Who books a hotel that has mediocre ratings? And what about when other houses are in a better position and even charge less for a room? The first thought of many hoteliers: lower prices to keep up. This competitive pressure should not be underestimated, especially since demand in many areas is still lower than in 2019. But how else could your hotel differentiate itself, if not by price?
How about the price-performance ratio you offer, then? You probably know that positive customer reviews on relevant portals are important for business. But what role do they play in pricing and positioning? In this article, we'll take a closer look at why review scores should also be included in any pricing strategy.
The competitive landscape has changed
It's no secret that Covid-19 has had a significant impact on the distribution landscape. In cities, we are seeing an unprecedented oversupply of beds due to lower demand. Where all the good houses in the center used to sell out quickly, rooms are still easy to find today.
So, guests can pick the best deal and often get better rates than ever before. In popular rural destinations, it's just the other way around. Well-established destinations are completely booked weeks or even months in advance. Guests have subsequently adjusted their travel plans and taken a bird's eye view to find a selection of hotels in specific regions. They are now no longer limiting themselves to a specific location, but rather looking for accommodations in areas with certain characteristics (e.g., proximity to mountains or the sea).
Then there are those that have experienced increased demand just in the last 18 months. We are talking about serviced apartments, which many travellers saw as a safer alternative to hotels and therefore booked more.
Whether in the city or in the country, almost everywhere there is strong competition for every booking after the meager months. Even the well-positioned serviced apartments are fighting each other for guests.
Unfortunately, this often leads to a counterproductive price war, as many properties use the room rate as their main differentiator. This is hardly surprising, since accommodations have become extremely comparable for travellers today. Long lists of hotels are listed on booking portals, and at first glance, only the rating and the price are recognizable as unique selling points. Anyone who wants to score points in this situation must be able to demonstrate an optimal price-performance ratio.
Understanding the difference between price and value
In a time when travelers of all ages use OTAs, it is immensely important to optimize your hotel's positioning and pricing. No hotelier can afford to make mistakes here, and certainly not these days. To get it right here, you need to understand the role of the relationship between price and value.
Simply put, price is the actual amount paid for a product or service. In our case, that's a hotel room or a service at your hotel. But price is also a kind of billboard that creates certain expectations about the value delivered. And of course, the price also determines how much you earn on the value you convey. The value here describes the benefit that the guest attributes to the hotel room or services. This perceived benefit influences their willingness to pay.
If the price is too high, travellers have the impression that they are not getting enough for their money and do not book. If the price is too low, guests are happy about the bargain, but your hotel misses out on potential revenue. Prices that are far too low can also cost you bookings. Here, people wonder if something is wrong with the hotel and don't book as a precaution.
Now let's see how you can easily avoid these price mistakes.
The price-performance ratio becomes more important than ever
First of all, it is important to understand that price is far from being the only deciding factor for guests. Perceived value also plays an important role. We are talking about the price-performance ratio. In short, if you offer better service and quality, you have a chance to charge higher room rates.
Many properties use additional inclusions in the room rate to differentiate their hotel, improve value for money and generate bookings. While this is a good start, true price optimization requires something more.
Before booking, guests have a hard time judging the actual quality of the hotel and additional services. That's why online reviews play such an important role in hotel research. 96% of TripAdvisor users find it important to read reviews before booking, and 83% of them do so most of the time or always. TrustYou found that good reviews also increase willingness to pay.
According to their data, travelers are 3.9 times more likely to choose the hotel with better reviews if its prices are the same or even slightly higher.
Internally, awareness of your ratings compared to those of the comp set is also important. As a result, front desk, reservations and sales staff have a better sense of the value you offer and can confidently sell at the right price.
So it's clear that you should always be working to get good reviews. Unfortunately, however, it can take a long time for the average review score to change on various platforms. That's why you should work with your current score at the same time, so that your positioning and prices match.
Effective pricing using accumulated review scores
First of all, it is important to know your own reviews and especially those of your competitors.
This is the only way to understand how good your review scores are in relative terms. However, it is not about measuring yourself 1:1 on the various portals, but to look at the big picture. You want to know how your hotel stands overall - how it is positioned.
Researching all this manually to keep track of it all is time-consuming and impractical, because data changes too often. So indicators are needed that accumulate all the ratings on different platforms in real time.
This provides a drone view of the entire market. With this, you "fly high enough", and see how you are currently positioned compared to your compset. At the same time, you stay close enough, and can still keep track of all the important details.
If you now look more closely at the prices of other homes, and factor in the valuations, you'll quickly understand why some competitors "get away" with higher prices, or why they never step over a certain threshold. This also shows you ways to adjust your positioning by making targeted price changes, thereby generating more revenue.
HQ revenue provides exactly this information in the Price Rating Matrix in no time at all. There you will find daily updated comparisons between prices and ratings and you can save the time for manual data collection. This allows you to focus on analyzing your market and positioning to make informed pricing decisions and best respond to new demand trends.
This means that nothing stands in the way of an ideal price-performance ratio. You will quickly notice the effect: better positioning, more bookings at optimal prices and customers who are completely satisfied with your offer. What hotelier doesn't wish for that?
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