There is no doubt that setting the same price to all of your rooms is by far the worst strategy to optimize the profitability of your hotel. That’s the reason why any hotel manager should diversify the price of his/her rooms according to some factors.
When implementing the price segmentation of the rooms, the first factor to be taken into account is time, in terms of the distance in days or weeks from the date for which you want to set the price. Bear in mind that, especially in high season peaks and in special periods such as bank holidays, as you get closer to the date and the number of bookable rooms in a particular destination decreases, there will be an increasing number of people who are willing to pay more to stay in your facility. Therefore, setting the lowest prices for those who book first, in order to reach an acceptable amount of bookings, will allow you to keep higher prices to apply to those who are willing to pay more.
Let’s consider, for example, a bank holiday weekend where you expect a high demand for reservations, you might segment prices in this way:
- Up to 4 weeks prior to the date, you can propose a lower price for the standard rooms and a little higher price for the upper category;
- As the date approaches, raise the prices so as to identify a target that is willing to pay something more
- Finally, if there are only a few days left and you still have unbooked rooms, you could lower the price of the standard rooms.
But how could you know in which dates you ought to expect a larger reservation request? The best way is analyzing your occupation curve, that is to say the trend of bookings registered by your facility in a specific time range.
However, time is not the only factor to be considered in the price segmentation process of your rooms. Probably the most important one is the diversification of your target. What does this mean? In order to properly segment the prices, you need to identify the various segments your target is made up of and to find, for each one of the, an attractive price.
The easiest way to segment your guests is by dividing them according to the reason of their stay: you will thus have a first division between “leisure” clients and “business” customers, ie customers who travel for pleasure and who travel on business. Undoubtedly, due to the fact that their journey is motivated by an event, conference, or appointment with a client, those who travel for business reasons are willing to spend more money than leisure clients.
Another option to segment your prices could be the channel used for the reservation, in other words, whether customers have used the direct channels (telephone, fax or email of your facility), your website, a booking engine, or they have chosen indirect channels, namely travel agencies, tour operators or OTAs.
Anyway, the best way to differentiate your rates is identifying the various segments of your target. In marketing terms, this means finding homogeneous groups within your regular customers that have common needs and buying behaviors.
In order to identify the segments of your target, you need to think about what features your customers generally have and ask for example:
- The channels used to book;
- Whether they book in groups, alone or with their family;
- If they travel mainly for pleasure or work;
Which services of your structure they seem to require and appreciate more.
One of the most important things to ask is obviously their attitude toward the price, that is to say how much they are potentially subject to discounts and offers and, in general, how much they are willing to pay to stay in your facility. By answering these questions you will be able to identify the different segments of your target on which to build the price segmentation of your rooms.
3 How to differentiate prices
After the above-mentioned analysis, you will be able to find the various rates and each one corresponds to the price your target segment would be willing to pay to book one of your rooms:
- Firstly, there will be the list price;
- Then, a slightly lower rate for business customers or those who are less subject to discounts;
- Finally, there will be an even lower rate for leisure customers (groups, families or singles) who are more subject to price changes.
In addition to these rates, you obviously need to make discounts or packages that are offered according to the time criterion and other elements such as booking methods (direct customers, OTA, and so on): you will be offering these rates as you do not manage to sell your rooms, so when your occupancy curve goes down to lower levels.
This could be, for example, the occupancy curve of a 80 rooms hotel in January of the last year.
The price-allocation method based on this curve is really intuitive: during the period in which you have more reservations, the most discounted rates will drop until they tend to disappear.
Let’s take the previous curve as an example:
- During the period in which the curve is below 50% of the booked rooms, all available rates, including the discounted ones, may be applied;
- When the occupancy rate is between 50% and 80%, the rates with higher discounts will no longer be available;
- Finally, when the occupancy rate is higher than 80%, only list prices will be available.
In this way, the price segmentation of your rooms will increase the profitability of your hotel and will ensure you to apply the best rate that optimizes the sales of your hotel.