Hotel’s Pricing Structure and Pricing Level ~ All About Hotels and Hoteliers

How to Determine an Extended Stay Hotel’s Pricing Structure and Pricing Level

The pricing structure refers to the number of rates a hotel offers and the conditions under which each rate is available. For extended stay properties, this also includes determining when to offer customers price breaks based on the length of their stay (setting appropriate length of stay tiers).

The pricing level involves setting the main price points for the property. For extended stay properties, this means establishing a benchmark rate for each length of stay tier and room pool type.

A customer’s willingness to pay a certain rate is directly tied to their perception of the property’s value, the services it offers, and the length of their stay. When determining both the pricing structure and pricing level, three main factors must be considered:

1. The Customer

Who are the hotel’s primary customer segments?
What is the average length of stay and booking patterns for each segment (e.g., day of week)?
What are customers purchasing in terms of rate programs and room types?
What are customers expecting to pay, and what are they willing to pay for the quality received?
What service and product features are important to them, and are they willing to pay more for these?
How do customers book their rooms, and which distribution channels are they using?

2. Hotel Performance & Trends

What products and services does the hotel offer, and what is their quality?
What are the hotel’s brand parameters and goals?
What is the required economic return, considering the hotel’s business model?
What past pricing actions were taken and what were their outcomes?
What are the property’s trends in terms of room nights, rates, and customer mix by segment?
How does demand vary by season, room type, length of stay tier, and customer segment?
How price-sensitive is the demand for each of these categories?

3. Market Dynamics & the Competition

What are the current and future demand patterns in the market? What factors drive demand?
What is the current and future supply of rooms in the market?
Who are the hotel’s direct competitors, and how do they compare in terms of products and services?
What is the pricing and length of stay tier structure of the hotel’s competitors?
How will competitors respond to the hotel’s pricing changes?
How do the hotel’s products and services stack up against competitors?

Evaluating the LOS Tier Structure for an Extended Stay Hotel

Length of stay (LOS) tiers enable extended stay properties to segment guests more effectively and drive extended stay occupancy.

Any change to a hotel’s LOS tier structure should be carefully considered and occur infrequently, usually in response to significant market shifts.

Every extended stay hotel should assess its LOS tier structure annually to ensure it remains valid.

Key factors to consider when evaluating the LOS tier structure include customer behavior, market dynamics, competition, and hotel performance.

Steps to evaluate a hotel’s LOS tier structure:

1. Analyze the hotel’s customer segmentation.

2. Analyze historical performance and trends.

3. Conduct a competitive assessment.

4. Summarize the LOS tier evaluation analysis.

Key questions to ask when evaluating the LOS tier structure:

Would changing the tier structure help capture additional revenue by:

Attracting new customers? (Driving occupancy)
Increasing rates for existing customers? (Driving ADR)

Attracting additional customers:

When creating a new LOS tier (e.g., a tier for stays of 30+ days), it’s essential to understand:

Who are the potential customers for this tier?
Do these customers exist in your market, and are they attractive in terms of price sensitivity and demand?
Is there sufficient demand and a notable difference in price sensitivity for this LOS tier?

Increasing rates for existing customers:

For example, when considering extending the first tier (e.g., from 1–4 days to 1–5 days):

Who are the customers staying for 5 days, and what is their price sensitivity?
Will these customers continue to stay without the price break?
How are competitors pricing for these customers?

Changes to a hotel’s LOS tier structure should only be made after thorough analysis. The decision should be driven by:

Market conditions (competition, customer segments).
Variations in price sensitivity across LOS tiers.
Demand volume for each LOS tier.
The hotel’s pricing structure (e.g., tier 1’s blended weekday/weekend rates).

What is the Difference Between LOA and LOS?

It is important to distinguish between Length of Accommodation (LOA) and Length of Stay (LOS). For extended stay properties, such as Residence Inn or Towneplace Suites, LOA and LOS are often the same, meaning one reservation equates to one LOS. However, one LOS can consist of multiple LOAs.

For example, a guest checks into a Residence Inn on a Wednesday for 3 nights. The hotel's LOS tier structure is:

Tier 1: 1–4 nights
Tier 2: 5–11 nights
Tier 3: 12–29 nights
Tier 4: 30+ nights

The guest pays the weekday benchmark rate for the first 2 nights and the weekend benchmark rate for the 3rd night, resulting in 2 LOAs (one for 2 nights and one for 1 night) and 1 LOS of 3 nights.

By regularly evaluating the LOS tier structure and making data-driven adjustments, hotels can optimize their pricing strategy to attract the right customers and maximize revenue.