Offset Economic Shifts by Utilizing Effective Pricing

Deciding how to price your guest rooms is one of the most important components to operating a successful, profitable hotel. There are many factors to consider when establishing your pricing strategy.

Overall economic and political conditions in our nation are among the most influential factors. In the past, during times of crisis and reduced travel – such as the 1991 Persian Gulf War and the September 11, 2001 terrorist attacks – panic-stricken hoteliers responded by an overall reduction in room rates. Such reactions were understandable; but ultimately, did not attract a significant increase in hotel guests. Rather than reacting in this fashion, it is better from a profit-and-loss perspective to be strategic.

Here are some suggestions for establishing the most effective pricing for your hotel:

Examine economic indicators affecting your business.
Be aware of the overall state of the economy – such as a recession, depression, and inflation. In addition, examine specific changes taking place at your property. Indicators include

* the number of reservations, phone calls and online bookings you are receiving each day
* changes in stay patterns at your hotel from regular guests
* a softening of travel from corporations that send guests to your property
* new competitors in your market that offer a preferred location and/or special rates
* rate of denials from potential guests.


Analyze economic indicators and how they impact your guests’ travel patterns.
During cyclical shifts in the economy, only certain kinds of guests may change the way they travel. Maybe just your weekend occupancy has fallen. Perhaps your meetings business is lagging. Or, your summer travel is down because of a competitor down the street who is offering a free continental breakfast that you are not providing.

Understand who is staying at your hotel, how their travel patterns have changed, and what you can do to get more share from the market.
Leisure travelers, for example, are taking shorter vacations lasting just three or four days. Many of them are increasingly turning to third party intermediaries for last-minute deals on these short getaways. Baby Boomers are also demanding more from hotels when they travel. They have learned this from their children, the Gen X travelers. On the other side of the equation, business travelers are traveling with cell phones and laptops. They don’t necessarily require hotels to provide them with these high-tech devices, but they do require support services if they experience operating difficulties.

Take the right action.
Once you have reviewed the economic factors above, it is time to take the appropriate, targeted steps to maximize your business. Typically, there is no need to reduce your rates across the board. Instead, offer a value-added component to your guests, which will be a great deal less costly than cutting room rates. If a competitor has just promoted a continental breakfast or guests have indicated that their meal costs are too high, add your own continental breakfast. This may only cost $4 to $12 a room, depending upon how extensive the breakfast is for your guests. If your guest base is largely transient and this portion of your business is lacking, consider offering free Internet access. If online bookings have fallen, consider changing how much inventory you provide to third party intermediaries. Or, update your website to make it more user-friendly.

By keeping your rates stable and concentrating more on a value-added component for your hotel, guests will feel that they are getting more value for their money. If hoteliers drop rates too much and too quickly, it can be more difficult to increase rates during more robust economic cycles. Guests anticipate (and understand) that you will raise rates to keep in line with the cost of living, however, too much of a rate increase can result in a loss of business.

The next economic downturn will most likely occur within the next 12 to 18 months, in my opinion. It is particularly important that hotel owners not react to downward economic shits by rampant discounting. At the IAHI Distribution-Reservations Channels Committee, we strive to help our members strategically plan their pricing by analyzing their guests’ travel patterns. This strategy will help our members for years to come. Turn to your franchisee owners’ group as a way to obtain more information and knowledge on how to best price your own rates, particularly as our economy and market conditions go through their various cycles.