Value vs Cost of the Hotel room

How to set the correct price of your hotel room

Having been through several Hotel openings and renovations and currently working on some related projects, I realize how some topics recur. In my experience, the core of the discussion is almost always related on how to set the correct price for your brand-new product = Hotel room in the market.

I believe that this is the most critical part in the decision-making process as it involves not only the mere pricing; but how you intrinsically communicate your positioning and value of your new product to the market.

The work to be done to get to the best decision is complex; but instead of talking about what should be done, I learned what are the things you should not do in the process:

  • Let the cost of your product set the price: the cost of the physical assets in your hotel room are not a determining factor in the sell rate calculation.
  • Believe that you and your customers will think alike: what you worth as an owner or manager does not necessarily represent a reason to pay or an upselling reason to your customer.
  • Ignore the market: a study of the market demand will make you set clear, challenging but at the same time achievable objectives. Understand how the demand is moving, what are the drivers, where are the opportunities, seasonality and lead time and be flexible.
  • Underestimate the competitors: compare your products with the one of the competition around you and write down the reciprocal strengths and weaknesses to come out with opportunities. Work on what makes you better or different and leverage on that, but at the same time work on what should be improved.
  • Overcomplicate: do not fall into the trap of trying to sell a wide mix of products / type of rooms that only you can understand and explain on the reciprocal differences. The simpler, the better. More room types do not mean more rate and revenues.
  • Do not consider the human factor: everybody sells and every moment is a moment of truth to build value and create experience: make your team tell the story and be part of the story. It is not only about selling a Hotel room, it is about an experience journey from the moment the customer books to the moment he leaves.
  • Let pricing be a standalone activity: No room can be sold at whatever price, without the support of a strong (and coordinated) sales, marketing and digital content and message, both on and offline.
  • Be impatient: every new opening requires time to consolidate in the market. Give your new product the necessary time to set its footprint in the marketplace and grow reputation. Rome wasn’t built in a day.
  • Do not measure your Customers’ satisfaction: feedback is precious and especially on your first period of operation it is the easiest and quickest data type you can collect to understand if you got it right, or if your strategy needs adjustment.

(Believe it, I have experienced all the above list being duly followed and I still see it as an easy trap to fall into.)

As you may have noticed, all the above “not to” points are consequentially linked to one another.

They evolve around Product -> Customer -> Market -> Service -> Customer.

It is a chain that provides Value to the product you want to sell and allows you to set the correct pricing based on all the considerations you (in this case – should not!) do.

Avoiding these mistakes will give you the opportunity to sell better and even higher than you may have done otherwise. Ensure the best profits and returns on the long term and provide a solid argument to support your price integrity.

[Originally posted on LinkedIn. August 29th, 2017]

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