So, you’ve done your demand forecast and you know roughly how many bookings you can get at each price level. What is the next step?
You need to look at how many rooms you have left to sell. Lower price will attract a higher number of guests. So the price you charge to fill those 15 rooms will need to be more attractive. On the other hand, if you only need one more guest, you can afford to seek out the more profitable bookers by charging a higher rate.
By choosing the price that gets you the most profit (revenue minus direct costs of that booking) you ‘optimize’ your revenue.
And what if there is a general downturn in demand? Larger hotels can make bigger promotional efforts in an attempt to attract guests. But they can’t cut prices too much, because if they do, everyone will. Smaller hotels on the other hand don’t have so many marketing options. However, they do have one big advantage – if they cut their price, not everyone follows them. So, by cutting your prices you can take business from the larger hotels that are more limited in their pricing options. In this way, there may not be more people visiting the area, but you can take market-share from the larger hotel through use of price.
Generally, the decision of whether to go to a certain place on holiday is not that affected by slightly lower prices in the area as a whole. As a rule, people will decide where to go first and then look for a hotel. So, the game in these circumstances is getting a higher share of the business. When you have more rooms left to sell than usual, you should price lower than your equivalent competitors to get more market share. When you have fewer rooms left, you are able to charge more and increase income.
If you are one of the largest hotels in the area you need to be more careful though – try to avoid price wars as these can damage everyone.