Revenue management is an important concept in the hospitality industry. This is a question that hoteliers and property owners have revisited. Additionally, it has become increasingly challenging for the hospitality sector post the pandemic. It has become imperative to use intelligent automation to boost operations, increase revenue, and add value to customers. It enables the hotel operators to anticipate the demand and optimize the pricing in order to be feasible. The primary goal of revenue management is to sell the right room, to the right user, at the right time, for the right price, through the right distribution channel. Hotel revenue managers are responsible for strategizing room sales that are both profitable and customer friendly. This is accomplished through revenue management, which makes use of performance data and analytics to help hoteliers predict future demand and other consumer preferences. As a result of the micro-level forecasts on consumer behaviour generated, management decisions have improved.
Here are some innovative hotel pricing techniques:
- Pricing strategy based on market demand:
The right strategy for pricing hotel rooms is when done bearing in mind the current situation. For instance, lowering the prices when there is considerably lesser demand, such as during the off-season, and pricing higher when there is higher demand. This kind of pricing based on travel demand and determining behaviours is known as demand-based pricing. This kind of pricing strategy mainly relies on historical performance data such as past occupancy, revenue, room rates, and other parameters. Combining past data and future predictions, the management sets the room rates accordingly.
While this can be adequate data for pricing, there are other factors such as specific events and the location of the hotel, which may be closer to schools, universities, or any other communities.
2. Hotel rate parity pricing:
Hotel rate parity is the practice of hotels maintaining consistent room rates across several platforms and distribution channels. Hotel rooms are uniform on the hotel’s official website, on online travel agencies (OTAs), and on other booking platforms. While most OTAs aim to win the customer’s attention with discounts, the hotelier offers transparency through this method of pricing and builds creditability with their patronage. While this strategy can strengthen the hotel’s goodwill, it can be detrimental in the long term if not managed properly. As third parties charge commissions for the collaborations, the incurred losses by OTA’s due to this pricing can lead to potential losses. As a hotelier, direct bookings can lower the cost of acquisition and decrease the dependency on OTA’s for sales. This promotes the sustainable growth of the hotel’s brand.
3. Occupancy-based Pricing:
This kind of pricing is based on multiple price points for the same property, depending on the number of customers. In this strategy, the higher the number of guests is, the higher is the price. It is a dynamic hotel pricing strategy that revolves around changing occupancy levels. The accommodation remains constant, while the rates remain constant. Keeping this in mind, there is a significant decline in utilities such as electricity, water, and other utilities, which contribute to higher costs. Rates may be optimized numerous times in the weeks preceding an arrival date at hotels with integrated PMS and RMS systems.
4. Market Segmentation Pricing:
Hotel market segmentation will aid in identifying the purpose of the customer’s stay at the hotel. It can be a business trip or a vacation. This strategy helps in identifying trends based on various parameters, such as the duration of the stay, total revenue per room, total revenue per client, and cancellation ratio. Granting a discounted rate to a corporation or business may guarantee occupancy, which in turn, might reduce the revenue but could upsurge occupancy and revenue per available room (RevPAR). Creating coupons, discounts, packages, and other offers to cater to different types of hotel guests Reviewing target market segments to develop a pricing strategy can significantly enhance performance.
5. Competitive-based pricing:
The hotel industry is one of the most competitive industries at present. There is no fixed price for hotels due to their volatile nature, making it a tactical lever for hotel revenue. While gradual growth in occupancy and pricing functionality is essential, keeping up with competing hotels in the market is imperative. This kind of pricing focuses on competitors’ performance indicators like tracking rate, demand, and occupancy to establish one’s own room rates.
In this strategy, one can either apply a discount pricing strategy (pricing below the competition) or a premium pricing strategy (pricing above the competition). Most hotels are likely to adopt discount pricing due to the perishable nature of the rooms. However, hotels earn more revenue as they attain relatively higher prices without offering discounts. While this can lead to a certain extent, the income earned surpasses this loss, thus contributing to revenue.
6. Penetration Pricing:
Penetration pricing is a strategy adopted by hoteliers, who offer low rates to grow occupancy before subsequently raising the room rates as per convenience. Hotels initially practice this pricing in order to penetrate the market and carve out their brand identity among the target audience until they reach the desired level. After reaching their desired outcome, hotels introduce higher rates while eliminating discounts.
Optimizing revenue in the hospitality industry depends on the manner of implementation of the pricing strategies which is a crucial element of revenue management. In order to gain the optimum results from the above-mentioned methodologies for pricing, it is imperative to understand the consumers and the inclination to modify the prices accordingly.
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