Accommodation room pricing: art and science?
One of the easiest ways to grow sales or increase profitability is to adapt your prices while keeping the expectations of your target customer in mind. The average Joe has been taught to be a deal seeker as they have easy access to the various distribution channels that hospitality establishments use to entice business. Pricing is both an art and a science, and only the most strategic players reap the benefits.
Pricing your product comes down to understanding VALUE and what consumers are WILLING to pay.
Here’s the secret: Better pricing is not always about offering the lowest price. The focus should be on value – what sets you apart from your competitors in terms of location, service, style, brand or quality?
A potential customer is not looking for the best price, but rather the best price-value equation. As the economic formula states – Value = Experience / Price.
Therefore the best way to get noticed in the market is to offer a better experience, not necessarily a lower price. Ideally being competitive is not price driven but product driven.
Where to start?
Firstly, it is important to reconfirm your break-even point (with assistance from your accountant if necessary). Various factors may have caused this to change from when your business started. Also examine your fixed and variable operating costs to establish the minimum price you should charge for the profit goals you have set. With this foundation price in mind you can now start research on the other players in your market. Read our article on profit if you need assistance with this.
What is your competitor charging?
You can learn a lot from your competitors and the rates they charge. Comprehensive market-awareness is often the key to successful pricing strategies. When analysing rates don’t only consider the base rate charged , but keep the following in mind:
Does your competitor offer:
- Multiple rates for different room types/amenities?
- Different rate structures across distribution channels?
- Different rates for different lengths of stay?
- Any differential extras/add-ons?
When comparing the research to your own price structure, measure the value you offer against what they have on the table. If you offer better value, you can charge a better price. Although value is a very objective concept, there are some easy ways of increasing your value offering in a concrete manner.
How to increase the value of your offering
There is no set formula for developing pricing in the tourism sector as no two products are identical. Each product offers its own components that interact in a unique way to provide an experience to a customer. Place your focus on the value you can offer your client in exchange for the price they are charged.
- Focus on differentiating. There are various ways of adding value to the product you sell. By offering early check-in, late check-out, free Wi-Fi, gym facilities, parking, breakfast or guest room amenities you add value to your establishment, which compensates for a slightly higher rate. Ask yourself what sets you apart from your competitor and focus on bringing that to your customer’s attention.
- Put together a value statement which summarises the reasons why you consider your establishment to be of great value to a customer. Your staff can also use this to explain the price.
- Bundle your accommodation with other services at your establishment or nearby. Add spa treatments or meals to a package that will be beneficial to the customer and ensure top-up income for your own or another partner hospitality business who might return the favour.
- Adapt your product offering around the specific needs of a niche market like travelers with pets, disabled customers or customers recovering from a hospital visit. Medical tourism is taking off all over the world.
What about discounting prices?
Because potential customers can easily compare rates across various channels, most tourism establishments choose to maintain consistent rates across all of them and offer discounts in a private fashion.
This is especially important if you work with large international Online Travel Agents, who make rate parity across all channels a condition of doing business with you.
In a competitive market it is often unavoidable to discount, but be careful about making a habit of using this tactic to stimulate demand. Customers may become used to a certain price level and you might find it hard to charge normal rates again. Rather add conditions to your discounted price, like a minimum stay, or minimum amount of travelers.
Be aware of events hosted in your area and put together creative discounted packages that might include transport to/from a venue or even entrance tickets. If you save your customer some trouble, a higher premium can be levied. Customers also have expectations around higher prices in areas when there is an event or convention, but will then in return also expect lower prices in the off-season.