Is your hotel pricing right?

Hotel pricing in general is challenging whether it is a chain or an independent hotel. Unlike the manufacturing sector, hotel rooms are a valuable perishable commodity with a higher variable cost. So one cannot take the costs of production, add a margin and calculate rates.

Typically here are a number of factors which influence pricing:

  • What a customer perception of a hotels value in a destination
  • How a hotel’s services and facilities are benchmarked against that of the competition and so against the competitor’s price
  • Online pricing strategies used by the competitor set
  • How the price is communicated ie with taxes or exclusive, with breakfast or with all meals – how much choice does one offer the customer?

Now with so many factors influencing pricing (the list above is not exhaustive), wouldn’t it be logical to expect more frequent price changes?

BUT NO – Independent hotels in India in leisure destinations tend to have a fixed price for the entire season. And arguably this is not the best pricing method as it is not based on supply and demand. So even if the hotel had a low period, it is not easy for the hotel to lower pricing.

Let us look at some of the reasons why:

One significant reason is the dependency that hotels have on the traditional retail travel agency segment which clearly prefers one set of rates over a longer period. And the main reason that they in turn prefer it this way is because of the low penetration of technology and access to the latest rates that a hotel may have. So they rely on the manual system – and no fast updates are possible in the manual system.

Another challenge is with the Online Travel Agencies (OTA’s). They are of course happy with as many changes as long as they have rate parity, but then this brings along the next road block. How does one ensure that rate changes and inventories are updated regularly. Many independent hotels do not have online distribution experts who can guide a hotel through channel management solutions to automate the process.

So what is the way ahead?

Finding the right balance in the use of online technology and understanding of online distribution will be key to longer term success. The role of the high street retail travel agency will evolve and they will also start demanding easy access to rates and bookings. Independent hotels that ensure best value for their travel industry partners in the most transparent fashion will thrive.

The OTA’s should be utilised effectively. They should not be seen just as a distribution channel, but also as a marketing platform.

The hotel’s own brand website should be invested on – it takes time, but is the most cost effective distribution channel. It should allow instant booking confirmations and have the best rate that is available in the market. Building transparency and trust is critical to achieve online success.


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