pricing strategies

Key Pricing Strategies

I have, on many occasions, cautioned a hotel about their pricing strategies and starting rates too high. (If you know me well you know that this precautionary advise pains me because I never want to lower rates – LOL.) My rationale is that it is too hard to lower rates once you realize that you might have over estimated the demand.

What happens to those proactive customers who have booked the higher rates? If they are a savvy shopper, they will do a check back before they arrive and if they note that you are selling “less” than they paid originally, will either cancel and rebook, cancel and go somewhere else, or confront your GSR upon arrival. None of these are in your best interests!

Rate positioning is a tenuous job. What I am suggesting to all of you is that you set rates fairly for future dates, then as demand heightens, you ease the rate upwards. This means you must pay close attention to special dates. Our hotels need to understand that the best way to maximize ADR and occupancy is to reward the proactive customer with your best rate…. and those who wait until the last moment – well, they need to pay the premium prices.

Think about “Tickle Me Elmo”. When it first came to the market there was no hype. In the beginning, people found Elmo by shopping in their local toy store. It was cute so they bought it. Then the company introduced a very visible marketing campaign, and BOOM it took off. At that point, not only could you not find one of these adorable stuffed toys – but you couldn’t touch the original pricing. Every kid wanted one of these toys and adults had to dig dipper into their pockets to make their wishes come true. This is often called “bottom up pricing”….. as demand grows, so does the price.

Keeping yourself on all the supermarket shelves is also paramount. Now, I am not suggesting that you always keep unlimited inventory on all channels. I am suggesting that you keep some inventory open on most channels. What this does is keep you visible to all customers, no matter what store they are shopping AND by limiting inventory to small numbers helps to control your market mix. Closing channels should be done as a last resort because everyone is not going to shop your hotel website directly… they shop what is familiar and most advertised. Third party and OTAs have far more marketing dollars than our individual hotels so you need to take advantage of their visibility to improve your visibility. Removing your product from their shelves should only be done when you are absolutely confident you will sell the balance of rooms directly on your own website or through your front desk.

Please read Rochelle Castillejos’ article I have copied below this blog. I think she makes several very valuable points about “why rate discounting should be your last resort”. Combining these points with proper pricing from the outset should keep you on an even keel and improve your ADR and Occupancy, not to mention your RevPar.

Happy pricing!

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Why rate discounting should be your last resort
16 May 2014 , Rochelle Castillejos
[Insights, Yield and Revenue Management]

It is always expected that during low periods, hotels would always do the easiest strategy they can think of to win customers. For them, the most effective way to not suffer during off peak periods is to offer low rates, and offer even lower rates during distressed times.

They think that by doing this, the demand will pick up. Hotels believe that they can just easily increase their rates when the market goes back up. They are confident that lowering their rates will not have any negative impact on their business and image.

In any type of business, price is the most effective and fastest way of influencing the customers’ perceptions of value. Disappointingly, this unique strength is too often misinterpreted and misused, frequently with undesirable results.

Hotels need to understand that during low and distressed times, reducing price does not typically equal to increased demand. In fact, rates that are too low can decrease your customers’ perception of value and it can project a “cheap image” of your hotel. It will also be hard to increase your rate once the market goes back up as it will be difficult to regain guests’ belief that the hotel is indeed deserving of this new price structure.

Better market segmentation and correct revenue management approach will help you through these bad times. By effectively managing your segments, you can apply discounted rates and profitable rates at the same time. Always remember that market segments respond to different levels of prices.

Also, guests these days consider added values and not just rate alone, so being customer-centric will be a very big advantage. If you understand your guests you can create packages that can help increase their perceptions of value and convince them to stay at your hotel. Instead of lowering your rates, consider adding amenities first.

For example, give breakfast; upgrade to next room category; discount to spa; discount to restaurants; free airport transfers, free laundry. Think of all the low cost things that you have to offer in your hotel that are perceived as high value to your guests. Add these things to your regular rate and offer them during off peak seasons, do not forget to apply rate validity. By doing this, you avoid heavily diluting your average rate and when the market goes back up it will be easier to just take out these items. As you have not decreased your rate or maybe added just a slight discount, once you remove the inclusions, rate resistance will not be too much of an issue.

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