Top Considerations for Pricing at a Room Type Level

Author: Dan Skodol

Are you capturing every last dollar from pricing your various room types appropriately? How much are those last-minute free upgrades really costing you? What are you leaving on the table when one room type sells out before another?

Our recent webinar answered these questions and more!

In June’s webinar, Rainmaker’s Dan Skodol walked us through how to build a better room merchandising plan and shared the Top 10 Considerations for Pricing at a Room Type Level. We’ve highlighted the first four considerations below but for the full presentation, click here!

10. Start Simple

When thinking about pricing at a room type level, there are a few major points to consider. Be sure to start with the data – understand what you need to be able drill down to that level of granularity. For example, look at bookings, availability and occupancy as a first step to understanding how to price at a room type level. Additionally, think about the business processes you have in place and your customers role in those processes. Another important aspect is the value your customers place on your different room types. What are they are buying and not buying in your current inventory and at what price? It is also crucial to think about inventory itself – what room types do you currently have available and how are you going to categorize them? Finally, it’s time to consider how you are going to measure your successes – be sure to think about what metrics you are going to use to understand your performance.

9. Heuristics Are Your Friend

One approach to room type pricing compares two metrics: booking velocity and occupancy. Here, we are measuring booking velocity (booking pace for a specific room type or collection of room types) and occupancy (adds capacity constraint). You can look at these metrics and compare to how you typically perform at different points in time as you approach day of arrival and index them. Once you have this index, you are able to categorize and define where you fall on the index to drive your decision making.

8. Don’t Get Hung Up on Trying to Measure Elasticity

The economics 101 “downward sloping demand curve” doesn’t always apply to the hotel business. Often times, when we look at history, we see instances where when our demand increased, our price increased as well and vice versa. Our revenue management practices help create this counter-intuitive relationship since we are responding to changes in demand and constraints on our inventory with price changes. When we see an increase in demand, we increase price and when we see a decrease in demand, we decrease price. This is one effect that can make elasticity difficult to measure. Alternatively, you may want to look at changes in price across your different room types. Better understanding your pricing relative to other room types and how demand has come in across these various room types will result in a better measurement of elasticity.

7. According to Psychology, Relative Pricing Matters

How you present your pricing matters to guests. Simply, the way prices and products are positioned make a difference in how customers perceive the value of different room types. Look at the example below to better understand the price discrepancy between the way these two options are packaged and listed for the guest and the resulting revenue differential. In scenario B, a lot more people would take the premium room at the higher price than those willing to pay for an “upgrade” in Scenario A. (the following scenario is taken from Rainmaker research)

For more information on how to build a better room merchandising plan, watch the full webinar! If you have any additional questions about how to granularly price at a room type level, reach out to us and we will be happy to help!

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