How Hotels Price Rooms

Summary

This video script delves into the complex dynamics of hotel room pricing, highlighting factors like demand patterns, peak and off-peak days, and seasonality. It explains how supply influences rates and the importance of a SWOT analysis for pricing strategy. The script also covers the concept of the best available rate and how various discounts and promotions are derived from it. Using a ski resort as an example, it illustrates the impact of historical data, pace, and market competition on pricing decisions, emphasizing the role of demand forecasting and market segmentation in optimizing revenue.

Takeaways

• 🏨 Hotel room pricing is influenced by demand and supply factors, as well as the time of year and day of the week.
• 📈 Demand patterns vary, with midweek peaks for corporate travel and weekend peaks for leisure destinations.
• 📅 Seasonality affects hotel demand, with certain times of the year being busier due to weather and events.
• 🛏️ Supply refers to the number of hotel rooms available in a market, which can impact occupancy rates and pricing.
• 🔍 SWOT analysis helps hotels understand their position relative to competitors based on strengths, weaknesses, opportunities, and threats.
• 💰 The 'Best Available Rate' (BAR) is a key rate that other hotel rates are often based on and is subject to change by revenue managers.
• 🎁 Hotels offer various discounts and rate plans, such as advance purchase and senior citizen discounts, which are derived from the BAR.
• 📊 Rate strategy involves analyzing historical data, pace and pickup, and competitor pricing to determine the optimal BAR.
• 📈 Demand forecasting is crucial for making pricing decisions, with AI and machine learning systems aiding in predicting future demand.
• 📈 Market segmentation allows hotels to categorize guests into different segments, helping to tailor pricing strategies for different types of demand.
• 🏔️ The example of a ski resort during peak season illustrates the dynamic nature of hotel pricing, with rates varying greatly based on a multitude of factors.

Q & A

What is the primary factor behind the hotel room rates quoted to customers?

The primary factor behind hotel room rates is demand, which is influenced by peak and off-peak days of the week and other common demand patterns.

Why do hotels charge a rate premium for midweek stays?

Hotels charge a rate premium for midweek stays, particularly on Tuesday and Wednesday nights, due to the high demand from corporate travelers who typically arrive on Sunday or Monday and depart on Thursday or Friday.

What are the common high demand days for hotels in leisure destinations?

For hotels in leisure destinations, the common high demand days are Friday and Saturday nights, with Thursday and Sunday often being the off-peak or shoulder days due to lower demand.

How does seasonality affect hotel room pricing?

Seasonality affects hotel room pricing by creating distinct patterns of demand throughout the year, with some periods being busier than others depending on factors like climate and local attractions.

What is the term used to describe the number of hotels and hotel rooms in a given market?

The term used to describe the number of hotels and hotel rooms in a given market is 'supply'.

How does an increase in supply impact hotel room rates?

An increase in supply can dilute market occupancies and drive down rates as there are more rooms available to compete for the same travel demand.

What is a SWOT analysis and how does it help hotels determine their pricing strategy?

A SWOT analysis evaluates a hotel's strengths, weaknesses, opportunities, and threats. It helps hotels understand their position relative to competitors and guides them in setting competitive prices.

What is the 'best available rate' or BAR in hotel pricing?

The best available rate (BAR) is typically the highest rate a hotel offers and serves as a base from which other rates, such as discounts and promotions, are derived.

How do hotels decide which rate buckets to open or close based on their occupancy?

Hotels decide to open or close rate buckets based on their occupancy levels and forecasts. They may close deeper discount buckets to maintain higher rates when occupancy is high and open them when they need to fill rooms.

What is the significance of the best available rate in revenue management?

The best available rate is significant in revenue management because it is the rate that a revenue manager actively adjusts when making pricing decisions, and other rates are often based on it.

How do hotels use historical data and pace in their pricing strategy?

Hotels use historical data to determine if they should increase their rates based on past performance, such as selling out on certain dates. Pace, or how the hotel's occupancy compares to the same time in the previous year, also influences whether they should push for higher rates.

What role does a hotel's competitive set play in its pricing strategy?

A hotel's competitive set, or comp set, is a group of similar hotels that they closely monitor for pricing guidance. If a competitor raises rates, it may prompt the hotel to review and adjust its own pricing strategy.

How does the perishable nature of hotel rooms affect pricing?

Since hotel rooms are perishable and time is a constraint, hotels aim to increase their rates as the arrival date gets closer, while still trying to reach a sellout to maximize revenue.

What is the importance of a demand forecast in hotel pricing decisions?

A demand forecast is crucial for making sound pricing decisions as it helps hotels understand how much demand there is for rooms, allowing them to adjust rates accordingly to maximize occupancy and revenue.

How does market segmentation analysis help in hotel room pricing?

Market segmentation analysis categorizes guests into different segments, allowing hotels to track, report, and forecast demand more effectively. This helps in making pricing decisions that are more intuitive and tailored to different types of demand.