Sometimes we believe the pricing is the result of the hotelier’s vision rather than of the market. There is a misrepresentation of a right price or a right rate per type of establishment, based on the services offered and the competition prices.
When demand is low
When demand is low, we always blame the poor quality of service offered, the time of year, the historical moment, the manager who is not “capable”, sales channels that do not operate like they used to, the region and the department that do not invest for the destination, and whatever else happens to occur.
But it is very rare that someone recognizes that he has applied a wrong price or a wrong pricing strategy.
All the reasons listed above are not false, but they have a very marginal impact on sales. Of course, if everything went in the right direction it would be easier. But it’s like saying that I have failed an exam although I got my hair and my beard done, I arrived early, I bought a nice suit, I smiled at the examiner, and I just omit the main point: that I had studied little or badly.
Determining at what price selling our rooms’ use time (because this is what a hotel do), requires some attention and it is necessary to start from the historical information we have. At this point I would like to clarify here two recurrent objections. If a property is new and has no history, we have to assume, relying on our experience, day by day pricing and then constantly monitoring to see which adjustments are to be done right away. There is no other way! The other objection concerns the fact that statistical data are not absolute truths and that things change from year to year.
The objective is to improve the results…
It is a fact for sure, but your goal is to improve the results obtained last year, considering that there may be variables making this objective more or less easy to reach. In 2017 for instance: there are long holiday weekends and Easter is celebrated in mid-April, a situation different from 2016 and 2018. I have to take into account this information when fixing day-to-day improvement objectives.
What do we analyze to understand the sale price?
Once I have made these considerations, let’s see what I need to analyze to understand the selling price, for every single day of the year and not per period or per season.
Let us analyze how we managed to sell that number of rooms and whether there is a possibility that the situation will occur next year.
For example, take a day on 2016, Wednesday, October 12, and think about how we’re going to start selling on Wednesday, October 11, 2017 (because we have to confront the day of the week and not the date). Depending on where your hotel is located, we will have totally different situations, but the reasoning is very similar.
Over 70 hotel room, we sold 50, so 20 empty rooms. The first objective is to sell more than 50 rooms, targeting 70 rooms. But let’s see how this 50 rooms occupation might be constituted. If for example we had 13 rooms for business guests, we must assume that we will have next year more or less the same number of rooms. For more security, we have to check the other Wednesdays of that period to understand if it was just a case or a realistic number of rooms sold for business.
In this case, the price will be the same, either by convention, or a percentage discount on the sale price and most likely reservations will arrive at the last moment. Therefore, we should consider they are sold and leave them aside for them.
If, on the other hand, we talk about leisure guests, then 15 tourist rooms, we have to think differently: once you know that it is a normal number of rooms sold – in the average of that period- we need to think about whether it is possible to sell a little more, because in this case – unlike for business reservations – the price has to be budgeted in order to sell more, probably lower compared to the base price set the previous year.
To achieve this result, we must anticipate several months, possibly 12 months: the sooner we begin the more we can reach the goal. There is no reason to wait to put the rooms on sale.
What about groups?
Now, imagine that there was a group of 25 rooms in house that Wednesday: this is a very important variable because if it is a group linked to a group series we can assume that we will have it back next year and – probably shortly, we will have the schedule with the program. We must do everything to make it happen. Therefore, if necessary we must meet the tour operator needs.
But suppose the situation is more complicated: it was a casual group and we have no certainty that it will return the following year. At this point we have 25 more rooms to sell compared to last year and we can only consider two options: the first is to get immediately online with far lower prices than the previous year base prices because I have so many rooms to sell on a very weak demand day and the only lever I have is the price; next option is to contact all possible operators in the group industry, offering very attractive prices, but requesting a deposit in guarantee (the economic advantage that we offer must be important). We must make a very similar reasoning for rooms sold through Tour Operators: if they have sold so little, it is worth thinking about more attractive rates.
As you see, we are doing logical suppositions but there is no certainty and there could not be. The only certainty we have is that if we anticipate we will start a virtuous circle that will bring us greater online visibility (mainly on the Otas), which will always generate more reservations, both intermediate or – to a lesser extent – without disintermediate, increasing the number of reviews that will favor future bookings.
What happens when the hotel is complete?
In our example, the hotel had a good occupancy level but was not full. If we had sold all the 70 rooms, we would do the same kind of reasoning, except that we should consider raising prices.
Indeed, because before we can start raising prices we have to make sure we have sold all the rooms. In this case, we must consider optimizing sales, and to do so, we must reduce the number of rooms sold at lower prices, leaving room for those sold at higher rates.
This applies to all customer segments, individuals, or groups. We would have more requests for available rooms, we would start selling at a price slightly lower than last year’s average, being very attentive because we should then gradually increase the prices wherever possible and start with higher prices where instead prices cannot be raised over time, as with Tour Operators.
We have analyzed the logic to follow to set base price for each day, but we did not talk about numbers, since we would need specific data. Still, this is the logic to follow to get the best possible results. Try it, you’ll like it!