Different Pricing Models in the Hotel Industry and Strategizing with Rate Intelligence

Today my article is about the differences and importance of per room, occupancy-based and per person pricing.

Without understanding this topic, you can’t correctly configure the following:

1-) Setting up your hotel in online agencies.

2-) Your pricing strategy.

3-) Setting up Channel Manager.

To this day, I have set up or managed more than 100 online channel installations. Sadly, I must say that I have witnessed more than 90% of these hotels incorrectly setting up their rate configuration.

This topic is such a critical topic that without understanding the differences between pricing models developing a successful pricing strategy is just left to chance. For this reason, I wanted to write a comprehensive article about this topic and bring some clarity to it.

Pricing Models:

1-) Per Room

A rate is given per room without taking into account the number of people being accommodated in that room. The same rate is applied whether one person or two people stay in the room. This pricing model is generally used only in Room Only Sales. Then, the difference for breakfast is applied per person.

Example:

Let this be the case:

Pricing model: Per Room

Breakfast rate: 15€ / per person

Difference for Third Person: 30€

According to this, the rate would be as below:

Single / Double Room Only: 100€

Triple Room Only: 130€

Single BB: 115€

Double BB: 130€

Triple BB: 175€ (Here, the difference for breakfast and an extra bed has been added for the 3rd person)

Note: Many hotels are baffled when calculating a third person or they make some illogical calculations. Here, you may think that the BB Triple rate is inflated since we’ve added both the breakfast and the extra bed to the room. If you’re thinking this, the unit rates should be decreased without changing the situation.

2-) Occupancy-Based Pricing

The rate is calculated based on the number of people being accommodated in the room. As the base rate, it’s taken as either a single or a double room. The rate is dependent upon this. This Room Only and BB pricing is calculated based both on the number of people as well as breakfast.

Example:

Let this be the case:

Pricing model: Occupancy-Based

Breakfast rate: 15€ / per person

Single/Double Difference: 10€

Third Person Difference: 30€

According to this, the rate would be as below:

Single Room Only: 90€

Double Room Only: 100€

Single BB: 105€

Double BB: 130€

Note: With this pricing model, you should not ignore the fact that there are many price variations: 4 room types (Standard, Superior, Deluxe, Executive) 4 rate types (Room Only, Non Ref Room Only, BB, Non Ref BB) there are 3 occupancy types for each room (single, double, triple).

In such a scenario, your standard room would have these types of rates:

1. Standard Single RO

2. Standard Double RO

3. Standard Triple RO

4. Standard Single RO NR

5. Standard Double RO NR

6. Standard Triple RO BR

7. Standard Single BB

8. Standard Double BB

9. Standard Triple BB

10. Standard Single BB NR

11. Standard Double BB NR

12. Standard Triple BB BR

We see above that there are 12 rate types for just one room.

This means that for 4 rooms this is 48,

For 5 rooms this is 60,

For 6 rooms this is 72 different rates.

3-) Per Person Pricing

This pricing model is generally used in hotels that are Half-Board, Full-Board or All-Inclusive.

For example, the rate for a double room: Let it be 200€; 75% of it for a Single: 150€ +35% for a Triple: 270€

If you notice the pricing structure here, it is different than the previous two pricing models I talked about. The most important reason for this is the meal costs being included. In other words, the hotel is providing dinner, lunch, and breakfast. Calculating the cost of this would be a bit difference than per person.

Here, after deciding which rate type will be applied, it would need to be worked out on a spreadsheet.

When being worked out, the following needs to be considered.

1-) First, a case study should be created. In other words, questions such as what will the difference be between a single and a double, how much will breakfast be, how much of a Non Ref discount will I give, what will the difference be for a third person, etc. need to be answered. And, without disrupting this case, all room and rate types need to be applied. The correct application here will determine your hotel’s fate in online channels.

2-) After deciding this, how many rate variations you have will need to be determined. For example, as given in the example above, in the case that you have 4 rate types and 4 room types, if your model is Occupancy-based, you will have a total of 48 different rates.

3-)Finally, you will need to create different rates for different demand (low demand up to high demand). These can be between 5–10. If you were to create 10 different rates, your variations will increase to 480.

4-) My suggestion is, as much as you can, to build the structure in a simple and manageable way.

After determining these, this price structure needs to be set up in respective OTA’s in the same manner. You certainly should let your marketing manager know of the pricing model you will be using so that he can set up extranet accordingly.

In conclusion, in the same manner you should let your Channel Manager provider know about this structure so that they can set up the formulations and mappings accordingly.

Note: Some Channel Managers are not compatible with every pricing model. When buying, you should ask questions with regards to this subject, research it, and purchase an appropriate Channel Manager for your pricing structure.

The Most Common Mistakes

1-) Hotels generally give occupancy-based rates for standard rooms and per room rates for suite rooms. Pricing should be the same for all rooms.

2-) Hotels set up different models in different online agencies. For example, they set up per room on booking.com and occupancy-based on Expedia. This causes serious problems and ultimately causes parity problems. Pricing models should be the same on all channels.

I hope this has been a beneficial article for you. If you have any comments, suggestions, or if there’s anything you want to add, you can share it below.

To learn more about the process of pricing and development of your pricing strategy, check out our Rate Intelligence tool.