fix: Set different rates for 1, 2, 3 nights. If the demand is low, offer lower rates in order to encourage guests to stay multiple nights. When demand exceeds supply, introduce a minimum number of nights. It is best to apply this strategy during festivals and vacations.
Mistake 6: Introducing unprofitable cancellation policy
You do not give guests any options in terms of cancellation policy. In case of cancellation, when not being able to sell the room again, you just lose money. Even if the cancelled rooms are sold, you miss the opportunity to benefit from them twice.
How to fix: Introduce a policy of no cancellation during peak seasons and a refundable one when demand is low. Charge less for non-refundable rooms. Charge higher rates to let guests get a refund in the event of cancellation.
Mistake 7: Letting guests go after departure
You do not offer discount coupons or promo codes. Thus guests who first book on OTAs are not motivated to book directly on the hotel website. They may not want to re-book if they are not stimulated by a discount. This means, that you do not earn revenue through repeat customers.
How to fix: Send discount codes via email or SMS to guests after departure. Offer guests to stay for a couple of nights at a lower rate on their birthdays or wedding anniversaries. Run a hotel loyalty program to increase chances that existing guests will visit again.
Mistake 8: Ignoring the competitors
You do not monitor your competitors’ room rates, so you have no understanding of what guests are ready to pay for a hotel room. You do not see how their guests react to special offers that they run. This means that your rates may not be competitive.
How to fix: Consider hotels of the same category and star segment. Study their pricing strategy to understand when they are increasing/decreasing rates, what discounts they provide. Match prices while offering value to guests: for example, match rates with a competitor hotel that does not have a pool, if you have one, to become a favourable choice.
Mistake 9: Stable rates no matter the season
You do not base rates on supply and demand. This leads to losing business profit both at peak and off-season. You either have no rooms left to host those who are eager to pay more, or have vacant rooms that some guests cannot afford.
How to fix: Increase room rates when demand outweighs supply, for example during the peak season. Charge more for remaining rooms, when most of them are occupied. At low demand season, charge less to attract guests.
Mistake 10: Not forecasting
You do not take into account statistics on occupancy and demand during particular months, seasons, local events and promotion periods. You cannot foresee the number of rooms that will be available for future dates, so you do not have time to make necessary pricing changes when demand shifts.
How to fix: Study your booking history. If one room category is booked more often than others, charge a bit higher for it. Use data of previous years to make better pricing decisions. Increase room rates at times of higher demand, for example during annual local events. At times when you historically experienced low demand, either lower prices to build demand or raise them to make the most out of small customer base.
Altering your rates to match the supply and demand is necessary for making your prices both competitive and profitable. Sometimes it means manually changing prices every day. This is referred to as "dynamic pricing" strategy. To save time and effort, use TravelLine Price Optimizer — a tool that automates managing dynamic rates. Get daily price recommendations based on season, events and rates of competitors.