How to Identify the Right Room Pricing Strategy

When it comes to hotel revenue management, getting room prices right is arguably your biggest priority. And while you may be aware that there's a science to it, there's so much to do on a daily basis that it can be difficult to determine a starting place

On any given day, hoteliers need to do the following: keep constant track of KPIs, track activity of competitors and channel partners, keep an eye on traveler trends, and have many meetings to loop in key stakeholders

With such an information overload, you then need to accurately forecast demand so that you can pull all the right levers to result in maximum revenue for a hotel. How on earth can you have a sense of control? The key is to avoid flying blind - and for that, you need exploitable data. Otherwise, it will be impossible to make any important decisions with confidence

Let's look at this in context

Setting Hotel Rates to Maximize Revenue

Hotels are economic units, so pricing depends on supply and demand at any given time. The ultimate goal is to consistently exceed (or at the very least, hit) KPIs. To forecast demand for a hotel room, you should consider two key measures: current on-the-books (OTB) reservations and your likely "pickup"

To determine pickup for Day Y in the previous year, review how many bookings were made between Days X and Y. All other factors being equal, this year should be similar, so you can price according to likely demand. The problem is demand fluctuates on a daily basis, so it's not a set-and-forget activity

Demand is based on events, timing, trends and competition, which we'll look at in turn


There are three basic kinds of events that should be factored into your marketing, promotion and pricing strategies

Major events

Those like the Superbowl, the Olympics, Detroit's Auto Show or Monaco's Yacht Show are events you can confidently expect to happen every year.

Local events

These are smaller events like concerts and holidays (for your leisure business) and business conferences or government assemblies (for your corporate business guests). These can have a more direct impact on your hotel's revenue than major events, which is why they should be a critical component of your revenue management strategy

 Unforeseen events

Of course, some events like natural disasters or political unrest are unplanned and completely out of anyone's control. That said, while creating your revenue management strategy, it is important to keep in mind the different possibilities that may impact the demand in your market


You have your high season, and your low season, which are defined by the holidays. But don't forget - it's not just about the holidays in your area, it's also about the holidays in source markets. For example, Chinese travelers tend to travel around Chinese New Year. You also have your high demand days (weekends) and low demand days (weekdays) - or vice versa, depending on the location. You should be adjusting your rates during these periods of high and low demand to increase occupancy and revenue


Traveler trends can drastically impact demand. Your location might be 'in' right now, causing an influx of international travelers like never seen before. It could be any number of things - maybe your country or city's tourism industry body is doing a good job, maybe a lot of travel blogs are starting to talk about it, or perhaps a blockbuster was recently filmed in the area. Innovative hotels jump on trends - and quickly. Just consider how the Mantra Group quickly adapted to the Pokemon Go craze to drive demand. The only way to be aware of these trends is to stay update with your industry association and other educational resources


While you shouldn't let them define your rate strategy, you need to keep an eye on your competitors' rates, because that's exactly what your guests are doing. The harder part is being honest with yourself about who your competitors are

Make sure you compare apples with apples on

Type of accommodation. For example, a bed and breakfast can't consider a hotel chain a competitor - they attract a very different kind of guest, who are motivated by different things

Proximity to your hotel. If the hotel is in the same area, they are likely to be direct competitors, because travelers view location as one of the most important factors in choosing where to stay

Hotel category. The hotels listed before and after your hotel are the ones that travelers will compare you against when they are searching online. Make sure that you compare like for like

• Star rating. Travelers often filter by how many stars a hotel has earned itself in reviews - be it on TripAdvisor or online booking sites. If yours is a 3-star hotel, you can't expect to compete and compare with a 5-star hotel

• Quality of service. What is the atmosphere at your hotel? Do you aim to be luxurious or cozy

• Business facilities. This is only relevant if you are trying to attract corporate business or groups to your hotel

• Leisure facilities. How do your leisure facilities compare to those of your competition? Do they appeal to the same kind of traveler? If so, then you can consider them your competition. You should also consider how you compare to your competitors in terms of the type of products they are offering

 • Room types. What are the features of the rooms they offer? Do they have a better view

• Breakfast. Is breakfast included in the room rate? If not, how much does breakfast cost on top, and what kind of breakfast is offered

• Check-out. In some cases it can be be worth checking how flexible their check-out times are. Do they offer late checkout, and if so, for how much

 • Cancellation policy. Similarly, how flexible is their cancellation policy? Are rooms offered at a higher rate for a more flexible cancellation policy? Guests want maximum flexibility for minimum risk, which is why all of the above considerations matter

Four potential pricing strategies to consider


This is the traditional method, where you add your profit on top of whatever it costs you. Your goal is to generate cash flow and maximize profit, so you need to calculate revenue versus expenses (which is why you must be careful when negotiating contracts with OTAs in terms of commissions). The problem with that is it doesn't take into consideration the most important thing - market demand at any given time

 Market-based pricing

This is when you base pricing on your competitors' rates. The main problem with this is it puts too much value on your competitors, and doesn't take into account the customer perception of your hotel. What if your competitor offers an inferior product? It's important to position your pricing as not being too high or too low when compared to the median rate of your competitors

 Value-based pricing

It's not all about price - it's also about your brand. Value-based pricing is often used by large hotel chains or luxury brands, who determine pricing based on how the guest perceives the hotel. If you manage a luxury brand you'll know that the key message is to "never lower prices". However, adjusting rates based solely on competitor comparison can often drive your price down. The problem is the perceived value of your offering changes depending on your guests' buying behaviours and their needs at any given time. This is where online reputation management comes into play. You'll have more input into this at a single property - and less if you are responsible for multiple properties operating as part of the same chain with the same brand or individual brands

Dynamic pricing

These days this is the dominant pricing model, and it seeks to combine the cost-plus and market-based pricing models. It's the best by far because it's highly flexible. With dynamic pricing, you can take advantage of low demand markets by decreasing prices even if it means it doesn't fully cover fixed costs during that time, and during peak demand periods drives incremental revenue by selling to those who are willing to pay slightly more

Hotel distribution continues to evolve at an alarming pace. How can one feel in control amidst so much change
The key is in the data. Harnessing the necessary data to make strategic decisions is the only way to sustainably drive revenue and profit. And while there's an overwhelming amount of it, if you stay focused on how your strategies impact your bottom line, you'll be in the best place to hit - or even exceed - your KPIs