Research shows that hotels that price their rooms higher than the competition tend to make more profit overall in both good and bad times.

That means hotels charging too little could be losing valuable bookings. You must remain aware of changes in supply and demand in your destination and update your prices accordingly. That being said, always keep it in the back of your mind that, on average, you are probably charging too little – so if you tend to fill up your rooms early, try increasing your rates and see what happens. You may be surprised to find that your bottom line increases as well!

As mentioned in Tip 10, if your occupancy is lower than it should be, you are likely charging too much. If you are at a higher occupancy level than expected, you may be charging less than the “fair” price; in this case, you will need to reduce your price to slightly below the “fair” price to ensure that you sell more rooms in the time remaining (as a hotel room is a perishable item).

If you change your prices regularly, you will get an approximate feel for how much a change in price affects the demand for your hotel; this factor, in economics, is called the ‘price elasticity of demand’. The more elastic the demand is, the more bookings you’ll get if you decrease your prices.

Won’t guests get upset if I implement dynamic pricing, which fluctuates as the market changes?

In May 2023, ZHAW University conducted a study of hotels that implemented dynamic pricing to evaluate the effectiveness and impact of RoomPriceGenie. The study showed that, while initially, many hotels were afraid of using dynamic pricing because they were worried about guests’ responses to the change in their pricing strategy, they saw that guests were able to adapt and, generally, would support the change. Read the full study here.

While it is possible, in very busy times, to charge more than normal for your hotel rooms and still hit 100% occupancy, this isn’t always a good idea.

As the ZHAW study showed, consumers are very comfortable with hotels changing their prices within a reasonable range. Everyone expects to pay more during school holidays and peak tourist season; however, if you price your rooms outside of what consumers consider reasonable, potential customers could become upset. From a behavioral economics viewpoint, you could say that this practice violates their idea of what is “fair”. Usually, customers see this behavior as “price gouging” and seek to punish the behavior, meaning that they will not book with you.

In some cases, although customers may pay a lot for a room out of necessity, their idea of value depends on the price. If they pay a very high price, their satisfaction and, importantly, their review score will be lower if the experience doesn’t live up to the expected value. Ideally, you should do everything possible to prevent your guests from feeling they got bad value because that will significantly impact your property’s reputation, especially over time.

There is an exception to this rule: if you are a hotel located near a stadium where a major sporting event is happening (or any other major event), you can get away with charging thousands for your rooms during the event. In this case, you don’t expect guests to return anyway, so you can get away with it without damaging your reputation.

As a general guideline, assuming you have reasonably high repeat business and no huge events taking place in your destination, I would set your maximum room rate at 50-100% more than your average price.

It may be tempting to sell your rooms at a very low price if you have very low occupancy. On a short-term basis, this makes sense; if it costs €30 per room for variable costs and you can sell ten rooms for €60 /night each, that’s €30 you have made against your fixed costs.

Long-term, this strategy doesn’t work for two reasons:

1. It can negatively impact your hotel’s reputation, as potential guests will often get a lesser impression of your property if the room rates are too low. If you price your rooms at budget hotel prices, potential guests will assume that your property falls into that category, and this can result in you not getting as many bookings as you had hoped.

2. It lowers potential guests’ price expectations for the future. Next time, if you try to charge €150/night to the same client who paid €40/night last time, they will almost certainly perceive it to be bad value, even though your room is worth €150/night in the busy tourist season.

One exception: if you sell to a tour operator that hides your price within the package price, you can sell your rooms at a lower rate to boost occupancy. This strategy does not cheapen the brand or lower future price expectations in the same way, as it is not a publicly available rate; however, this strategy does pose another risk. If the packages are later unbundled and listed on OTAs, the discounted rates will undercut your current pricing and mess up your price parity. For this reason, I would advise not to pursue this strategy on a long-term basis.

Overall, I recommend setting a minimum price at approximately 60% of your average price to avoid long term damage to your hotel’s reputation.

There are three key advantages to offering discounts on the OTAs:

• Your lower prices attract more guests.
• The psychological effect of seeing a discount increases guests’ perceived value of the offering.
• Your page ranking on the OTA increases.

The three possible risks from selling your rooms at a discounted rate on the OTAs are:

1. You sell your rooms too cheaply.
2. You undercut your rate parity, causing problems on other channels.
3. You end up offering your rooms cheaper on the OTA than your website; as such, you earn less money, plus pay commission, for each booking (when that guest might have booked direct if your OTA price hadn’t been discounted).

I know some very small properties that rely on Genius Dynamic discounts to boost their page ranking; if you try this tactic, I recommend not making these discounts too significant.

Another alternative option is to increase the commission you pay, increasing your ranking. It is now possible to specify which days you want to increase commission so you can drive more business on days you would not expect high occupancy and need more visibility.

I would advise against using:

• The “mobile-only” discount, as it stacks on top of other discounts, meaning you could sell your room too cheaply without realizing it.
• Discounts that are visible to the meta-search sites, as you would break rate parity and diminish your ability to drive direct business.
• Genius country rates.

If you echt want to use discounts on the OTAs, here is my best recommendation: Use controllable OTA discounts, which you can replicate across all OTAs and your website. Use RoomPriceGenie to counteract these discounts with commensurate increases. Consider using increased commission on quiet days to increase ranking on the OTAs.

Did you know that room prices are reduced by 15 to 20% on average (compared to longer-term prices) in the couple of days before guest arrival? This is an average, so it does not always hold up, but hotels with availability generally want to tempt last-minute guests into booking their hotel. If you are not reducing your prices as the booking date gets closer, a last-minute booker will likely choose to book with one of your competitors who do.

Hotels in your neighborhood are typically your strongest competitors. If your competition offers better-perceived value than you, more people will book with them. If you are nearing full occupancy, you can comfortably charge higher prices (which may be perceived as lower value by potential guests) and still earn bookings. If you have very low occupancy, you need to offer better value to customers; in other words, you need to lower your prices.

Remember that large hotels have full-time revenue managers, whose job is to determine the real-time supply and demand, and price their property’s rooms accordingly. If there is a concert scheduled in your destination, they will know about it, and update their rates accordingly; conversely, because they have more rooms to sell, they can also see earlier if demand is expected to be lower at certain times of year.

By looking at what large hotels in your destination are charging, you can take advantage of their work and their internal data, for free, by copying some of their pricing decisions.

If you are fully booked on Saturday night but not very busy on Friday or Sunday, what are your chances of being fully booked on that Friday? Unless you reduce your rates for those days, the chances that guests will choose to book with you are reasonably low because many guests want to stay both Friday and Saturday night. In this example, Friday and Sunday are “shoulder nights,” which can be very difficult to sell and result in a significant loss of income, so you need a strategy to manage them effectively.

There are two good ways to manage shoulder nights (and I suggest that you use both):

• Price: If Saturday is more popular than Friday, you should charge more for Saturday than Friday. This strategy encourages bookers for Friday only and puts off bookers for Saturday only; guests booking for both nights pay more on Saturday but less on Friday, so they could break even. This strategy should result in more bookings for Friday night and fewer for Saturday (compared to your competitors).

• Minimum Length of Stay (MLOS) Requirement: The second way to manage shoulder nights is to set a two-day minimum stay requirement so that guests must stay both Friday and Saturday or Saturday and Sunday.

Group bookings
Should you take a group booking that will take up more than half your hotel for one night only? It depends on how busy you are, but remember that if you are full that night, you are preventing guests who would have booked for two or more nights from booking, which can result in a big loss of revenue.

One final tip: with groups, never offer free cancellation because if they were to cancel, you would be left with no guests for the whole period.

Using price rather than minimum length of stay (MLOS) requirements gives you the option to obtain bookings from more potential guests – both people who want to stay one or two nights – meaning, on average, you can charge a bit more; however, there are some circumstances where this is no longer the case.

Imagine a big local event is taking place on a Saturday night, so every hotel in the city will be completely booked; because of the event, you could charge five times your normal rate and still be fully booked. As mentioned earlier, you may wish to do this if you know that these guests won’t be repeat customers;
 however, if you don’t wish to charge that much, you will need another way to benefit from the situation and that is where implementing a minimum length of stay requirement is a smart strategy.

Minimum length of stay requirements are very useful for nights when the “fair” price that would bring you the most overall revenue is higher than you want to charge. For example, if you could charge €200/night (market value because of the event in the example above) but don’t want to charge more than €150/night, implementing a minimum length of stay requirement will reduce demand and increase income, without going above your maximum price.

Customers love free cancellation policies. Some leisure customers will only book hotels with free cancellation and are prepared to pay a premium for it; business customers are also happy to make free cancellation bookings when they think there is a good chance that they will have to travel for work, as it reserves their room at a good price, with no cancellation charge, and they have the ability to cancel the day before if the need for the trip falls through. In addition, some customers will cancel their original free cancellation booking if they see that the price has gone down so that they can re-book at the lower rate.

As a hotel owner, how should you deal with this?

The most important thing to remember is that the cancellation costs you nothing if your hotel isn’t going to be full anyway and you can always resell the cancelled room. This means that you can safely offer a free cancellation option (charging them a few percent extra for that flexibility) in times when you are not busy.

The only time free cancellation can be detrimental to you is if you have high occupancy and the cancellation comes too late to find a new booking. In times when you are busy (high demand), you should look at what effect a potential cancellation could have on your bottom line:

Do you get many business people booking and cancelling at times when you should be full? If so, do you end up worse off than you would have been if you didn’t let them book originally?

If so, don’t offer free cancellation in times of high demand to prevent losing out on valuable revenue during your peak season.

As a hotel manager, you know that some of your guests will cancel; now, imagine accepting more bookings to cover those you anticipate will cancel. That would be amazing, right?!

Suppose you are a large hotel with 100 rooms. In that case, you can safely overbook your rooms because your estimate will likely be close to correct, ensuring you’ll have enough inventory to cover potential over-bookings. On the rare occasions when you are unlucky, you can chauffeur the extra guest(s) off to a better hotel with sincere apologies, and they (likely) won’t be too upset.

You may decide that it is worth it for the six extra bookings in the short-term, but consistently overbooking will eventually impact your level of service and, therefore, your online reviews and perceived value to future guests. As such, my recommendation for small hotels is to use overbooking as a pricing strategy very sparingly.

Let’s look at an example related to upgrades… Assume that you have two room types: Standard (€80/night) and Deluxe (€110/night). If all the Standard rooms are booked, and you have three Deluxe rooms available, consider giving two guests free upgrades for your Deluxe rooms one day beforehand, to free up the more affordable inventory for sale.

Upgrading early ensures that you offer availability to both price-sensitive and luxury-oriented guests, and you are more likely to reach 100% occupancy. If your Standard rooms are more popular, then upgrading is making your property more attractive to your potential client base by freeing up more of the Standard rooms for sale. Also, by upgrading the two guests, they will likely leave as more satisfied customers, making it more likely they will write a positive review for your property.

Who should you upgrade?

We will discuss this topic in greater detail later, but in general, it is best to reward clients who have paid you more (over time) and incentivize those who may become repeat customers.

The first people to upgrade are repeat clients. Obviously, they come to your destination more frequently so you should reward them for their loyalty, because there is a good chance they will book with you again – especially after a free upgrade.

Secondly, you should upgrade people who have booked directly with you. This policy should be explicitly stated on your website and in your booking engine, as it’s a great way to incentivize people to book directly.

It’s common knowledge that giving guests options is good, but too many choices are a burden.

The consensus in behavioral science is that the best number of choices is three (this is not always exact, but it is a good rule of thumb); as such, you should offer three specific options that represent something desirable for different types of guests, which will steer people in the direction you want them to take (booking with your hotel).

There is more on the subject on our blog, but here’s a quick overview:

1. The first price is the bargain, no-frills price. This is for people who are very price-sensitive and don’t mind mild inconveniences, such as non-refundable rooms, no breakfast or parking included, etc.

2. The second price is what you want most people to book, so ensure that it offers a lot more value and makes you more money.

3. The third price is considerably higher than the second and is designed for guests who want the best and are not price sensitive. Apart from earning you extra revenue, the other benefit of the third price is that it makes the second price look affordable. This should not be underestimated as it uses the anchoring effect of our brain, which is a cognitive bias that encourages us to rely too heavily on the first piece of information we are given about a topic; in this case, that means that customers will assume that the second option is much better value and, as such, will be more willing to pay for it (even if it is priced higher than the “fair” price) because of how much higher the third price is.

If all the above tips are overwhelming for you, we have good news: most of what has been discussed in Tips 10-23 (all of Section 2) can be achieved with minimum effort at a low price, using RoomPriceGenie’s revenue management system. We offer a 14-day free trial, and the solution is offered on a monthly contract, so there is very little risk and so much to gain.

In fact, in a 2023 ZHAW University study, participating hoteliers experienced a 20% increase in RevPAR (on average), with both occupancy and ADR also increasing, after implementing RoomPriceGenie’s revenue management system. In addition, the hoteliers reported increased perceived pricing competence and success by approximately 20% after using the solution.

So, Tip 24 is…

Go to RoomPriceGenie.com and sign up for our 14-day free trial to see how RoomPriceGenie can transform your hotel’s business and increase your overall profitability TODAY.