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5 Keys to Understanding the Value of Room-Type Pricing

by Jason Q. Freed, Managing Editor |

Suppose you operate a hotel with three room types: superior rooms, suites and pool villas. Because you’re in a warm climate, you’re anticipating high demand for the month of December. Looking 120 days into the future, how confident are you in your ability to determine the right incremental price increases between each of your room types?

The fact is: Most hotel operators today don’t fully understand the value in yielding rates by room type. It’s an area revenue managers have always wanted to yield, but seldom have been able to effectively.

Since instituting the basics of room-type pricing, hotels haven’t advanced much further than charging more for suites than they do for single rooms. Today, different room types often vary in price by a fixed-dollar amount. For example, your suites might be priced $100 more than your superior rooms; a pool villa $150 more than that.

Meanwhile, insights into guest preferences — including the room types they like and much more — have become more widely available and are easier to both collect and transfer safely between systems. Yielding your different room categories should be easier than ever.

There are basic room-type pricing best practices that many hotels can implement today to drive both ADR and RevPAR. Then there are advanced strategies that, with the right tools and resources in place, hotels can use to automate dynamic room-type pricing for maximum profit.

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Here are the most important steps to ensuring your room-type pricing is optimized:

1. Share data and strategy between departments

For an effective room-type pricing strategy, the sales, marketing and revenue management departments need to all work together toward a common goal. Strategies must be built off the same baseline data sets.

Different room types should be priced and marketed in a coordinated manner. Too often, marketing teams come up with great promotions that don’t fit the property’s overall Revenue Strategy and end up discounting rooms in high-demand periods.

Should the guest not bite on a higher-tier room type at the initial time of booking, revenue management and sales and marketing should work in tandem to recognize that guest as an upsell opportunity and coordinate the right marketing strategy to offer an upgrade pre-arrival.

Related Video: How Can a Hotel Yield By Room Type?

2. Upsell right the first time

The general idea should be to price rooms right to convert the most room-type upsells the first time, meaning on the guests’ initial booking, thus reducing the need for the added friction of an upsell pitch later. But there’s no getting around the fact that some consumers are more likely to respond to an upgrade offer later, after they’ve booked their initial room.

So do your best to convince guests at time of booking, but arm your sales, marketing and front-desk teams with the right pricing strategies for later upgrade opportunities.

3. Automate as much of the process as possible

Using an automated pricing rules engine, revenue managers can create very configurable and powerful rules that will automatically adjust recommended room-type rates based on a set of circumstances. For example, perhaps your king rooms are near full occupancy, but your suites are available in abundance. You might set a rule that automatically decreases your suite rate by 10% and another that automatically increases your king room rate by 10%.

By monitoring your website traffic, specifically regrets and denials, a machine learning platform will automatically adjust those rates dynamically based on the traction they experience.

4. Use e-mail to offer pre-stay upgrades

When an RMS and PMS are integrated, post-booking upgrade opportunities should be an easier target. Marketing teams can obtain reservation information from the PMS, and once guests who opted not to upgrade initially are identified, an automated RMS should be able to flex the price by supply (the number of rooms left in that category) and demand (pace, pickup, regrets and denials).

With this accurate pricing data at their fingertips, sales and marketing teams can build smarter eblast campaigns tied with room-type differentials to boost upgrade conversions.

5. Weigh the drawbacks of a discounted upgrade

Suppose you’ve presented upgrade opportunities at the right price twice before arrival but the guest did not bite either time. You are nearly sold out of your base room type and you have several vacant suites.

Your last opportunity to get that guest into a more profitable room comes at the front desk when the guest checks in. When armed with right information and tools, front-desk staff will be better prepared to monitor and adjust rate and strategy on the fly as guests check in and rooms fill.

But you must weigh the downsides to this strategy, particularly the fact that you are teaching the customer that they don’t have to upgrade in advance, they can just wait until check-in.

By understanding dynamic room-type pricing and developing the right strategy, revenue managers can entice more guests to book higher room types on first instance. This will reduce the amount of resources spent on upselling and drive more profit to your bottom line.

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Jason Q. Freed, Managing Editor

Jason Q. Freed, Managing Editor

Managing Editor at Duetto
Jason joined Duetto as Managing Editor in June 2015 after reporting, writing and editing hotel industry news for a decade at both print and online publications. He’s passionate about content marketing and hotel technology, which leads to unique perspectives on hotel distribution and revenue management best practices.
Jason Q. Freed, Managing Editor

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Jason Q. Freed, Managing Editor

Jason joined Duetto as Managing Editor in June 2015 after reporting, writing and editing hotel industry news for a decade at both print and online publications. He’s passionate about content marketing and hotel technology, which leads to unique perspectives on hotel distribution and revenue management best practices.