Is Pricing a Dark Art?

David Collins, columnist and Co-Founder & Chief Communications Officer for The Great National Hotels and Resorts Group discusses the alleged Dark Art of Hotel Pricing ..

There is a widely held misconception that hotel accommodation pricing is something of a Dark Art and that like all Dark Arts there is something both magical and mysterious about getting price right.

This need not be the case. It is possible to manage your pricing strategy and achieve the best return for your property without somehow having to sell your soul at a crossroads.

That said, let’s be honest, quite a few hotels simply don’t have a pricing strategy. Instead it is often left to the whim of the Front Desk. Why? Because ‘they’re the folks who meet the customers and understand what guests will or will not pay’.

And whereas there is obviously merit in this – knowing how sensitive or ‘elastic’ your guests are to the price they pay – it is only part of the picture a hotel needs to have to be able to set price sensibly so as to drive occupancy, ARR and RevPar.

I’ll come to some guiding ‘easy to implement’ practical solutions for this shortly. However one factor which is rarely considered in pricing decisions is what your business as a brand actually stands for.

For some more brands, any discussions around price are seen as indiscrete – ‘if you have to know the price, you can’t afford to stay here’ – and whereas this is condescending at best, for some customers price per se is irrelevant. The opposite is obviously true in that price can also be overtly at the heart of a brand and everything it stands for.

Take Ryanair for example which became the brand it is today largely by cornering ‘The Low Fares Airline’ end of the market although it is interesting to see the airline shift lately from being purely ‘hard-nosed on price and short on service’ to now being a ‘more caring, sharing, endearing’ brand but which still uses value for money as a key positioning tool.

Indeed, the Ryanair example does suggest that customers now need more than just the ‘best price’. In these post-recessionary times, most guests I would suggest simply want a fair price and not necessarily the cheapest, instead looking for example for transparency on the one hand and added value on the other. And again what a brand stands for – particularly in this Millennial Age – is also a key determinant of choice.

I mention transparency and of course hotel pricing has never been so transparent thanks to the internet and more specifically our friends and colleagues, the OTAs and meta-comparison sites. As if you didn’t already know, customers on average check up to seven sites before arriving at their choice of hotel; not only this but compliments of review sites and social media, you can now have a running commentary of guests’ experiences practically and increasingly in real time.

So if you’ll forgive the pun, where there was once Darkness there is now a considerable amount of White Light. Which begs the question is Pricing then an Art?

Some folks would have you believe it is. For example, research into the psychology of price suggests that the fewer the syllables in a pricing point, the lower it is perceived to be; furthermore, having a lead in or ‘from’ price is advised plus a more expensive option but always start with the higher of the two; non-rounded prices such as £59 (as opposed £60) may be presented to appear as better value but clients can also negatively associate them with the bargain bucket and being of a lower quality, lower standard option; avoid using €, $ or £ signs and feature your price in red as this is typically associated with saving money. The psychology debate continues to rage on.

Focusing on hotels’ pricing however, and specific tactics around price to drive demand, again the OTAs are very good at whipping up enthusiasm by using some very effective tools: for example, showing how many people are concurrently looking at the same hotel and dates; flagging high demand and count-downs on discount availability; congratulating guests on securing best value to overcome post-purchase dissonance, etc..

Much of this is however is what you would see any day of the week walking down any supermarket aisle. Again guiding (some would say goading) clients into buying product A over product B.

In terms of processes for guiding price in the first instance however hotels would be well advised to proactively and again enthusiastically embrace revenue management aka yield management. With so many opportunities and channels available now to promote your hotel, it is critical that you have a coherent strategy for managing rate across your various distribution channels, the starting point of which is setting and micro-managing your rooms budget for 365 days of the year across your various target markets; tracking pick-up daily against budget and ideally same period last year; understanding what your competitive set is pricing at and what their achieved load or occupancy levels are; analysing demand build and knowing dates for peak periods of enquiry; and finally reporting in an easy to understand and easy to communicate format, rates agreed and channel decisions taken so that all members of the hotel team responsible for optimising revenue, from management to front desk to reservations, are all singing off the same proverbial hymn sheet.

Hotels that adopt this deliberate, structured approach to proactively managing cross-channel rate decisions with one eye on budget and the other on market elasticity, these same hotels experience significant, accelerated growth in rooms revenue and occupancy practically from a standing start and without any additional marketing spend.

So is pricing a dark art? In my view, no.

Is it common sense? Absolutely.