If you don’t work in the industry, you may have asked yourself how hotels price a room at the high-end of 3 digits and suddenly the next day you are able to grab a deal for the same room at 99 Euros? One of the priciest parts of traveling is accommodations, so we decided to have a glimpse into how hotels do their pricing and perhaps shed some light on it for you.
Unfortunately, just like airline prices and pretty much everything with supply & demand economics, there is no universal hotel rate that a hotel may keep throughout the entire year to determine how to price their rooms. These too change frequently based on seasonality, location, the popularity of the hotel, along with other dynamics (social media anyone?)
Hotel pricing is not simply a toss up of numbers. Sure, the occasional bed and breakfast owner may think to themselves how much they invested, what they expect to make in order to cover operational costs and expenses, and as such price according to what they feel their rooms are worth. However, hotel pricing fluctuates strongly and the pricing is based on a number of factors including;
- Seasonality – Some destinations are targeted for summer vacationers when most employees are able to take off, families with children travel as school is out (depends on where you live as well – northern hemisphere or southern), and hence the summer months suddenly skyrocket in prices whereas the same location in the middle of winter months when no one is around may be next to nothing.
- Location – When you travel, you pick a destination for its purpose. Perhaps you are looking to party, so you may want to go somewhere known for a party town. Perhaps you’re looking for a tranquil, relaxing beach vacation or you want to go on a soul search trip to meditate for a week. Whatever the reason may be, the location of hotels and accommodations is crucial in pricing. The higher in demand a location is, such as New York, the pricier overnight stay will be.
- Demand – As previously mentioned this ties in closely with the above point, however, it also comes down to what guests are willing to spend. If a hotel is in the middle of a busy tourist location, however, has bad ratings and reputation, offers near to no amenities and is overpriced, then demand in that location will be low.
- Star rating – In a nutshell, star ratings are given out differently across the globe. A 5-star hotel in Argentina may not equal a 5-star hotel in Dubai or Hong Kong, and vice versa. Pricing of rooms, however, allow hotels to adjust based on their given national star rating in accordance with the supply/demand of other similar hotels.
- Amenities – Hotel room prices vary based on what is offered along in the booking. A minibar may suffice to raise the price by 10 Euros in a room versus one without a fridge.
- Value of Service – What you get in relation to the services offered by the hotel versus the value of your payment. If you’re looking for a room at a hotel with a pool and come across Hotel A and next door Hotel B, with the first being 30 Euros and the latter being 100 Euros, don’t expect Hotel A to have the loveliest of pools. You are also paying for the value of their services.
- Hotel Competition – Hotels based their room pricing in comparison to what they feel they offer versus similar or other class hotels in the area.
Other factors can include the weather for a specific destination or the number of flights at an airport within the vicinity. These things allow hotels to take considerable decisions and price their rooms in order to ensure the maximum rate guests are willing to pay while still turning a profit. Hotels simply will not make a profit by offering every room at the same price. You may pay 100 Euros a night while your next door neighbor paid 120 Euros for the exact same offering. Just like airline tickets, hotel rooms will vary in price based on the above factors. When you factor in economics, when a hotels availability decreases, yet demand and occupancy increases, you’ll get higher rates.
Many industries use analytical trends to help determine prices. In today’s data-driven world, analytical software makes this easier than ever. Hotel managers will utilize hotel data based on analytical tools and hence make educated guesses of pricing ranges. Prices can be forecast by looking at former price trends of their hotel taking above factors into consideration. An example would be comparing high and low season rates to see if there are any similarities or trends/patterns to allow pricing like the previous year or better.
Despite all the fancy tools and booking systems in place, including myCiity, it typically comes down to one person – the hotel director/manager. They are the ones that decide on the room rates they introduce to their system, often utilizing another role, that of the revenue manager whose job it is to use software, the above factors and create, develop and maintain room pricing strategies in order to achieve the highest possible occupancy rate at any given time allowing the hotel to turn a profit.
What about travel agencies?
If you have ever used our hotel booking platform or similar services such as Booking.com or others than you are probably familiar with online travel agencies (also known as OTA). When you book online, you are typically booking through an OTA, which is the website that is providing you the services in selling the room. myCiity is an aggregator, not an OTA. We collect the prices from all OTAs and display the best deals to you. Online Travel Agencies have their own teams of people who negotiate with hotels directly to get the best price for their website. myCiity, on the other hand, aggregates them into one, so you don’t need to search every individual OTA site.
This then brings the question of – “what about travel agencies?”. How do they factor in hotel room prices and make a profit? If the OTA is able to secure a great deal through negotiating with a hotel to receive stupendous discounts, the OTA can sell the room on their site and is able to reserve the room at specific rates which allow them a little leeway in pricing. Yes, it may be risky for them, however if a hotel room costs 100 Euros on the hotel website directly, the OTA may receive a discount of 40% meaning the room for them is only 60Euros and they offer it on their website for 80 Euros, they still turn a profit and you consider it a deal. The hotel may win as well if the pricing is still above the margin needed to make money and everyone is happy.
myCiity hotel pricing
As previously mentioned we are not an OTA. We do not sell rooms directly, rather we aggregate all the possible providers we deem to trust including all their data and list them on our site for you to compare, quickly, easily and without hassle, free. If you don’t find anything of interest we also recommend one other direct platform, namely booking.com.
We hope this gives you a little insight into hotel room rates and pricing. There is nothing you can really directly do to influence room rates, except to do your homework and find a deal you feel suits your budget and are willing to pay for.