Hotel Pricing Strategy: Price Rates in Number Other than 9 or 4
For the love of incremental revenue, please say goodbye to the 4’s and 9’s with your hotel pricing strategy.
Why do hotel prices frequently end in “9’?
Traditionally, our hotel pricing strategy has been for rates to end in a “9” based on the psychology of getting as close to the next round number as possible without going over it. The idea is that customers see $99 as being much more affordable than $100, when in reality there is only a difference of $1.
Then we added a “4” to the price
Then, the challenge became growth year-over-year and we couldn’t just stick to the “9” to accomplish our goals, so the “4” was added to our hotel pricing model. Similar idea here where $104 is viewed as far more affordable than $105, even though the true difference is one whole dollar.
Today, we are selling rooms across hundreds of channels, all offering their own discounts, incentives, promos, etc. We all dream of growing our BAR segment. But the reality is that discount segments, including loyalty member rates, are the segments that are seeing the growth.
Dynamic Rates Rarely End in 4 or 9
Since these hotel discount rates are dynamic (i.e. loaded as a percent off BAR), they are very rarely ending in the beloved 4 or 9. So this begs the question: If our high producing discount segments rarely end in a 4 or 9, what does it matter if BAR ends in these two magical, psychology-fueled numbers?
The answer – it doesn’t. Customers are no longer accustomed to seeing this hotel pricing structure.
A Trick for IHG & Hilton Hotels to Create Incremental Revenue
Did you know, many branded hotels offer rate recommendation tools that have “rate ending” configuration options that can be set by the user? If you are a branded hotel, check into this change in your hotel pricing strategy! You may only have your settings configured to allow the system to recommend rates ending in a 4 or 9. Stop restricting this or you are missing out on incremental hotel revenue.
IHG Hotels: Log in to Concerto, then navigate to Yielding & Price Optimization – Pricing Settings:
Hilton Hotels: Embrace Hilton’s Customer Centric Pricing (CCP) module and load your BAR Rate Levels at 3%-5% higher than pre-CCP structure… and don’t round to the nearest 4 or 9! Create a simple Excel sheet for your property that takes room type differentials and the CCP bump into account. Save this “cheet sheet” on your Desktop so it’s quick and easy to load rates CCP-style when implementing a new season.
Let’s Look at an Example…
If the system recommends $116 but you are restricting it to rates that end in 4 or 9, then the system is forced to round down to $114 or up to $119. That means you are either pricing yourself too high, or leaving money, albeit a few dollars, on the table. But those dollars will add up. Allow the system to deliver its complex algorithm! You still have the choice to accept or deny the system’s recommendation. Continue to watch for opportunity, such as adjusting to $118, and so forth.
Independent hotels may be even more stuck in the 4 and 9. Many independent hotels do not have rate recommendation tools, so they will have to rely on their revenue manager. Be sure to find one who is creative, forward thinking, and willing to give this pricing method an opportunity to grow revenue at your property.
Time to Implement
Revenue management is constantly evolving, so keep an open mind when it comes to implementing new ideas. A good place to start is adjusting your hotel pricing strategy to include rates that end in 0, 1, 2, 3, 5, 6, 7, 8… and 4 and 9 too! Talk to your revenue strategy team, review your current settings, and give this idea a try to add a few extra bucks to the bottom line.
Beth Wakefield is a former member of Cayuga Hospitality Consultants.
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