The daily life of a revenue manager: how much does my service cost and how much is the client willing to pay?

Setting prices is often about much more than simply the competition, intermediated channels and the market. Once you have decided on your rack rate and defined your BAR rate structure, the question may be a rounded, odd or even price? Or in other words, €100, €99 or €98? 

 Psychological prices vs. dynamic rates

Psychological prices are a classic that, despite online distribution and issues like parity, continue to work.

They form a part of the decisions a revenue manager must take and they aren’t always simple, as (like we all know) price talks. It humanises relationships with the client and the client listens closely to what is being said.

The importance of the psychological price lies in the fact it is a tool that will allow you to stand out from your competitors (small variations in price can position you as an inferior or superior establishment simply in terms of perception) meaning, from a strategic standpoint, it will also enable you to increase direct sales against other hotels and even against intermediated sales.

What’s more, its use effectively complements segmented price, maximum price and reduced rate strategies in the case of perishable products, etc. It can even be said that the psychological price is the key to continuing any booking process on your website as price determines the purchase decision process, establishing entry barriers that don’t always coincide with the reality you offer.

For example, if you are selling below the expected price or the price the tourist is willing to pay, it is possible he/she will doubt the characteristics of your service. If, on the other hand, you offer prices over what is expected, you will be branded expensive and you will not be granted the opportunity to explain why. 

The issue is not always about huge differences. Simply €1 more or less could be definitive in the materialisation of a booking.

 What is the most popular price?

This is a difficult question. Although analysis of the consumer’s behaviour and Big Data can help in studying trends (new technologies are definitely your allies), it is important to bear in mind that experience tells us the middle price is usually the most popular. Let’s take a look at an example.

If you were to offer two room types, one of a superior category at a price of €175, and another of inferior category at a price of €145, and you discovered that the focus of your sales is on the room at the higher price, how could you increase bookings in the lower category?

The most obvious choice is to introduce to your inventory a room type at a price under €145, for example €125. The sales focus will then be positioned right where you want it to be, even decreasing bookings made for the room whose final price is €175.

However, if you then add a room type with a price set at more than €175, say €205 for example, the room type available at €175 would surely become the most sold again.

 The price: even, odd or rounded

The question outlined at the beginning of this post is a different issue: what happens when you offer odd prices? (Normally the most frequently used are those that finish in 5 or 9). Will consumers continue to believe in the perception of a reduced price in light of these rates? Or is it better to offer rounded or even prices more often associated with a perception of quality or prestige?

Well, it depends. If you take a quick look at the first pages of Booking, you will see it appears as though the rounded price is in fashion, meaning it may be possible to say that, today, value takes precedence over the RRP.

 Price as an entrance barrier

Therefore, the price is the amount of money a tourist is willing to sacrifice (pay) to stay at your hotel. But let’s look beyond this.

The setting of prices must be based on your brand strategy, bearing in mind to what point your clients are willing to pay for your services. In other words, if a tourist is not willing to exceed the €100 barrier, you don’t need to reduce the price to €60: remaining at €98 can be an option (the famous €4.99…).

The problem is that these barriers are not predetermined by the external values of those addressed on several occasions, instead they are directly related to the internal characteristics of your establishments. Fully understanding what you offer is a good starting point and, as mentioned previously with regard to measuring the quality of data, this is something that only you can know.

 New technologies and the revenue manager

From here, anything is possible. Knowing where you are and what you offer is just the beginning. “Smart” revenue management is here to stay, but brand knowledge is yours alone. 

Use new technologies to analyse your clients, fully optimise your pricing strategies, and establish consumption trends that set behaviour. The solidity of data will make things easy for you, but first define your product and strategically situate yourself in the market. Price is not easy to set, we all know this. We work alongside you and we are aware that your daily task is not easy.

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