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Pricing considerations for hotels (part 2)

This two-part blog explores the main drivers that shape pricing decisions for hospitality operations. 

In this post we will outline some specific drivers to help guide your tactical pricing decisions that fit within the broader context of the four primary environmental factors we explored in part 1. 

As a quick review, the four primary environmental factors are:

  • The market power factor that the property enjoys
  • Ownership and/or management philosophies around pricing
  • Where the property is in its lifecycle
  • The competitive environment in which the property operates

While these environmental factors are by no means fixed, they can have a significant influence in governing overall pricing strategies. Given this context, there are some questions that you should ask yourself each time you make a tactical pricing decision.  In no particular order, these are:

What sort of internal compression are we experiencing? Examining booking pace trajectories versus what you were expecting them to be will provide you with a clue as to what pricing actions may be possible. Be certain to consider pricing by market segment. Just because you unexpectedly booked a small group at a strong rate doesn’t mean that your transient segments will suddenly flock to your property — particularly if the going rate is inflated to protect the integrity of the group booking. Watch out for the “tails that may be wagging the dog.”

Has there been a change in seasons? Pricing tactics can, and in most cases should, vary considerably by season. Guests’ motivations for travel may be different and you may be catering to different audiences at different times. Plan for season changes a year or more in advance to avoid being caught by surprise.

Is weather likely to have an impact on us? Weather events, if they are significant enough, will impact any property. Take the time to think through what they may be and what you can do about it. One innovative property I worked with was negatively impacted by highway closures when winds in their area reached a certain velocity.  In response, they set up a citizens band (CB) radio in their offices and broadcast to over-the-road truckers that they had a hot meal waiting for them, and then offered a special overnight rate. To a driver, a comfortable bed sounded a lot better than rocking back and forth in the cab of their truck all night long. Smart.

What are our reservation call volume trends? Keeping tabs on this key metric may provide you with an early warning sign if reservation call volume trajectories are changing. Beyond just reviewing statistical data, actually having a conversation with agents who are selling your property will likely give you some great insights too.  Try it!

What unit type demand do I have for certain units, and when?  It is an interesting exercise to apply the same key performance indicators (KPIs) you use to measure overall property performance to specific unit categories. Comparing average rate attainment versus your published pricing premiums may point to a unit type that is being heavily relied upon for free upgrades, for example. The “when” piece of this question relates to booking windows. Knowing that families tend to book your larger unit types over a holiday much further in advance than other types of guests, or that couples looking for a romantic getaway book last-minute, may influence your marketing efforts, including timing, message and offer.

How does this change affect my fenced pricing strategy?  If qualified rates (such as advance purchase or member affiliation) aren’t derived from an appropriate unqualified rate (one available to anyone without restriction), then the impact of broad-based pricing changes to unqualified rates needs to be considered. One property I worked with was amazed to see that the vast majority of their guests were suddenly booking their heavily discounted AAA rate — including some of their corporate accounts. Hmmm, I wonder how that could happen?

The topic of pricing is vast and often contentious. Of course, there are myriad other factors that influence pricing decisions, but hopefully this helped get your creative juices flowing. I’d love to hear some of your experiences with pricing in the comments section below.

Until next time, remember, a great revenue practitioner is always learning.

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