In today’s fast-paced travel industry, a hotel’s success often hinges on one critical factor: its pricing strategy. For years, many hotel owners have relied on gut feelings or fixed seasonal rates. But now, guests can compare prices across dozens of websites in seconds. That old approach just doesn’t work anymore. It’s time to move beyond guesswork and start winning with a smarter approach based on real market data.
A competitor-based pricing strategy becomes your key to success here. This isn’t just about watching the hotel down the street. It means using real-time market data to set prices that stay competitive while protecting your profits. This article explains what this strategy really means, why it matters, the risks to watch for, and how to put it to work at your property.
What Is Competitor-Based Pricing?
At its heart, competitor-based pricing means setting your hotel’s room rates based mainly on what other hotels are charging. It's a method that moves beyond traditional cost-plus or value-based pricing, placing your hotel's rates in the context of the wider market.
Think of it as staying in tune with the market. Your prices aren’t stuck; they change based on what your competitors are doing. This strategy requires hotels to monitor competitor rates across various channels like OTAs (Online Travel Agencies) and metasearch engines. The goal is not just to undercut them but to position your hotel's rates strategically to maximize both occupancy and average daily rate (ADR). This approach gives you the agility to respond to a sudden drop in competitor prices, a new promotional campaign by a nearby hotel, or a major city-wide event.
Key Benefits & Risks Hoteliers Get from Competitor-Based Pricing
Adopting a competitor-based pricing strategy comes with significant advantages, but also requires careful consideration of its potential drawbacks.
Key Benefits
- Boosts Occupancy and Revenue: By consistently offering a compelling price compared to your competitors, you can attract more guests, especially price-sensitive ones. This can lead to a higher occupancy rate and, when managed correctly, a significant boost in your overall revenue.
- Improves Market Positioning: This strategy shows you what makes your hotel special compared to others. Are you a fancy place that can charge more? Or a budget spot that should stay just under the competition? It helps you figure that out and stick to it.
- Increases Agility: The hotel business changes fast. New hotels open, big events get announced, and demand shifts overnight. This pricing helps you adjust your rates quickly to grab chances or avoid problems.
- Provides Real-Time Data Insight: A core part of this strategy involves gathering vast amounts of data. This data provides invaluable insights into market trends, competitor behavior, and guest booking patterns, empowering you to make smarter business decisions.
Potential Risks
- Risk of Price Wars: Just copying what others charge might start a race to the bottom. If everyone keeps lowering prices to beat each other, nobody really wins, and your profits will shrink. That’s why simply always being cheaper doesn’t work.
- Ignoring Your Own Value: Focusing too much on competitors’ prices might make you ignore what your hotel does best. Maybe you have better rooms, a great location, or friendlier service. Pricing only based on others can make your hotel seem less special.
- Time and Resource Intensive: Keeping an eye on all your competitors manually is a huge job. Without good tools, it eats up your time and you might make mistakes.
Build Your Competitor-Based Pricing Strategy
A successful competitor-based pricing strategy requires a clear, actionable plan. Here's a structured approach to building and implementing it.
Step 1: Define Your Competitive Set
Your competitive set is the group of hotels that guests would likely choose from when considering your property. Don’t just look at nearby hotels. Think about your typical guest. A business traveler might choose different hotels than a family on vacation. Use travel sites, Google Maps, and reviews to find places like yours – same star rating, features, and guests.
Step 2: Gather Comprehensive Data
Once you know your competitors, gather their prices. Look beyond basic room rates. Track their deals, packages, and prices for different rooms. Notice how prices change with busy times, weekends, or seasons. A robust data-gathering process is the backbone of this strategy.
Step 3: Analyze and Interpret the Data
Raw numbers alone won’t help—you’ve got to look for patterns. Are competitors hiking prices this weekend? Are they offering discounts for last-minute bookings? Analyze their pricing against your own performance data, such as occupancy rates and booking pace. This analysis helps you understand not just what they're doing, but why they're doing it.
Step 4: Establish Your Pricing Rules
This is where you translate data into action. Based on your analysis and business goals, set up a clear set of rules for your pricing. For example:
- "If a top competitor cuts their standard room price by 10%, we’ll drop ours by 5%."
- "On busy dates, we’ll price our rooms 5% higher than the average of our top 3 competitors."
- "If next month’s bookings hit 80%, we’ll raise all rates by 15%."
Implementation Steps & Recommendations
Putting your strategy into practice can be daunting, but with the right tools and approach, it becomes seamless.
- Invest in Technology: The most effective way to implement this strategy is with a powerful revenue management system (RMS). It automatically watches what competitors charge across many sites, analyzes it instantly, and adjusts your prices based on rules you set. This saves you tons of time.
- Integrate Your Systems: Make sure your RMS is fully integrated with your Property Management System (PMS) and channel manager. This keeps everything in sync and pushes your new rates everywhere right away.
- Don't Forget Your Own Value: A competitor-based pricing strategy is a tool, not a dictator. Don’t just copy others. Think about what makes your hotel stand out—like better service, great reviews, or unique features. You might charge more if you offer more value.
- Monitor and Refine: The market is always changing. Your pricing strategy should too. Regularly review the performance of your pricing rules. Are they achieving your goals? Are there new competitors you need to add to your set? Be prepared to adjust and refine your strategy based on real-world results.
Conclusion
In the modern hotel industry, relying on outdated pricing methods is a recipe for being left behind. A competitor-based pricing strategy, when implemented thoughtfully and supported by the right technology, can transform your hotel’s profitability. It empowers you to move beyond simple guesswork and into a world of data-driven decisions. By understanding your market, analyzing your competitors, and setting smart pricing rules, you can attract more guests, increase your revenue, and build a resilient, profitable business that's ready for any market challenge.
