By: IDeaS Revenue Solutions
One of the most important decisions that every hotel organization needs to make is establishing their optimal public pricing structure. For some hotels, this can be an overwhelming challenge – they might be new to their market, constrained by parity commitments, or simply looking for an approach that brings better revenue results than their existing one. For other hotels, they might have a proven pricing strategy in mind – but their technology simply isn’t compatible for its successful deployment.
No two hotels are identical to one another – and a one-size-fits-all pricing approach simply does not drive optimal revenue performance for every single hotel. In an industry where stiff competition is growing even stronger, it is critical that hotels evaluate and consider the pricing strategies that will best fit their hotel’s unique needs. This paper will discuss three pricing methodologies available for hotels, who they work best for and considerations that all hotels need to evaluate when establishing their public pricing structure.
Daily Pricing
Daily Pricing is a pricing strategy where a different rate is charged for each night of a guest’s stay based on the price determined for each stay date. The price incorporates all of the demand which stays through that night. “BAR by Day” or “Daily BAR” are alternative names for this pricing approach.
An advantage of Daily Pricing is that any changes in rate due to changes in guest arrival dates and stay patterns are relatively simple and transparent to explain; however, it can become cumbersome to communicate changes in rates for longer lengths of stay, as well as potentially creating guest dissatisfaction if a reservation is extended into a more expensive night. An example of this scenario is a guest extension over the hotel’s peak night of Saturday, resulting in a marked increase for Saturday night’s rate.
Daily Pricing is generally the simplest pricing approach to implement across all of a hotel’s selling systems and channels; however, it may not provide the ability to capture the most optimal revenues based on the demand by the arrival date and the guest’s length of stay.
Daily Pricing tends to work well for hotels with an average guest stay of one to two nights or for properties that have unique room types that are priced and act differently than one another.
Length of Stay (LOS) Pricing
This pricing option offers rates that are based on both the arrival date and the total duration of a guest’s stay. This option (commonly referred to as “BAR by LOS”) considers the demand and price sensitivity for each arrival date based on the duration of stay – meaning that one rate is calculated by evaluating all of the desired nights in conjunction with one another.
An advantage of Length of Stay pricing is that guests are offered one simple rate for their entire stay – based on their arrival date and total reservation night length. This may help the hotel achieve optimal revenue performance since its rate is based on specific patterns by arrival date and length of stay.
Length of Stay Pricing works extremely well for city hotels that focus primarily on high demand – tending to accept longer length of stay reservations.
Daily Continuous Pricing
Daily Continuous Pricing provides hotels with the most flexibility within their desired rate structure. It employs a similar methodology as Daily Pricing; however, there is a range of available rate values defined by a minimum and maximum rate for each room type.
Daily Continuous Pricing brings similar benefits to Daily Pricing; however, it provides hotels with even more flexibility within their desired rate structure. Rather than relying on user-defined rate values, hotels identify their minimum and maximum public rates for an analytical, continuous calculation of the rate value within their desired range that drives optimal revenue. It allows hotels to get as close as possible to the exact analytically optimal price and adheres to any marketing rules (such as rates that must end with .00 or .99.)
This approach works extremely well for hotels that find Daily Pricing a suitable choice but are looking for even more flexibility in their rate offerings.
Pricing Approach Considerations
There are many variables that hotels need to consider when choosing the right pricing approach for their property. From pricing perceptions to business needs to rate deployment, hotels need to thoughtfully evaluate the following considerations to help them select the approach that best meets their strategic need:
• How do your guests prefer to buy or how are they accustomed to rate offers? Some guests or markets prefer a single rate offer that applies to every night of their stay – regardless of how long they stay. Others happily accept a different rate for each night. Some markets prefer a total price for the entire stay – avoiding challenges with different rates for different nights of the stay.
• Which strategy does your hotel need to capture optimal revenues based on your business mix? This will depend heavily on the hotel’s business model and average length of stay. For example, a luxury property often observes higher lengths of stay – meaning that additional value can likely be gained by offering an optimal price based on the guests’ stay patterns. However, for properties that average a one night length of stay, the value from arrival and length of stay pricing is often lower.
• What are the selling systems, distribution systems and connected channels involved in your rate distribution? Hotels should evaluate any potential impacts to property management, central reservations, channel manager systems and web booking engines when considering various pricing approaches.
• What pricing approaches are supported and distributed by integrated systems?
• Can rate parity be achieved with the desired pricing option and integrations?
• Which pricing approaches are accepted by integrated channels? For example, which approaches can be distributed to the hotel’s online travel agent (OTA) channels? What are the parity agreements and their willingness to accept minor deviations from small channels? If there are some OTA channels that can’t accept a particular pricing approach, consider the production volume that comes from those channels.
Revenue managers across the globe spend large portions of their days managing rates – constantly lowering, raising and analyzing their hotel’s pricing. And with the hotel’s bottom line depending heavily on revenue generated from proper pricing strategies, it is critical that hoteliers have thoughtfully evaluated all of their pricing options to determine the approach that best fits the needs of their business and technologies. With pricing options available to suit a variety of unique business needs and markets, hotels should carefully choose the approach that best fits their objectives – rather than limiting their needs to fit with a one-size-fits- all option.
Ideal Pricing from IDeaS Revenue Solutions offers an array of flexible pricing approaches and features for public, group and meetings & events business.
Listen to the on-demand webinar on ideal pricing to find out more on how to establish optimal pricing structure, how to choose the right pricing approaches and how to apply inventory control to optimize revenue. We will also share an ebook – Optimizing Revenue Performance: A Guide to Advancing Your Revenue Management Strategy with you if you register this on-demand webinar. Register Here Now.
About IDeaS
With more than 1.5 million rooms priced daily on its advanced systems, IDeaS Revenue Solutions leads the industry with the latest revenue management software solutions and advisory services. Powered by SAS® and with nearly three decades of experience, IDeaS proudly supports more than 9,500 clients in 111 countries and is relentless about providing hoteliers with insightful ways to manage the data behind hotel pricing.
IDeaS empowers clients to build and maintain revenue management cultures–from single entities to world-renowned estates–by focusing on a simple promise: Driving Better Revenue.
IDeaS has the knowledge, expertise and maturity to build upon proven revenue management principles with next-generation analytics for more user-friendly, insightful and profitable revenue opportunities–not just for rooms, but across the entire hotel enterprise. For more information, visit www.ideas.com.
