We often find that the hotels we set up are not, in our opinion, charging enough for their rooms. Especially now, in a post-corona period, when everything is uncertain, many hotels choose to sell low rather than sell their rooms for a good deal.
Why do hoteliers keep their hotel rates too low?
Hoteliers often don’t realize the value of their hotel. They can be very hesitant to increase hotel room prices even when they easily can. The reasons that we hear the most are:
Hoteliers love having happy guests. They would rather make absolutely sure that the guest has value for money. In the end, most people originally came into hospitality because they enjoy making people happy. And good reviews are great for getting business.
Many hoteliers would take a full hotel over more profit. No one wants empty rooms. Hotel rooms are perishable, so if you don’t sell your room tonight at the right hotel rate, you are less likely to make any hotel profit. But often it is a real shame as the hoteliers do not receive the value they have created with the hotel prices they have.
Why are low hotel prices a mistake?
Hoteliers that have higher hotel room cost tend to make more revenue. Many hotels do try to undercut others regularly, but a study by Enz, Canina and Lomanno shows that hotel pricing plays a big role here: having a little higher room rate than competitors leaves lower occupancy but actually make more revenue. This finding was very robust; they looked at tough times after September 11th 2001, followed by good times in the financial boom of 2004-2007. In both cases, having higher hotel pricing gave an advantage for more revenue.
The suggestion is that undercutting competitors should be done on a more selective basis – on particular days where you need more business – but not as an overall strategy. Price wars are bad for everyone, and this study gives an additional reason not to start one.
The conclusion from this is that you should not be afraid of going a little bit out of your hotel pricing comfort zone and charging more than you thought.
How do you know if you are charging too little?
Indicator 1: You are filling up too quickly
Hotels are not charging enough with their current hotel room rate when they are getting fully booked too early. It’s great that they are full, but not if hotel rooms are so cheap that they get full before the majority of people have even looked for a place to stay. 95% of occupancy is more than welcome, but if it is 3 months in advance, then you are probably losing on hotel profit by failing to sell your hotel rooms for a higher price.
Indicator 2: You are not paying attention to your ‘Value for money’ Score
Look at your value for money review score on Booking.com. If that is over 8.5, then you are probably sacrificing too much hotel profit in return for good reviews.
Good reviews are great. They help you to charge more for your rooms, as they show extra value. But if your room rates are too little to get good reviews in then, it somehow defeats the object.
Maybe aim to raise hotel room prices enough to get your value-for-money score down to 8.5.
Indicator 3: You are missing out on special events
If you are suddenly receiving an influx of bookings for one day in September, even though it’s just the beginning of May, take a look at the calendar in your local area, there could be something are well aware of, but you have missed. If specific dates long in the future sell out, you have likely missed a special event such as a gig or sporting occasion.
So what should you do?
Look at the indicators and see if you think you can do better. If you find that you are getting full quickly and/or have a high value-for-money score, you may want to increase hotel prices overall.
If you are not sure or want to react quickly to changing hotel pricing market trends, then using an RMS will automatically do this for you. Also, for a more targeted approach, an RMS can identify which individual days you need to increase hotel prices further and react quicker. Conversely, on the days when you are not selling at the higher room prices, it will see and adjust those early too.
Book a demo with us to explore the possibilities!