Why You Shouldn’t Only Consider Competitor Prices When Adjusting Room Price
In business, as in life, fortune favors the bold. Closed mouths, they say, don’t get fed. Slow and steady might win the race, but a certain level of chutzpah is needed to succeed in this increasingly competitive world. Business owners know it is preferable to be a trendsetter over a follower, to be proactive rather than reactive. However, when choosing a pricing strategy for an independent hotel, it is a good idea for a business owner or revenue manager to consider as much information as is reasonably possible before making a decision. Knowing the prices of your competitors should absolutely help to inform a hotel’s pricing strategy… but cannot be the only factor considered in the pricing equation. Hoteliers using only competitor pricing to adjust their own room prices fall into a few traps such as
Where are they getting their information?
The biggest issue with only considering competitor prices when adjusting room rates is simple: how do you know they are pricing their rooms based on information from a reliable source? They’re probably playing their cards close to the chest, so it isn’t like you can walk in and ask them to cite their sources. What’s more, if they are also looking at competitors to set prices, none of you are pricing based on logic – you’re playing a guessing game. Even worse, your competitors might be getting their information from faulty sources. Imagine changing your price strategy based on a competitor, only to find out they set their prices with a flick of the wrist and a thud from their dart board? That’s hardly a bullseye!
How do you know it’s even accurate?
Let’s say we know for sure that our competitors are using the latest technological marvels to set their prices. They scan all of their competitors’ prices, and then set them – manually. Somebody is probably inputting that data – as long as it’s a manual process, there’s probably a human involved. No matter how advanced a technology, there’s always room for error thanks to us reliable ol’ humans! How do we know a competitor set their prices without a typo? Accidents happen – don’t let your accident be only considering competitor prices!
Don’t price yourself out of the market.
Your competitors might have faulty information, or they might be making human errors – but they could also just plain old not be selling at optimal rates. If you continuously lower prices to undercut your competitors, you risk falling into a price war where both you and your competitors try to out-lower each other until the businesses stop being profitable. You might price yourself out of business!
Don’t ignore your brand identity.
If you brand yourself as a luxury hotel but your price tag is too low, people are going to ask questions. Similarly, with all the focus on competitor prices, you run the risk of ignoring what made your hotel stick out in the first place. Lower priced rooms might mean a reduced flow of income, and therefore, other parts of your hotel will suffer – do you have a fun gimmick, or a level of quality to maintain? That requires a profit margin. Don’t sell yourself short by only considering competitor prices. Provide value, and the customers will be willing to pay a bit more.
Don’t Ignore Important Factors like Customer Behavior and Availability
While your and your competition might be similar, no two hotels in competition are the exact same. The prices that work for your competitors simply might not be relevant to your hotel, your business model, your customer base, and overall, your bottom line.
While you should never rely entirely on competitor prices to set your pricing strategy, insight into your competitors does help greatly when considered and contrasted alongside other factors. Factors such as seasonality, availability, customer behavior, booking trends, and forecasting are critical to optimizing room prices. There are so many variables to consider that even the most experienced of revenue managers find setting room prices to be a challenge.
Here at Pricepoint, we’ve created the solution for that very challenge. Pricepoint’s airline grade AI-powered dynamic pricing engine is the only revenue management software built and designed by hoteliers for hoteliers that optimizes prices in true real-time.
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