The 'P' of Pricing: Back to the Basics of Selling

13 November, 2015
  • 15 min read
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Revenue Management is evolving into one of the most important strategic tools that hotel operators have, to maximise profitability. The last three decennia has seen rapid developments, especially amongst big chain operated hotels where Revenue Management Departments have been established, and huge investments have been made in technology, software development and applications to ensure accurate dynamic price setting. The well-known phrase still rings true: selling the right room, at the right price, at the right time, and to the right customer. However, Revenue Management has also crossed over to F&B, meetings, events, and banqueting sales.

Successful hotel operators use the principles of Revenue Management to their own advantage to beat the competition on RevPAR, and to add to bottom-line gains for owners. But what if your establishment doesn't have its own Revenue Management Department or the means to invest thousands of Euros in Revenue Management technology? Should prices be dumped to compensate for low occupancies?

In a competitive market, the price that you can charge for your services is largely determined by the guests and your competitors, but this does not mean that you should be a mere price taker. The willingness of the guest to pay a certain price including a premium can be influenced by how they perceive the value of what you have to offer. This principle applies to all hospitality establishments, whether it is a big five star hotel in Amsterdam which is part of an international hotel chain, or a small independent hotel in the South of Limburg.

First Things First

A recurring headache for hotel managers remains the question of how much money to allocate to the marketing budget, especially in tough economic times where the direct contribution to profitability is not always apparent. Nonetheless, the first step in selling your rooms is to make sure that your ideal guest knows everything about you, and why it is better to choose your hotel rather than the competitor down the road.

Let’s recap on some well-known facts about effective marketing communication. Internet bookings are the biggest source of business for most hotels; make sure your hotel website is well-developed, up-to-date with correct information, good language usage, and if possible, have an English version available (if you have a substantial amount of foreign visitors). A website gives a potential guest a good picture of what your establishment is like, and what they can expect during their stay. It is important that the website design reflects the hotel’s character with accurate and attractive visual media of available services and facilities. It is crucial that visitors on your website are able to make a reservation in a user friendly manner or request information in a timely manner. Online ratings are becoming one of the most important factors that guests consider before they make a booking. If your hotel is highly rated on internet rating sites, the probability that you will get more enquiries or visits to your own website is much bigger. Research done by students of Hotelschool The Hague has also shown that guest are willing to pay up to 10 Euros more, if the hotel has a score of at least four stars on one of the most popular rating sites.

If possible, make sure that there is a direct link to your hotel’s own website on the rating site. This might have additional costs, but it is worthwhile to consider this when looking at the number of hits and unique visits generated through these sites. Online travel agents (OTAs) are crucial in generating reservations, although they always come at a price; sometimes charging commissions of up to 25% on the offered rate. Nevertheless, they still generate a lot of bookings and interest in your hotel. 

Many guests use OTA sites as a search tool to find a hotel, and then book directly through the hotel’s own website. Again, this might come at a price; for example, being mentioned on the first page of the search results, although many internet users sort the results according to review scores, which emphasises the importance of a high review score from your guests. The fact that a lot of internet users choose to book through a hotel’s own website also emphasises the importance of practicing rate parity, this means that the same rate is applied and available on all distribution sites. Rate parity also makes it possible to apply lowest price guarantees, which assures the guests that booking directly with you will still give them the best deal, and save you the cost of paying commissions to a third party, as well as giving you the opportunity to charge the accommodation fee upfront or at least the deposit for guaranteeing the reservation.

If your hotel enjoys high internet review scores, make sure to use this in your own advertising. This is free, reliable and trustworthy publicity. Ensure that your hotel has a Facebook page and update this page regularly, so that your fans interest is kept after ‘liking’ your page. Popular Facebook pages are ones that draw attention by making it possible for fans to interact, comment, upload their own photos and share their experiences. Make use of in-room advertising during the guest’s stay to promote your Facebook page or to share positive experiences on review sites. Use available widgets from rating sites on your own website or Facebook page. Manage the content about your hotel on third party internet site to ensure that the photos displayed are the best depictions of your rooms and facilities. Reply to negative reviews in a way that shows your commitment to address complaints and a genuine motivation to satisfy guests. Things do go wrong sometimes, but when potential guests see that you are committed to fixing the problem it gives them assurance that your hotel does take the needs of its guests seriously.

Satisfied Guests and Loyal Guests

Guest satisfaction is achieved if their expectations, from previous stays, is met with what the actual experience turns out to be. An unsatisfied guest is more likely to complain than a satisfied guest complimenting good service. It is therefore important to manage guest expectations beforehand, in a realistic way, through clear and accurate marketing communication as discussed earlier.  Something even more important is ensuring that the actual service delivery during the stay exceeds expectations. If this is achieved, highly satisfied guests are the result and they are more likely to give compliments and write good reviews. Highly satisfied guests are crucial for the image portrayed to new potential guests and social media around your hotel. Guest generated reviews have a heavy impact on the decision of new guests to book a room with your hotel, which is crucial in low occupancy periods.

Researchers from Harvard University proved the importance of customer and employee satisfaction for profitability through the Service-Profit Chain. Unfortunately, their research showed that satisfied guests do not necessarily become loyal guests, but that highly satisfied guests had a bigger chance of becoming loyal guests. Big hotel chains recognise the value of loyal guests and invest a lot in their Customer Loyalty Programmes. These do not just aim for repeat visits from guests to the same hotel, but also to extend their loyalty to the brand preference in all future accommodations in all locations. The same principle can be applied to independent hotels in terms of creating a relationship with guests through loyalty rewards or social media interaction. Even if a guest is not a regular returning patron, their approval through liking your Facebook page or writing a good review helps to establish a good image of your hotel. If they are intending to visit your town again it is crucial to engage with these guests on a personal level, creating a relationship which will lead to loyal patronage. Make sure to keep track of your customer base with an up-to-date and detailed guest history filing system.

Value for money is always an important factor in a competitive market, but it is not determined by whether a service was sold at a discount or if the buyer saw it as a great bargain. It is based on how the guest perceives the complete service offering they experience at your hotel in comparison to what they would have expected to pay for a similar experience at another hotel. In difficult economic times, guests become more price sensitive especially if there are a lot of substitute options available. The internet has brought about transparency in room rates, which makes it very easy for guest to compare rates amongst competing hotels. It is imperative to distinct your hotel and services from that of your competitors, because if there is no difference in the mind of the customer the only differentiating factor will be the price in the end.

Loyal guests are very valuable to a hotel, not only because they cost less in terms of marketing costs, but also because they are less price sensitive than non-loyal guests. A decrease in price-sensitivity leads to a decrease in price elasticity of demand; decreasing the necessity for discounting in periods when demand is low. Few small hotel or B&B operators do take high internet ratings into consideration when establishing their rates. For example, on the webpage for owners of a very well-known rating site, the owners of the number one rated B&B in London writes: “Our business has increased by 50% - so much so that it’s almost impossible to keep up with the calls and e-mails. We’re referring 20 to 30 people each day to other properties.” This seems like a great position to be in, but when the average room price of this B&B is compared with similar establishments in the same location, the rate is in fact lower than average which is a shame since the reviews show that guests rate their stay on all levels as superb. Of course, guests want value for money, but if your offering is superior according to your own guests’ reviews then you should consider reflecting this in your rates.

Creative Selling

As an alternative to dumping prices, hotel managers can look to creative selling techniques to get through the hard times when demand and occupancy is low.  This will help managers to create a value-based offering to the guest at a perceived attractive price for the guest that distinguishes their hotels from the competitors. Segmentation is key; knowing who your customer is and anticipating on their preferences will enable effective use of creative pricing techniques. It is also important that the attributes and features of the hotel are clear to your own sales people, and that it is communicated as such a way that it distinguishes the hotel from its competitors. If the attributes of your services and products are clear and distinguishable, it must be matched with the needs and the wants of your specific target markets that are identified in segmentation to create the offer.

The offer can be created through a bundling of services or packages, which still works. For example include the use of bicycles in a weekend or long weekend stay, museum tickets, entrance to local festivals or partner up with other local attractions or service providers to create destination and seasonal specific offerings.  Traditional dinner, bed and breakfast packages and free upgrades are still attractive to the right segments during low occupancy periods as well as romantic getaway packages for couples or ‘partner for free’ options for business guests staying during weekdays. The options are countless depending on who your target segments are. Late checkouts or free parking on weekend days, or a free Sunday newspaper with breakfast might also be attractive to weekend guests. Low cost-to-hotel extra services such as free Wi-Fi or shuttle services can be included in the rate, but these should be promoted as extra value offerings included in the price or promoted as offered for free.

Extra revenues must be stimulated through cross-selling, for example offering a free glass of Champaign with breakfast, if breakfast is not included in the rate, or a free coffee with lunch or dinner in the hotel’s restaurant or a two for the price of one treatment at the spa for in-house guests if there is a potential for increased occupancy and revenues in these outlets. Discounting techniques must be carefully considered and offered to specific segments. These, for example, could include: giving early booking discounts (make sure to compare the discounted period with actual booking lead times and ensure early payment with controlled cancellation terms). Discounts for extended stays might be attractive to holidaymakers or sixty plus guests. Free-cancellation options should be reflected in the rate quoted while guest who make advance payments should be rewarded.

About the author

Maryna Jooste

Ms Jooste specialises in hospitality operations and has extensive working experience in Food & Beverage Management. Ms Jooste is a hospitality educator by training with vast teaching experience in financial, cost and managerial accounting. Her research focuses on revenue management, in particular the interaction with performance measurement and finance. She is a past recipient of the DELTA scholarship and holds a MA in International Hospitality Management from Stenden and London Metropolitan Universities and a B.Tech degree in Hotel Management from the Central University of Technology Free State South Africa.

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