By Jana Love, ProSolutions President/CEO
What ProSolutions has learned about pricing in the last 9 years while doing competitive pricing analysis for hotels is that to capture your fair share in your competitive set, knowledge is power. There are so many factors that need to be considered and understood when deciding to lower or raise your prices. Knowing when to vary pricing to match demand patterns, and when to drive revenue and profits need to be key components of your operating strategy. Building a sustainable revenue stream is built by proper pricing strategies that drive revenue both in the short-term and long-term.
Pricing optimization can be tricky in many cases since the market can change daily, as well as seasonally, and you need to have analytics to make these decisions. When the market started to crash several years ago, profitable hotel companies capitalized on understanding exactly where they sat with their competitive set by focusing on incremental revenue– “found” revenue based on this knowledge.
In a complex market, knowing if “over priced” is a strategic measure that will reward you, as well as understanding the financial effects of charging $1.00 under your competitors for certain items are critical. Xotels is a company that focuses on setting changes in revenue management. They wrote an article, Does Your Hotel Price Positioning Strategy Make Sense? This article highlights 4 pricing strategies to consider in order to strengthen your value perception with your customers. As said by Xotels:
- Penetration Pricing Strategy: The market accepts and understands your positioning: among the cheapest in the market. That can work if that positioning does not drive the market rates down. Is there an opportunity to still sell more expensive on specific periods? How does your client value your hotel?
- Equal Pricing Strategy: The hotel sells at comparable rates. Your hotel value proposition will make the difference in the clients’ decisions.
- Surrounding Pricing Strategy: Your first room type will be the cheapest in the market or among the cheapest ones. Your superior room type will be sold at a rate close to the first available rates of your competition. The key success is to offer added value. Think in terms of room types with better facilities or specific features, and additional amenities.
- Skimming Pricing Strategy: The skim strategy is to position clearly your hotel among the most expensive. Price leaders often achieve among the highest profitability. Can you provide more value than your competitors? Can the consumers clearly understand the reasons that they would pay more staying in your hotel? What are the consumers ready to pay for?
Similarly, eCornell blog posted a price positioning article on very much the same thought process. In this article their example about undercutting your competition has its benefits and drawbacks. One example highlights in some categories, during certain times, you can undercut your competition and drive more cost-conscious travelers to your hotel. An example they gave is about two hotels that are located by a major airport with the same star ratings and amenities. One hotel decides in their airport parking package to offer free parking for 14 days, plus a guest room, representing a $170 savings. Based on the knowledge from understanding their market place, competition and economic climate, this bold decision allowed them to capitalize on the moment and win the financial market share.
Keeping an eye on your competitors is the key. If you don’t know what ALL your competitive set’s prices are, you need to. This is the only way for you to make sound pricing decisions that can influence your financial picture dramatically.