The hotel room rate represents one of the most critical decisions a hotelier can make, as it can have an extremely positive or negative impact on the final income.
In today’s highly competitive environment, making wise pricing decisions is crucial to increasing occupancy and revenue. The more diverse pricing options you create for each accommodation unit, the more flexibility you offer guests in choosing the room that best suits their needs. That can ultimately mean choosing your hotel over the competition.
In this article, we will cover various pricing strategies, their importance, and how Rentlio can help you optimize your rate strategy.
Revenue and Rate Management
Revenue and rate management are challenges for every hotelier. Sometimes, it’s hard not to succumb to the temptation and keep using the same approach. The skills required for this type of hotel management often include various areas such as knowledge of technological solutions, finances, and many other aspects. Therefore, it may seem demanding to cover all these elements while maintaining competitive rates.
The unpredictable nature of the market implies flexible and dynamic pricing in hotels, not only daily but sometimes even within hours, depending on current demand. This level of flexibility is necessary for revenue managers, hotel managers, and sales managers to achieve revenue goals successfully.
Despite this, effective rate management is not unattainable. Setting room rates means achieving the highest possible revenue from each room. Instead of focusing on the absolute value of the room, consider how to provide additional value to guests. Guests are often willing to pay more if they see an opportunity for other benefits or amenities during their stay. Occupancy plays a crucial role in determining room prices. Unsold rooms do not generate revenue, so it often pays off to set lower prices to attract guests, especially in competitive locations. After attracting guests, you can consider ways to generate additional revenue through the other hotel services mentioned earlier.
Setting room rates depends on specific factors, including location, size, market demographics, competition, and the type of service you provide. It is essential to tailor your strategy to your business, as there is no one-size-fits-all approach.
Why is Hotel Rate Management Important?
Different pricing options are crucial in standing out from the competition and allow hoteliers to gain an advantage. In a highly competitive industry such as the hotel business, offering diverse pricing models expands your appeal to a broader audience.
In addition, offering different prices contributes to more direct bookings, increases your hotel’s occupancy, and generates higher revenue.
8 Different Hotel Rate Types
Diversification of pricing options plays a crucial role in efficient sales management and maintaining a competitive edge, regardless of seasonal fluctuations or changes in the market. Relying on various pricing strategies, hotels can adapt their approaches to market conditions and guest needs, ensuring long-term sustainability and guest satisfaction.
Now that we have recognized the importance of diverse hotel room rates, it’s time to explore 8 standard pricing strategy models in the hotel industry.
Standard Rates
Standard rates play an essential role in attracting guests and providing clear guidance. That is the starting point for many travelers who want to assess the accommodation cost before considering additional options or amenities.
Standard rates often reflect the quality and conditions that guests can expect. For example, hotel rooms with higher standard rates often imply greater comfort, better views, or included breakfast. To better cater to the various needs of your guests, consider diverse standard rates for different room types or packages you offer.
Setting standard rates is crucial to tailor offers to different market segments and attract a wide range of guests.
Best Available Rate (BAR)
The Best Available Rate, or BAR, represents the lowest price guests can get for a hotel reservation. BAR prices are dynamic and flexible. They continuously adjust to reflect current demand and availability. For example, during low seasons, BAR prices may be significantly lower to attract guests and utilize the hotel’s capacity. On the other hand, during high season or in anticipation of notable events in your city, BAR prices may be higher.
Additionally, BAR prices are often combined with dynamic and daily rate changes to further adapt to changing conditions. That lets you offer special daily rates for weekends or packages with additional services to attract specific guest segments.
Managing BAR requires careful market monitoring, competition, and current hotel occupancy. Properly setting BAR prices can help you balance attracting guests and maximizing revenue.
As a hotelier, you must be prepared to continuously adjust BAR prices to seize opportunities in the market and meet different guest needs.
Dynamic
Dynamic rates are a crucial component in revenue management, as they allow price adjustments based on the current hotel occupancy. For example, if the hotel’s occupancy is 20% capacity, dynamic prices can be set at a lower value to attract potential guests. Reducing expenses in this scenario can stimulate bookings and prevent some rooms from remaining vacant. Conversely, when the hotel’s occupancy is higher, for example, 60%, dynamic prices are adjusted to higher values. This approach allows the hotel to maximize revenue as demand increases, so do the prices. Setting dynamic prices requires careful planning and management.
For the best results, hoteliers should understand the market and actively monitor competition, seasonal changes, and other factors to make the proper price adjustments. Therefore, it is helpful to use tools and management software like the Rentlio Pro hotel system to automate the price management process and ensure an optimal pricing strategy.
Non-refundable
Non-refundable rates are an intelligent strategy that allows hoteliers to secure stable revenue and minimize the risk of reservation cancellations. This rate obliges guests to pay in advance or lose a certain percentage of the amount in case of reservation cancellation. They are commonly set at a discount of 5% to 10% compared to the Best Available Rate (BAR), further encouraging guests to choose this option. Guests confident in their plans or looking for affordable accommodation often prefer this rate.
For hoteliers, the benefits of defining these rates go beyond current reservations. As guests commit to paying in advance, hotels receive a certain income upfront, which helps with financial planning and management. This revenue predictability enables better resource and hotel capacity management.
It’s important to note that, despite the many advantages, defining non-refundable rates requires careful management with the support of a reliable and high-quality hotel PMS system. Clear and transparent reservation terms must be defined for these rates to avoid disputes and conflicts.
Last Minute or Walk-ins
In situations where rooms remain unoccupied shortly before the check-in date, last-minute prices can help stimulate bookings and increase the hotel’s overall occupancy rate. This approach can help maximize revenue by ensuring that the available capacity is always used efficiently.
As the check-in date approaches and the number of unsold rooms increases, rates are reduced to make them more attractive to last-minute guests. Often, these guests decide on their stay only a few days or hours before their arrival. By offering attractive last-minute prices, you can encourage these spontaneous guests to book a hotel room.
Many factors can impact this decision, such as current occupancy, market conditions, and local events. A good hotel PMS system like Rentlio Pro can help automate the process and make the right decisions at the right time.
Packages and Special Offers
Package deals and special offers are excellent strategies for increasing hotel revenue. This flexible option allows you to combine the best available rates with various additional services, such as a two-night stay, meals in the hotel restaurant, wellness treatments, and other amenities, all at favorable prices within your hotel’s framework. These combinations often attract potential guests by offering them attractive packages that include more than basic accommodation.
Guests love these offers because they provide added value for their stay and allow them to use various hotel services at a more affordable price.
Group and Business Rates
Hotels near conference centers or those that frequently host special events can generate significant revenue through corporate or group rates. These special rates make the hotel an attractive choice for business travelers and event participants, contributing to an increase in bookings in one go.
In addition to attracting more guests, corporate and group rates provide hoteliers with a long-term source of revenue. Target guest groups traveling for business purposes or attending conferences and events usually travel throughout the year, ensuring a stable income even outside the peak season.
Length of Stay (LOS)
Longer length of stay (LOS) rates are another excellent strategy with several benefits. In addition to helping hotels maintain lower room maintenance costs (cleaning and preparing rooms between nights requires fewer resources compared to frequent guest changes), they also encourage additional revenue. Guests who stay longer typically spend more on other services and in restaurants.
By promoting extended stays at attractive prices, hoteliers achieve stable income over an extended period. This strategy will attract guests looking for extended stays while generating additional revenue from selling extra services and restaurants.
Furthermore, maintaining consistent room occupancy over an extended period contributes to the hotel’s revenue stability.
How Can Rentlio Help You Manage Revenue and Different Hotel Rate Types?
In the highly competitive hotel industry, offering diverse pricing options is essential to stand out and attract a wider audience. Different pricing strategies play a crucial role in increasing occupancy and revenue, and they help hotels adapt to market conditions and guest needs.
To implement and manage these pricing strategies effectively, it’s essential to use a reliable hotel property management system (PMS) like Rentlio Pro. Such hotel software can automate the pricing process, provide real-time data and insights, and help hoteliers make informed decisions to optimize their pricing strategy. Rentlio Pro offers a wide range of features that enable dynamic pricing. You have complete control over all critical hotel operations, including reservation management, inquiries and offers, maintenance of accommodation units, and business reports and data.
In addition to managing reservations, inquiries, and offers, Rentlio enables you to track guest expenses through folio functionality and individual or batch price editing. Easily customize your pricing strategy to your business, including setting special offers, restrictions, and limitations. For example, by linking the base rate to other tariffs, Rentlio automatically updates associated prices when the Best Available Rate (BAR) changes. That enables you to respond to market changes and optimize revenue quickly.
Rentlio provides a comprehensive hotel management system that is continually evolving, yet it remains simple and intuitive to use. With its revenue and pricing management features, you can maximize revenue potential, access valuable business insights, and generate occupancy reports quickly. Contact us today to help you achieve business growth.
Remember that there’s no one-size-fits-all approach to pricing, and it’s essential to tailor your strategy to your specific hotel, location, and target audience. By offering diverse pricing options, you can attract a wide range of guests and ensure long-term sustainability and guest satisfaction.
