Avoiding Price Wars: Exploring Discounting and Strategies that Determine Your Rates

By Ahmed Mahmoud Founder, revenueyourhotel.com | March 27, 2011

Price is the amount your customers pay for your product. Pricing is more than a number we calculate: it is the process of monetizing your social enterprise’s value in the marketplace where it helps you to define your profitability, which has implications for the rest of your hotel reflecting in Revpar and GOP. At its core, good pricing strategy will reflect your enterprise’s overall marketing and business strategy.

Since price directly affects revenues ( price x quantity sold = revenue ) and, therefore, profitability ( total revenue - total costs = profit ), a good place to start.

Although developing effective pricing strategies remains complex. It reflects the value of your product to your customers, but there's always confusion about all the different rates offered at a hotel. ( Rack rates-BAR rates, Published Rate, Group rates, Corporate rates, travel agent and T/O rates, OTA rates, package rates, Limited time offers etc. )

You must ensure your rates make sense when you apply them to your customers. You must consider segmentation or seasonality, nationality, channel distributions, etc. You must decide who has the final decision on rates, consider which scenario could be best and make sense for your hotel profitability Example: Carrying 90% occupancy with $100 as ADR or carrying 50% occupancy with ADR of $180. In each situation the revenue is the same $16, 200.

If we ask hoteliers, how did you arrive at your current rate strategy? We receive the following or similar answers:

  • Our competition increased or decreases their rate by 5-10 % so we did also." So it is based on Competitive Pricing to raise the market share.
  • Our costs increased by 5-10 % or whatever which might be renovation cost, so we needed to increase our rates.
  • Our owners push us for more profit for his share, we have no other way except to increase or rates - and so on for several reasons and answers.

How scientific are the above answers?

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Coming up in January 2018...

Mobile Technology: Relentless Innovation

Technology has become a crucial component in attracting and retaining hotel guests, and the need to enhance a guest’s technology experience is driving a relentless pace of innovation. To meet and exceed guest expectations, 54% of hotels will spend more on technology in 2018, and mobile solutions in particular will top the list of capital investments. Many hotels are integrating mobile booking, mobile keys, mobile payments and mobile check-in into their operations. Other hotels are emphasizing the in-room experience, boosting bandwidth and upgrading flat screen TVs to more easily interface with guest mobile devices. And though not yet mainstream, there are many exciting technology developments on the near horizon. The Internet of Things (loT) is taking form in some places, and can be found in guest room control systems, voice activation systems, and in wearable sensors that can be used for access and payment options. Virtual reality headsets are available at some hotels so guests can enjoy virtual trips to exotic locations or if off-property, preview conference facilities and guest rooms. How long will it be before a hotel employs a fleet of robots for room service, or utilizes a hologram as a concierge, or installs gesture-controlled walls that feature interactive digital displays? Some hotels are already using augmented reality for translation services, or interactive wall maps, or even virtual décor. This pace of innovation is challenging property owners and brands to stay on top of the latest technology trends while still addressing current projects. The January Hotel Business Review will explore what some hotels are doing to maximize their opportunities in the mobile technology space.