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The goal of a hospitality property pricing strategy is to maximize revenue while minimizing vacancy rates.
In this episode, I talk about tactics for a successful pricing strategy.
Welcome to another edition of, Hospitality Property School.
I am your instructor, Gerry MacPherson.
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The Basic Principles of Room Prices
We live in a world where travellers have to make decisions, and the decision of what hospitality property to stay at is no exception. With so many choices available, it can be difficult to stand out from the crowd and provide potential guests with the best value for their money.
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There are many factors that go into pricing a hospitality property room.
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The location, amenities and quality of service are all important factors. However, one of the most important aspects is demand. Properties can charge more for rooms if they know they can sell them out quickly or if there is high demand during certain times of the year.
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What is a hospitality property pricing strategy?
A pricing strategy is a set of rules that help properties decide how much to charge for rooms. It is a crucial part of the marketing strategy and can be used to attract customers or discourage them.
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There are two main pricing strategies:
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Cost-based pricing
Cost-based pricing strategies are the easiest to implement. Hoteliers/ innkeepers simply calculate the sum of all expenses involved in running their property, divide that cost by the number of rooms or units, and then markup each unit or room based on the profit they hope to make.
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Demand-based pricing
Demand-based pricing, sometimes called customer-based pricing, is where the hotelier/innkeeper adjusts a room or unit price (often in real-time) according to customer demand and the perceived value.
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Other factors that affect the pricing of a room include:
- The location and type of the property (luxury, budget, etc.)
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- The time of year and day of the week
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- The quality and reputation of the property
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Modifying to a changed demand landscape
Many areas saw positive developments in 2021 and into 2022. Still, the demand landscape in most markets has changed greatly since 2019.
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Smaller booking windows, different primary source markets and shifts in guest priorities (e.g. concerning cancellation policies and value propositions) have made the market less predictable and more challenging for revenue managers. Without trustworthy data points to use for forecasts, things become even more challenging.
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The good news is that well-grounded rate and distribution decisions are still possible, even in difficult times.
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Choosing the right pricing strategy
Choosing the right pricing strategy is a crucial step that can make or break your business.
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You need to understand the cost of your product, the value you are providing, and the demand for your product.
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Pricing strategies can be classified into three types: cost-plus pricing, skimming, and penetration pricing.
- Cost-plus pricing includes adding a markup of 30% to 50% over costs and is used when there is no competitive pressure in the market.
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- Skimming is when prices are set at a high level initially with an intention of lowering them over time as demand increases and competition grows.
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- Penetration pricing involves setting prices below cost with an intention of raising them over time as demand increases.
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Another consideration is how the price affects your guests’ decisions?
Hospitality properties have to be mindful of their pricing strategies because they have a direct impact on the number of guests who will stay at their property.
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This is because people are more likely to book a room that is expensive than one that is cheap.
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Therefore, properties should think about how they want to market themselves and what kind of pricing strategy they want to use.
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Market research
Market research is another key to success. It helps to identify the perfect price point in order to maximize profits and get more customers.
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The main goal of market research is to understand what the customer wants and how much they are willing to pay for it. There are many different ways of conducting market research such as surveys, focus groups, interviews, etc.
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What factors should you consider?
The factors you should keep in mind when implementing a hotel pricing strategy are varied. First of all, you must be mindful of the supply and demand in your local market, making sure that you don’t go way above the market prices or way below.
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Another factor hoteliers and innkeepers should also consider is the value of the services they offer and the types of rooms. Often it’s useful to have a range of rooms at different prices so you can meet different targets and guest segments. You should also keep in mind the competition’s prices, your current occupancy, seasonality and even the day of the week.
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If you are a member of the Hospitality Property School Group, as a bonus, I am sharing the 12 of the most effective pricing strategies to increase revenue.
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In conclusion
There are a lot of strategies you can use to optimize prices and make the most out of your property’s revenue. In order to do so there are a lot of factors to keep in mind, such as supply and demand, time of year, the different segments and the competitors, among other factors that we have discussed throughout this article.
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There are many different pricing methods that can be used at the same time or during different times of the year. No matter what methods you choose, successfully implementing the best prices is one of the most important things you can do to increase revenue at your property.
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Do you have a pricing strategy for your property?
Let me know in the comments.
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We cover more on organizational structure in “The Guide to Owning & Operating a Hospitality Property – Successfully” book & course. You find more information at KeystoneHPD.com
You will have access to this episode for as long as you would like but if you would like to see all the bonuses you would have access to as a member of the Hospitality Property School Group, check out the short video in this episode post-show notes.
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In the next episode, I will talk about Choosing a Content Management System.
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That’s it for today’s episode,
Until next time, have a fun day.
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If you haven’t done so yet, make sure up sign up for the INNsider Tips, say hi on social and join one of our groups. And make sure you get your free copy of the “How to Improve Your Hospitality Properties Success”.
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You can find all the links in the show notes.
⇒ TO READ OR LISTEN TO THIS EPISODE ON KEYSTONE HOSPITALITY PROPERTY DEVELOPMENT:
https://keystonehpd.com/tactics-for-a-successful-pricing-strategy-why-should-you-care-290
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Did you get your copy of the “How to Improve Your Hospitality Properties Success” ebook?
KeystoneHPD.com/How-to-Improve-Your-Hospitality-Properties-Success
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Join one of your private groups
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