3 Things Revenue Managers Can Learn From Psychologists
August 11, 2016 10:40am
For most hoteliers, establishing rates is a rational, practical task based on analysis of the market and historical trends. But, your hotel’s bottom line could be missing a key dimension when deciding on room rates: price psychology.
Every hotelier must understand the psychological pricing factors that influence travelers when making purchase decisions. Getting smart about buyer behavior means healthy revenue and robust profit margins.
A lot of research has been done on hotel pricing psychology and how it affects sales. This isn’t about manipulating travelers into booking, but rather understanding how and why they book so you can adjust your room rates accordingly.
People tend to read numbers quickly from left to right. By using one of the “charm prices” – room rates that end in 9,99 or 95 – travelers will normally just see the first number of the amount and will associate the price with just the first number, something called the left digit effect.
For instance, consider a nightly rate of $199/night versus a $200/night rate. While they only differ by a mere dollar, people will associate $199 to be closer to $100 than with $200 simply because of the first digit they see. Plus, consumers have been conditioned to associate prices ending in 9 to be a better value overall.
Many luxury items use this strategy, including Apple, which has priced all of their products to end with 99. So, instead of rounding up your room rates to $400/night, experiment with using $399/night.
The mistake most hotels make is selecting room rates that are too close together in value, which can actually make people indecisive since going with any choice doesn’t offer any considerable value or savings.
Experiment with tiered pricing with a wide, but reasonable, differential price point between each room type. This can help you sell the most in your middle (and largest) inventory category. Use your smallest rooms as your value option and put a premium price tag on suites. Your suite rate should be considerably more expensive than your average room rate for standard guest rooms.
While most of your guests – depending on your average demographic – may not choose a suite, simply having it as an option will add “perceived value” to your other room rates, thereby increasing reservations for those guest room types. Plus, there will always be travelers who always opt for the most expensive option. Offering distinct tiers of pricing gives those guests the pricier option to book.
Online visitors have short attention spans! We’re loaded with information to process and every second matters, especially when it comes to direct hotel website bookings.
According to a study by Cornell University, people were less likely to purchase items that have dollar signs in their prices. While the “$”symbol might seems like a minor detail, it is giving us just one more thing to process when reading prices online. Same idea for commas and cents. When you’re already dealing with so much content online, your mind doesn’t have time to process decimal places and commas.
For example, see how the two numbers below can be visually perceived as more expensive, even if they are all the same price.
So, take the minimalist approach when publishing room rates on your booking engine to make your room rates easier to digest.
Tambourine uses technology and creativity to increase revenue for hotels and destinations worldwide. The firm, now in its 30th year, is located in New York City and Fort Lauderdale. Please visit: www.Tambourine.com.
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