How to determine hotel room rates?

To strengthen their revenue management policy, hotel managers need to decide what type of pricing strategy they want to implement relative to their competitive set.

While some hotels offer rates at a premium to those of their competitors, some others prefer to follow a low-price strategy.

In terms of revenue management, there is no one size fits all and managers need to get a good understanding of revenue management technologies available to decide which pricing strategy to implement.

This articles suggests 3 useful tips to help revenue managers determine hotel room rates in an effective manner:

How to determine hotel room rates

1. Select a relevant competitive set

When establishing a pricing strategy, revenue managers need to prepare a competitive set, i.e a list of hand-picked hotels. 3 main factors should be considered when deciding on which hotels to include to their list, namely (1) offering, (2) price and (3) proximity.

Managers need to focus on hotels that offer comparable amenities and products in reasonable proximity. Generally, a three-mile radius is considered a good standard, although this distance might be extended if your hotel offers niche or luxury products.

2. Don't assume that holding rates constant when demand drops is wrong

Studies have shown that hotels that engage in pricing policies where they don't discount rates to fill rooms and offer higher rates than their competitors get higher RevPARs. Dropping rates relative to competitors only helps hoteliers gaining market share, but does not allow them to get higher RevPARs than their competitive set.

Ultimately, holding relative rates constant when demand goes down is not a bad revenue strategy.

3. Adapt your revenue management policy to your market segment

Revenue management practices mostly depend on the market segment your hotel belongs to. It is essential to develop a pricing strategy which is in line with your market segment.

While mid-market hotels are generally adjusting their rates to occupancy, economy hotels maintain more consistent prices and are less likely to change rates according to shifts in demand as they position themselves solely on price.

Rate-occupancy relationship with upscale hotels mostly depends on their strategy against competition. The ones that display higher prices than their competitors are more likely to develop aggressive revenue management policies.

How can Hotel Price Reporter help?

The Hotel Price Reporter platform has a local demand feature, showing a realistic demand forecast in the near and distant future for the hotel’s local market. This can then be evaluated against the pricing offered in the local market by the key hotel competitors. The platform also evaluates online review rankings and local events which could directly affect the occupancy levels. Revenue managers can use the platform to compare individual prices set for different room categories and different booking conditions.

However, no platform offers a silver bullet solution to maximizing revenue. How the platform is used is dependent entirely on revenue managers decision on case by case basis and depends entirely on the circumstances. Finding the right balance between the different factors in setting the right price is the challenge and managing all of the complexities is what makes Hotel Price Reporter an invaluable tool in a revenue manager’s arsenal.