Attribute-based pricing is becoming an increasingly popular pricing model in the hotel industry. It enables property managers to establish a range of rates in line with the features and services that a guest is willing to pay for.
In this post, we are going to discuss what attribute-based pricing is, and how using an efficient rate structure can help you boost your overall revenue and profits.
What is attribute-based pricing?
Attribute-based pricing is a booking strategy where you promote additional attributes that incrementally increase the price of a booking, rather than advertising a flat rate then offering discounts. The strategy was originally implemented by the airline industry after the introduction of the Airline Deregulation Act in 1978. With this strategy, airlines promote a base rate for a flight, then this price increases as you add additional attributes such as selecting your seat, purchasing an XL seat, or adding a suitcase.
Over the past decade, hotels have started incorporating attribute-based pricing into their own revenue management pricing models. When you work with attribute-based pricing as a hotel, you establish a base rate for each of your room types (double rooms, for example), and ensure the rate is dynamically priced in line with demand. Once you’ve done that, your dynamic base rate can then be priced up according to the attributes that a guest wants to add to their booking.
These attributes might include:
- Room size and layout
- Room location (floor, location relative to stairways or lifts, etc.)
- Maximum guest occupancy per room
- Bedding types (quality of linen, etc.)
- Welcome drinks
- Meal plans
- Whether or not a room has a view
- Booking restrictions
- Cancellation policies
For example, if a guest selects a double room and they also want a sea view and a welcome drink on arrival, then the attribute-based rate you will offer them might be:
Dbl room (€50) + sea view (€20) + welcome drink (€10) = €80 total attribute-base rate
Think of it as a “pick and mix” strategy, where guests have the freedom to choose the booking attributes that they want, and hotels are able to charge varying prices accordingly.
Using an efficient rate structure to create your rate plans
Before you can offer attribute-based pricing, you need to define a clear and efficient rate structure. This enables you to segment your offers and attract a greater number of potential guests. This, in turn, helps you increase your ADR and RevPAR, as well as the overall profitability of your hotel.
Essentially, a rate structure represents the various prices you offer guests according to the attributes they most value. Your rate structure takes into account various elements including room types, meal plans, cancellation policies, and booking restrictions.
Let’s take a look at the steps you need to follow in order to create your rate structure.
Identify your room types and meal plans
The first thing to consider when you create your attribute-based pricing rate structure is your room types and meal plans. To do this you have to define the generic room types that you have available, the maximum occupancies associated with each room type, any additional attributes that can be added with supplements, and the types of meal plans that you offer.
- Generic room types: single rooms, double rooms, triple rooms, quad rooms, suites, etc.
- Room occupancies: the maximum occupancy for each of your room types according to the number of beds in each room. This might be 2 pax (one double or two twin beds), 2 adults + 1 child (one double and one single bed), or 2 adults + 1 infant (one double bed and one cot), for example.
- Additional attributes: hotel services, room service, room views, Wi-Fi, level of noise, and how modern amenities and furnishings are, for example.
- Meal plans: BB (Bed & Breakfast), HB (half board), FB (full board, with breakfast, lunch, and dinner), or AI (all inclusive).
Define your cancellation policies
The second step in creating your attribution-based pricing rate structure involves establishing your cancellation policies. This is where you define the cancellation clauses that you will enforce for each rate, as well as associated costs.
There is a range of cancellation policies you can offer for different rates. For example, you could offer a higher rate with a flexible or semi-flexible cancellation policy. In this case, guests pay a premium, but they have the security of knowing that, if they need to cancel their booking, they can get a partial or full refund. At the other end of the scale, you could offer lower rates with the condition that reservations are non-refundable in the event of a cancellation. That way, guests can decide if they value the option of cancelling a booking enough to pay a higher rate.
Establish your restrictions
The final factor to consider when you create your attribute-based pricing rate structure is restrictions.
Examples of restrictions you could assign to different rates include:
- Minimum length of stay (MLOS): where certain rates are only available if a guest stays for a minimum number of consecutive nights (for example, if a guest stays for a minimum of three nights)
- Closed to arrival (CTA): where specific arrival dates are blocked for certain rates (for example, a guest cannot check in on a Friday if they pay a lower rate)
- Closed to departure (CTD): where guests cannot depart on specific dates (for example, a guest cannot check out on a Saturday if they pay a lower rate)
Attribute-based pricing is already establishing its position as the future of hotel booking. It gives consumers more choice and control over their reservations which helps to streamline the booking process and improve the guest experience. Plus, it’s a highly effective pricing strategy that helps hotels gain a competitive edge, drive more revenue, and increase their profits.
Once you have considered all the elements we have discussed in this post, you can create a dynamic pricing strategy that enables guests to pick a rate that aligns with all the attributes that they value. Above all, though, make sure that your attribution-based pricing strategy is fluid and flexible. This means that you need to adjust it regularly in line with high and low demand periods, market fluctuations, and the prices that your competitors offer. That way, you can be sure to boost your revenue streams throughout the year and generate the most profit for your hotel.