When choosing accommodation, website visitors first see its price. This is why hotel price management is so important. In this post, we will describe the most popular hotel room pricing methods in detail and figure out the best one.
What room pricing methods are there
TravelLine hotel-partners usually use 3 pricing methods:
1. Flat price
The easiest method to apply is selling at a single price no matter the season and market changes. Flat price is the least efficient one, as it does not consider swings of demand. This means that the strategy does not let you earn more.
Example. A hotel sets room prices once a year. In peak season, when clients are eager to spend, the hotel loses a chance to charge more. In the off-season, its high rates scare away potential guests.
2. Seasonal prices
This is the most popular method in the hospitality industry. Seasonal price adjusts to the demand in peak season and off-season. The flaw is in ignoring market changes. The market situation differs day after day, not twice a year.
Example. A hotel sets prices based on last year’s booking history and occupancy. The hospitality market is constantly changing, that is why demand and supply do not coincide.
3. Flexible prices
This is dynamic pricing: hotels alter rates depending on market changes. This method takes into account many factors: rates of competitors, season, occupancy rate, local events, and even weather forecast. Dynamic pricing is hard to manage, but it is the most efficient.
Example. A hotel calculates and sets price levels in Booking Engine. If competitors change prices or demand rises, the hotel selects another price level and earns more. This way, demand and supply almost coincide.
Which room pricing method is more effective
Some hotels aim at full occupancy, some set overly high prices, while others seek balance. Let’s see how these methods work by way of example.
There are 3 hotels of the same inventory — 10 rooms. They have different pricing strategies:
- Paradise hotel wants to reach full occupancy. It sets a lower room rate of €20. It has 10 rooms booked;
- Beach resort raises the price. It sets the rate of €200 and has 1 room booked;
- Sunrise hotel reaches a balance by setting the price of €70. It has 5 rooms booked.
The first two earned €200 each, but the methods, that they had chosen, led to zero occupancy in one case and an overly understated price in the other. Sunrise hotel got 75% more because it found a balance between occupancy and prices.
High occupancy and low rates do not lead to higher income, but its best ratio. Dynamic pricing is based on this principle: when occupancy changes, prices change too.
Pricing management is not automatic. Set up TravelLine PriceOptimizer to get daily price recommendations.