Setting a good price strategy without losing your mind - Insights

Setting a good price strategy without losing your mind

 width=Setting the right price to sell your hotel rooms is like a never-ending roller-coaster. I recently got across a very interesting article on eHotelier written by David Lund explaining how to sell your last available rooms of the day.

Here is the outlook: If you have a few rooms left to sell, the optimum pricing calculation should be based on the variable costs and not the fixed costs.

Why? If we talk about fixed costs, we are talking about front desk, guest service, cable television, linen and uniform purchase, equipment purchase, decorations, overhead expenses and payroll. Fixed costs are items that will not cost you a dollar more if you sell your last rooms. Therefore ,they have no impact if you sell the room or not.

On the other side, variable costs are the items which will cost you something if you sell the room, and it will be your true cost! It is cleaning resources, linen, cleaning supplies, paper supplies, OTA commissions, credit card commissions, brand fees, room energy. So by adding these variable costs, the room value is significantly lower and might be between 30$ to 80$ per room, depending on your hotel segment.

If the cost of selling your last rooms is 50$ per room, each time you sell it higher than 50$ is dollars Ònet in the pocketÓ, increasing your bottom line profit and loss.

So I hear you say, “Then why can’t we find a 4-star hotel room at $51 anywhere on the market? We see them more often at $180.É”

Well, the point is that we currently are in a global economy where OTAs take the biggest share in last minute sales. They allow you to decrease your prices with one click for last minute and Òvery last minutesÓ prices, while enforcing rate parity in many countries. However, you don’t want to dump your prices because they are intimately mingled with the perceived value of your brand.

Is there any technique to set the best price without endangering the image of your hotel, as well as your ranking on the OTA market?

Let’s take our example above with a few rooms left and no sale happens on either the OTAs or your website. If a guest calls you to ask for a last minute discount, you would surely be happy to close the deal directly, knowing that any negotiated price above $50 is good for the hotel, as it is incremental revenue.

Direct negotiation with your guests is highly facilitated now by new systemsÊcomingÊon the market. Guests can click on a specific widget on your website, give their price and negotiate online with the hotel in a fully automated process. You have the control, as you manage the rules in the extranet. The system includes an online payment service and sends booking confirmations for night and day use reservations.

The advantage is that each deal between the guest and the hotel is private. Whatever the price negotiated, within limits pre-set in the system, you win, without any impact on your brand’s image and rate parity.ÊIt is a win-win solution where the hotel is happy to sell and the guest is happy to discover your hotel.

About the author

 width=Isabelle Jan is co-founder and manager of PrivateDeal SA, a Swiss company specialized in night & day-use bidding solutions for hospitality businesses. After several years of experience in hotel management and an entrepreneurship background, she is now focused on helping hotels to find new ways of attracting their Millennial guests while improving their direct bookings and simplifying yield management.

What if a direct booking was worth as much as three OTA reservations?
How hotel amenities enrich the customer experience