telephone

0191 301 7656

How pricing strategies can be part of your revenue management solutions

Pricing strategies are used in just about every commercial enterprise going. But there are so many different and seemingly opposing hotel pricing strategies out there, it can be hard to know which ones are right for your business.

What we do know is that the most effective way to improve profitability for your hotel is through its' pricing.  The right pricing strategy will boost profits far quicker than an increase in occupancy:

1% improvement in: Creates an operating profit improvement of:

Fixed Costs

2.3%

Volume (or occupancy)

3.3%

Variable Costs

7.8%

Price

11.1%


Source - Harvard Business Review

Read on to discover the key elements of a clever pricing strategy and how incorporating them into your revenue management strategy can help to boost your business.

The elements of a pricing strategy

There are four main elements of hotel revenue management that combine to create your pricing strategy. These are:
·         Dynamic pricing
·         Differential pricing
·         Positioning strategy
·         GOPPAR (gross operating profit per available room)

The first of these, dynamic pricing, also known as demand based pricing, is determined by what your guests are willing to pay at any given time. This is influenced by a wide range of factors, such as the level of competition and the level of customer demand.  This approach is commonly used in today's hotel industry by way of a best available rate strategy whereby price increases in line with demand.

Differential pricing is a strategy whereby the same product is sold to different customers at different rates, and at different times.  This is because customers each possess their own 'percieved value' for a particular product, and there will always be customers who are willing to pay more for a bedroom in your hotel.  Differential pricing allows hotels to profit from their customers' unique valuations, by offering different rates for the same product or bedroom.

The positioning strategy, is based on how your hotel brands itself and how that relates back to what guests are willing to pay for it. This revenue management strategy employs deliberate branding and marketing techniques to influence the way customers perceive your business. If customers believe they are getting something more up-market or of a better quality, they will be willing to pay more for it. The condition of making this strategy work in the long term for your hotel is ensuring that you deliver on your guests’ expectations.   

The final element, GOPPAR is a key performance indicator (KPI) used in hotel revenue management that takes into account the total cost to you of supplying your room, balanced with the amount of profit you make when you let that room at a particular rate. 

The basic hotel pricing strategies to use and adapt

There are a range of basic tried and tested pricing strategies. Some of them may appear to conflict with each other, but choosing the right elements for your business, being creative with them and getting the balance right are all key to successful revenue management. 

One of the first steps to determining a pricing strategy is researching what the competition is up to. This will affect your dynamic pricing strategy, so your research needs to be comprehensive. You’ll need to know factors like the range of prices, the range of room specs and amenities, their on-line reputation and how effectively this is managed – and make sure you aren’t just getting a snapshot of your competitors’ pricing. Good revenue management means tracking the competition all year round and adjusting your own pricing accordingly.

Work out what’s right for your hotel

As with everything in hotel revenue management, ongoing tracking, evaluation and tweaking of your pricing strategy is essential to its success.

Is your hotel’s pricing strategy working for you? Octopus Revenue offers revenue management consulting and a range of revenue management training courses to help. Our Pricing for Profit course will show you how to build a profitable dynamic pricing strategy for your business. Get in touch to find out more or take a look at our training calendar for more information on how we can help you get results with your hotel revenue management.

< Back to posts