5 Reasons Why Hotels Have Thousands of Pricings
𝟭. 𝗠𝗮𝗿𝗸𝗲𝘁 𝗦𝗲𝗴𝗺𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻
Hotels can have different kinds of customers.
The standard practice of hotel market segmentation can be divided into 5 big chunks.
- Retail (Individual travelers)
- Corporate (Contracted business travelers)
- Wholesale (Middleman between hotel and travel agency)
- Group (Booking with 10 or more rooms)
- Others (Airline crews, government, military, and others)
Hotels can price differently based on the market segments they're serving.
𝟮. 𝗙𝗶𝘅𝗲𝗱 𝗖𝗮𝗽𝗮𝗰𝗶𝘁𝘆
The hotel is a service business that provides a space for guests to stay.
And they have a limited number of rooms available for travelers.
Hotels will adjust their price to maximize their limited capacity.
𝟯. 𝗣𝗲𝗿𝗶𝘀𝗵𝗮𝗯𝗹𝗲 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆
The unit we use in hotels are usually calculated as room nights.
A 50-room hotel only has 50 room nights available per day.
This means the room we didn't sell today cannot be sold tomorrow.
The hotels will try to change their prices to sellout their rooms at the highest possible price.
𝟰. 𝗟𝗼𝘄 𝗩𝗮𝗿𝗶𝗮𝗯𝗹𝗲 𝗖𝗼𝘀𝘁
The hotel is a high fixed-cost business (mostly on staffing).
But they are relatively low on variable costs (amenities, laundry, etc.)
This means the cost of selling 1 room and 50 rooms might only be a little different.
With this in mind, the hotels have the flexibility to set the price without worrying about the cost.
𝟱. 𝗙𝗹𝘂𝗰𝘁𝘂𝗮𝘁𝗲, 𝗕𝘂𝘁 𝗣𝗿𝗲𝗱𝗶𝗰𝘁𝗮𝗯𝗹𝗲 𝗗𝗲𝗺𝗮𝗻𝗱
The demand for travelers to stay in a hotel can be very varied for different periods.
However, hotels can predict these demands based on historical and forward-looking data.
For example:
- Some months are more popular than others (Seasonality)
- Some hotels might have high demand during the weekends compared to weekdays (Day-of-week)
- Special events like public holidays, concerts, and, local seminars
All these factors affect the hotel's demand but they are predictable.
Hotels are well prepared to set different prices based on predictable demands.
If we wanted to boil down why hotels have thousands of prices, it's because we wanted to MAXIMIZE the REVENUE.
These 5 points mentioned above are also prerequisites for applying revenue management.
We only have a fixed amount of rooms that can be sold each day. These rooms are in demand for different segments at different pricing in different period of time. The hotels will still need to pay a high fixed cost even when the room is not occupied.
This is also why revenue management is important for the hotel business.