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Why Hotels Price Themselves The Way They Do

By Edited Dec 12, 2013 0 0

An Inside Look At What Hotels Consider When Pricing

Do you ever wonder why it is buying a hotel room one week can be so cheap and the next week so expensive? Have you ever wondered what on earth might cause them to do this (usually a question derived from frustration)? The hotel industry uses a number of different tools to maximize the amount of money they generate from selling a room. There are numerous factors that come into play that dictate how much a hotel will charge from week to week. All chains spend millions of dollars a year on resources to help them decide how to maximize revenue for the limited number of rooms they have available. I work in the hotel industry and want to share with you how the hotel industry operates, and will write more articles to discuss the best ways to save money on buying rooms, and tricks that almost no one knows about to get better deals on hotel rooms. But for right now, I’m just going to give a very high level overview of what causes the hotel industry to price the way they do.

Depending on where you are going, every hotel will have their normal high and low demand days. Typically in a large business travel market, such as Houston, the highest demand days are mid-week (Sunday – Thursday) with the weekends being the lowest demand days. For destination markets, such as Daytona Beach, the highest demand days are on weekends as this is when leisure travelers have time off. Some markets see significant business and leisure travel, so their demand is high nearly every day of the week (such as New York). You must take this into consideration when making your travel plans. If you plan on coming on their busiest days of the week, you can expect to pay for it.

Another important factor that must be considered is seasonality for hotels. A hotel keeps track of demand 365+ days into the future, so they know exactly when travelers are coming. Since every market has years of data that show travel trends for their market, they know exactly when you’re most likely to come stay in their hotel. For instance, if you plan on traveling to the beaches of Florida between February – April, good luck finding a cheap hotel room any day of the week! The “snow bird” retirees and families who just want to get away from the cold northern winter come to Florida to escape it all. They have money, and these hotels know it. Every market has similar high and low demand seasons, and they price accordingly to either weed you out (if you’re not willing to pay what they know they can get) or lure you in (with low rates and special discounts).

Hotels will also price themselves depending on what their closest competitors are charging and what sort of business they have in their hotel over any particular dates. A hotel will price themselves to their competition depending on their perceived value in the customer’s eyes. They will then deviate depending on market conditions and what sort of “group base” they have in the hotel. If a hotel has a large group or multiple groups in and it looks relatively certain that they will sell out, they will typically raise the price or “weed out” customers who are not willing to stay a certain number of nights. For example, if everyone in the market is selling $129 on a Friday night and the hotel has a solid group base in and will sell out, they will then decide whether they can maximize revenue by raising the price, or by only accepting guests who want to stay two or more nights. This is a very effective strategy that few people understand. A hotel may say they are sold out, but most of the time they have rooms available, but are leaving them for guests who plan to stay longer. If your travel plans are flexible, try adjusting your day of arrival or departure, or call the hotel and ask if they are requiring a minimum length of stay.

I hope this article sheds a little more light into the hotel industry. My goal is to write many articles on how hotels operate and give you tips on how to save money when buying a hotel room. Hopefully when you understand what is going on in the minds of the hotels, you will be better equipped when making your travel plans.

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