5 Most Effective Hotel Room Pricing Strategies to Boost Revenue

5 Most Effective Hotel Room Pricing Strategies to Boost Revenue


Pricing strategies in the hotel industry is one topic that will forever be discussed by hoteliers the world over. After all, there is no magic mantra that is universally approved for hotels to achieve their goals and increase hotel Revenue! That being said, there are some hotel room pricing strategies that have steadily proven to be effective. A combination of different pricing methods can take you a long way in attaining success in the hospitality industry. And we bring to you five such effective hotel pricing strategies to help you maximize revenues and build a sustainable hotel business.

But before we get to that, let’s get a deeper understanding of what hotel pricing strategy is all about and why you need to have one, in the first place.

What is Hotel Room Pricing Strategy?

The room rent you charge for your hotel rooms plays a very important role in your business, especially when you plan to sell more rooms. But a wrong hotel room pricing strategy will not help boost your hotel revenue as it can’t attract guests to book with you. That’s why rightly pricing your rooms at the right time is inevitable. It would help you sell more rooms and boost your occupancy. Ultimately, this leads to increased profitability.

What is the importance of hotel room pricing strategy?

The answer to this question is quite simple – if you charge too high, you will lose customers to your local competition that offers reasonable rates for more or less the same type of accommodation and services. And, if your rates are not competitive enough and you charge less, you will end up losing money. In this case, you might get more guests, but it would be too difficult to cover your operational costs.

Determining the right hotel room rate is not an easy task. This whole game of hotel room pricing strategies to boost revenue becomes quite complex as you need to consider several factors that impact your room pricing. Some of them are –

  • Your room types
  • Value of services you offer
  • Your occupancy
  • Your guest segments
  • Demand and supply in the local market
  • Competition pricing
  • Seasonality
  • And even the day of the week

Let’s look at some of the hotel room rate pricing strategies that can help you sell your rooms so that you get to realize maximum room revenue:

#1 Occupancy-Based Dynamic Pricing

Occupancy-based dynamic pricing strategy in a hotel is a great way to increase hotel revenue. Make sure that you are pricing your hotel rooms based on supply and demand. You must increase your room rates when demand exceeds supply. For example – if 45 out of 50 rooms are occupied, you can charge more for the remaining 5 rooms. This approach will increase your ADR and RevPAR. Additionally, at low demand seasons, when your occupancy is low, you can charge less for your room to attract bookings.

#2 Forecasting-Based Pricing

It is all about tweaking your hotel room price while forecasting the number of rooms that would be available for future dates. For this, you should have a clear understanding of your hotel’s historical data – occupancy data for the last couple of months and for the same period during the previous year. This would give you an idea on how the occupancy might look on a given date. That’s how a proper forecasting would allow you to make necessary changes in your room rates, based on demand and expected occupancy. To be noted here, your forecast would also depend on the increase or decrease in travelers coming to your locality or an increase or decrease in your competitors in your segment.

#3 Competitor-Based Pricing

You will be able to come up with a competitor-based hotel room rate pricing strategy only when you understand at what rates your competitors are selling their rooms. When we talk about competition, consider hotels that come in your segment and star category. Look at their rates for each room category and try to find out how travelers react to the same. See if they are able to attract guests with better pricing and deals. Study their hotel pricing strategy closely to find out when they are increasing or decreasing their room rates and how often they rollout offer/discounts.
You also need to compare your rates with their rates and see if you offer value to your guests. When done and monitored properly, this will help you to understand what customers are already paying and how much they will be willing to pay. Armed with these insights, tweak your hotel room price so that you can sell your rates at competitive rates.

#4 Length Of Stay Based Pricing

This is also referred to as Best Available Rate by Length of Stay. Under this hotel pricing strategy, you can make changes in your room rates based on both the arrival date and the total duration of a guest’s stay. To come up with the right pricing, you need to demand, forecast, business on the books and even the price sensitivity. You should modify your room pricing either based on maximum length of stay or minimum length of stay to enhance occupancy. The most important thing here is that guests get to pay one rate for their entire stay.

Some other hotel room pricing strategies that can help you are –

  • If the check-in day is Wednesday and check out day is Saturday, you can charge more for the Friday night alone. It is simple because weekend rates are always on a higher side.
  • Implement daily pricing strategy and charge different rates for each night of a guest stay.
  • Implement an hourly pricing strategy for rooms that are expected to be sold in the near future – by tomorrow or the day after tomorrow.
  • Revise your TA and Corporate contracts at regular intervals, based on your ADR, demand and performance of your hotel.
  • Implement a ‘no refund cancellation policy’ in peak seasons when your occupancy looks good

#5 – Guest segment-based pricing

In this scenario, you can change the price of the same room for different types of guest segments. This is all about selling the same room at different prices to different types of guests. For example, you can charge more for a sea-facing suite room, but at the same time, you charge a little less for a normal suite room on any given date.

When guests see value in your offerings and services, they would not be bothered about what you charge them. Having an impressive online reputation can immensely help you in this context. Having an impressive online reputation can help you a lot in this. If you can successfully implement this particular hotel room pricing strategy, it can assist you in realizing more profits and customer satisfaction.

Other Noteworthy pricing strategies in the hotel industry that you could also consider implementing:

Psychology-driven pricing strategy: Understanding human psychology can also go a long way in making key business decisions. This includes other areas of your business as well, like marketing, sales, employee engagement, guest experience, etc. Similarly, psychology can also help you with building a better and more impactful hotel pricing strategy.

Consider this, for example:
Psychology suggests that people read numbers at a glance from left to right. And when a price ends with a 9, instead of a whole 0, they are more likely to go for it. This can be a game-changer for you while creating your hotel room pricing strategy. What this means is, let’s say you sell a certain room type at $200. Bookers are more likely to go through with the booking if the price were $199 instead of $200. For you it is a difference of $1. But that $1 can go a long way in convincing the booker that you are priced fairly. Voila! Win-win!

Packages: Offering packages is one of the most effective pricing strategies in the hotel industry. Instead of just selling just rooms, you could create specific packages inclusive of additional offerings/services at a reasonable rate. This compels people to believe that they are getting more for less.
Packages could be as simple and universal as “Breakfast packages’ (which could include an elaborate buffet breakfast for a price that is much more affordable than what it would cost the guest if they were to opt for it separately) or something more personalized like a ‘Honeymoon package’ where you could throw in multiple activities and services for couples at an irresistible price. There are several ways to design packages and just as many factors that affect it. So, study your audience and understand what would work best for your hotel.

While we’ve discussed some of the most effective hotel room pricing strategies to boost revenue, we need to also understand that with a Cloud Hotel Property Management System in place, implementing all these strategies and more becomes seamlessly and way more effective. The adoption of a smart cloud-based Hotel Property Management System that comes integrated with revenue management solution, can be a real game-changer for you. This is because a Cloud PMS gives you all the data-based intelligence you need to understand and strategize your pricing decisions. After all, the revenue that you miss out on from an unsold room is forever lost!