Competitor Based Pricing Strategy for Hotels

What is competitor-based pricing?

Competitor based pricing, or competition based pricing, is a strategy in which a hotel’s room rates are influenced by the room rates charged by competitors. Competitor price intelligence isn’t the only factor considered in a competitor-based pricing strategy, but it is the main one. Competitor based pricing is one of a number of pricing strategies that a hotel can use to set their room rates. Others include cost-plus pricing, which considers the costs of running your hotel to ensure it turns a profit, and value-based pricing, which sets rates by considering customer-centric factors like perceived value, brand reputation and market demand.

Why use competitor-based pricing in your hotel?

Looking at the competitor-based pricing definition above, it may seem strange, or perhaps risky, to set room rates based on hotel competitors. It’s important to note that hotels using this strategy will still consider their costs, to ensure that they aren’t losing money, and the value they offer, to ensure they’re generating as much revenue as possible.

Why should revenue managers monitor their competitors’ prices? There are a number of perks that come with being guided by hotel competition on price:

• Simplicity: Competitor based pricing is easy to understand, research and implement. Some quick Googling can give you a sense of the market price in your area, which you can then apply to your room rates.
• Responsiveness: The simplicity of this pricing strategy means that it’s ultra-responsive – if you notice a competitor pricing decrease, you can instantly update yours, so you don’t get undercut.
• Competitiveness: You’ll always be in with a chance of winning business with this strategy, as your prices are guaranteed to be competitive.

How to implement a competitor based pricing strategy for small hotels

As an independent hotelier you’re in total control of your pricing, and thankfully a competitor based strategy is relatively simple to implement:

1. Find your local competitors 

Use an OTA or metasearch engine to search for local competitors. Identify hotels in your immediate area who offer a similar guest experience to you.

2. Research competitor pricing strategies

Spend some time checking their room rates of local competitors. Check prices for high season, shoulder season and low season, putting a special focus on key dates such as Christmas, long weekends and major local events.

3. Find average rates

Armed with the numbers, calculate the average price of particular rooms on particular dates across your competitor sample.

4. Set your prices

Now that you have the average rate for each of your rooms on key dates, you need to decide whether to match that rate, undercut it, or price yourself as a more premium option. This requires you to look objectively at how your offering compares to that of competitors.

What is an example of competitor based pricing in the hotel industry?

Let’s gain a bit more clarity with a basic competitor based pricing example.

You are looking to set your hotel room rates. You find three hotels in your area (A, B and C) that offer a similar experience to you. You check their mid-week low season rates, and find the following for a standard double room:

• Hotel A: $120/night
• Hotel B: $155/night
• Hotel C: $134/night

You believe that you offer better value than these competitors – you’re higher rated, and unlike them, you offer a free breakfast with all bookings. You decide to set your price at $150/night, as this undercuts the most expensive competitor, but still reflects the value you believe you bring to the table, and comfortably covers your costs.

What are the advantages of competitor based pricing?

Understand the market

Competitor based pricing demands that you conduct research into your competitors, which arms you with a deeper understanding of your local market and what those competitors are doing. This puts you in a position to exploit any issues and inefficiencies you might identify.

Informed decision-making 

Many independent hoteliers set their prices based on vibes and gut feel. A competitor based pricing strategy is instead based on hard data, and this more informed decision-making will often lead to better results.

Competitive positioning

When you set your prices according to what your competitors are charging, those prices will always be competitive. Whether you set your rates above, below or at the market average is up to you.

Identifying pricing trends 

Studying the numbers will help you identify pricing trends – there may be times of the year that you didn’t realise were popular, and that you could make more money on.

How to tailor pricing to communities

Another trend you might notice when looking at competitor based pricing is how rates change depending on who the target customer is. Someone booking your hotel for its day spa will usually be willing to pay more than someone who just needs a bed for the night.

Agility and responsiveness to market  

Competitor based pricing is one of the simplest strategies available to a hotelier – just check then set – so it’s also one of the most agile and responsive.