Creating hotel pricing structure
Hotel pricing structure become an important guidance for sales team to be able to promote and sell the hotel room accommodation. The pricing structure needs to be competitive, easy to understand, easy to use for selling, applicable to be sold in different channels as well as has a dynamic style and flexible in accommodating customer requirements.
A minimum of once in a year, a hotel sales person or revenue person will review the existing pricing structure and then, create a new pricing structure or make some adjustment to the existing structure depending on how the hotel plan to capture different type of market.
The process of creating hotel pricing structure will generally be followed up during budgeting time, start in early 3rd quarter of a year to support the development of hotel business plan. It is really important to understand the changes of market trend prior to creating hotel pricing structure to ensure the structure can be well applicable to the market.
In this writing, I want to highlight 7 criteria for hotel sales person and revenue person to consider when creating pricing structure for their hotel.
1. Type of room
How many types of rooms are available to sell in your hotel? Sometimes, there is a hotel with standard room as its leading room category but because of the less favorable layout so these standard rooms might not be included in the dynamic pricing structure. Setting static rate for this particular standard room applicable throughout the year will be sufficient to support the selling.
When a hotel has many types of rooms, for example, 5 categories including the first category room, then you can simplify the creation of pricing structure by applying value add-ons from one room type to another to make it easier for sales person to sell. Value add-ons can also be called as variance or modifier value created from one room type to another.
2. Number of seasons
Season can be distinguished based on climate conditions of the year in your city or can also be determined by high/peak, shoulder, soft, slow periods. Depending on the hotel’s typical market, you can consider to create the hotel pricing structure based on 2, 3 or 4 seasons. You can also consider to create only 1 season rates where there is no significant fluctuation of business trend in a year.
I would consider that the hotel pricing structure is ideally created based on a minimum of 2 seasons, for example, high/peak season and shoulder season. This is to give an opportunity for hotel sales person and revenue person to do yielding in the selected months.
3. Level of business volume
In order to decide on what rate to offer to a certain company, a hotel will review on the number of business volume can be potentially produced by that company in a year. Business volume can be referred as number of room nights production generated by a company.
A hotel can create ideally 3 to 4 level of business volume with different number of room nights production generated in each level. For example, you can start with 0 room night to 50 or 100 room nights yearly production for level 1, then continue to have the same pattern for the next level depending on the company’s potential for your hotel.
4. Length of stay
How many nights does your customer usually stay in your hotel? If most of your hotel guests stay between 1 to 3 nights in your hotel, then, it may not be necessary to create a hotel pricing structure with length of stay criteria.
This is different when the guest’s length of stay in your hotel is quite dynamic, for example, 50% of the guests will stay range from 1 to 3 nights, the remaining 50% will partly stay up to 1 week and the rest stay between 2 to 3 weeks. In this situation, you might then need to consider creating the hotel pricing structure based on length of stay. If a guest stay for 2 weeks, does he or she get better or higher room rate than a guest staying for 2 nights?
5. Benefits included
What a standard benefit that your hotel will include in the rate to meet the customer requirements. Do some research to understand customers needs, for example, do most customers prefer to have the room rate based on room only, room with breakfast, room with breakfast and laundry, room with breakfast and lunch or dinner, etc.
To create a simple hotel pricing structure, you can consider having the room only rate as the based, then create several benefits as add-ons feature. Hence, when a sales person needs to quote a room rate with breakfast and laundry, he or she can simply choose the suitable rate based on the company’s criteria as mentioned in the earlier points then choose the required benefits as add-ons to get the total room rate to propose.
6. Surcharge
Does a surcharge rate need to be applied in your hotel? Do some research on what will be happening in your city when a new pricing structure is introduced. Is there any large event organized that will create a city high situation which will impact into your hotel occupancy to increase?
Is there any large conference or group potentially to return to your hotel creating full occupancy level? During these periods, do you need to apply additional surcharge room rate to maximize revenue generated?
7. Terms & Conditions
Identify clear terms and conditions of the hotel pricing structure to be able to support the hotel sales persons to use it as their selling tools.
For example, are all room rates created in net (inclusive of service charge and tax) or ++ (exclude service charge and tax) condition? If a company requests to have the room rate applicable until the 1st quarter of the following year, what will the terms and conditions applied? Are all room rates created as commissionable or non-commissionable rates?
A simple excel spreadsheet with simple formula can be developed to support the creation of pricing structure.
Happy selling.
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