Open pricing is an increasingly important strategy for increasing hotel revenue. It allows hotels to target a range of customers across different budgets, maximising revenue and raising levels of occupation all year round. With open pricing, rates and services can be pitched at the optimal level to ensure maximum uptake without compromising quality. In this article, you’ll learn how this pricing strategy can work for you.

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What is the Open Pricing Model in Hotel Revenue Management?

Open pricing differs from BAR (best available rate) that most hotels use. By using an incremental range of price points along a demand curve, open pricing hotel revenue management strategies allow hotels to offer their rooms at an attractive rate regardless of the season or other circumstances. By using this model, hotels never need to miss out on a potential distribution channel or a profitable offer. As long as a room is available to be booked, it can be filled at a realistic rate. This benefits both the hotel, which can maximise revenue, and the customer, who receives an attractive deal.

Video: Inside the Hotel Pricing Game

Best-Available-Rate (BAR) vs Open Pricing

Open pricing revenue management strategies operate differently from conventional BAR pricing. Most hotels use a fixed-tier strategy to manage revenue. They establish a basic rate — typically the lowest price that customers might find shown publicly. The hotel’s other rates are all adjusted around this price point, normally using a percentage difference relative to the BAR. The BAR itself may be dynamic, changing in response to real-time shifts in supply and demand; the other rates, however, remain fixed.

This kind of fixed-tier revenue strategy has its problems, which are exacerbated by other common hotel revenue practices. Other segments are often managed based on the best available rate, with loyalty reward recipients, groups etc. being given prices based on a percentage of the BAR. This means that the hotel is not pricing according to customer behaviour among those booking via a range of channels. Instead, open pricing allows hotels to maximise revenue by applying a flexible strategy across all rates.

3 Benefits of Using Open Pricing for Hotels

The pricing strategy has three major benefits: flexibility, revenue capture, and independent room pricing.

1. Flexibility

An open pricing approach doesn’t treat rates as fixed and invariable. Prices may sometimes need to be set at differing levels when the situation demands it. With a variety of target markets and channels for distribution, an approach that allows rates to be tailored more specifically can be very useful. As well as being perfect for independently owned hotels, the flexibility offered by an open pricing approach can be effectively utilised by large groups and chains. Hotel revenue management teams also have more freedom to adjust prices in response to changing circumstances. This kind of flexibility is increasingly important in the hospitality industry.

2. Capture the Entire Revenue Opportunity

Open pricing allows hotels to capture more of the available revenue. With a wider range of price points, it’s much easier to avoid losing potential customers who might be frustrated by the lack of a price point that meets their needs and budget. At its core, revenue management comes down to finding each customer the correct room at the correct price at the time they book. With open pricing, you can take the customer’s perception of the accommodation’s value as the basic rate. Different key performance indicators can be factored into the pricing strategy.

3. Price Different Room Types Independently

Open pricing allows for each type of room to be priced independently rather than relative to each other. Instead of basing rates on a specific amount, rooms can be priced based on demand. As with BAR strategies and discounted rates, many hotels use a strategy of pricing rooms relative to the rate for a basic room type. Thus, a suite might always be priced at the rate for a basic room plus a certain amount. Instead, it might be more useful to price the different room types independently to capture more revenue from travellers who will value the amenities of a suite more highly.

How to Implement a Hotel Open Pricing Strategy

This pricing strategy might initially look very complicated to implement. Changes in hotel technology, however, mean that hotels wishing to use open pricing now have software solutions that can make the process much more simple. Revenue strategy, central reservation and property management systems can be integrated to streamline the process and allow a complex range of factors to be used in calculating the rates for each room. Where systems aren’t yet in place to allow this, it’s still possible for hotels to implement open pricing manually. In these cases, the hotel management can set up a range of segments and have the rates changed for specific date ranges.

Approving an Open Pricing Model

One problem that may arise is obtaining approval for the implementation of an open pricing model. Regulatory bodies may have questions regarding the constant changes in price. Compliance is fairly simple, however. Hotels should specify the minimum and maximum values for each category in the pricing order, and then provide an explanation that dynamic pricing is being implemented. In the marketing policy, it is already made clear that prices will change based on factors such as the season, local events, etc. The minimum and maximum prices can be adjusted according to market trends in a given quarter.

Tips for Revenue Management

Effective revenue management is a key factor in the success of any business in the hotel industry. If you’ve been inspired to learn more about open pricing and optimising financial performance, you’ll be interested in “8 Revenue Management Tips for Hotels”.

In this article, you’ll find out about the importance of following hotel trends and customer habits, how to forecast demand, and how to promote a revenue culture within a hotel. You’ll find out about hotel technology as it relates to revenue: the best ways to deploy hotel automation, and how optimising for mobile can boost your hotel’s income.

More Insight into Pricing Strategies

If finding out about open pricing has whetted your appetite, here are even more pricing strategy tips that you can use today to optimise revenue and boost your hotel’s financial performance. In “10 Pricing Strategies to Increase Your Hotel Revenue”, you’ll learn how to use forecasting to craft your pricing strategy, how discount codes can stimulate more bookings, how offering packages can attract more revenue and how review management can improve your hotel’s profile.

You’ll learn the secrets of upselling and cross-selling, how price per segment can attract guests and optimise rates, and how to ensure that you’re offering your guests the best deals while maximising revenue.

What Revenue Management Means

You’ve read a lot about revenue management for hotels in the above article on open pricing. Some may be left wondering: just what is revenue management, anyhow? In “What is Revenue Management?”, you’ll find the answers to all of your questions about the topic.

You’ll learn why revenue management is so important in the hotel industry, how it lets hotel owners and managers anticipate demand, optimise pricing, and ensure availability. You’ll learn how revenue management works, what the key performance indicators are, and you’ll get some crucial advice on developing your own strategies and approaches.

Open pricing is just one of many hotel marketing trends in play right now — but it could be among the most important. If you want to ensure optimal income from each room, it might just be the strategy for your hotel.

More Tips to Grow Your Business is a knowledge platform for the hospitality & travel industry. Professionals use our insights, strategies and actionable tips to get inspired, optimise revenue, innovate processes and improve customer experience. You can find all hotel & hospitality tips in the categories Revenue Management, Marketing & Distribution, Hotel Operations, Staffing & Career, Technology and Software.

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