Monitoring competitors’ rates is common practice in revenue management. The problem begins when a hotel decides to raise or lower prices simply because another property has done so.
A published rate does not explain what lies behind it: perhaps the competitor needs to fill last-minute rooms, has a group that already covers part of its inventory, is applying a one-off promotion, or has simply made a mistake. Copying that move means making a decision with incomplete information.
That is why an effective hotel pricing strategy must start with the hotel itself: its product, costs, demand, customers and objectives. The market should then be used to validate that this position is competitive, not to replace the property’s own judgment.
Why copying competitors’ prices is not advisable
Two hotels may be on the same street and have the same official category, but they do not necessarily offer the same thing in the customer’s eyes. Online reputation, the condition of the rooms, breakfast quality, views, ease of parking, the service received or more flexible cancellation terms all change the perception of value.
A hotel with better reviews and a more differentiated offering can support a higher rate. By contrast, another property with lower demand or a different cost structure may need to apply a lower price to attract bookings. Matching both rates does not guarantee that either hotel is making the right decision.
In addition, automatically following every reduction in the surrounding market can trigger a price war. One hotel lowers its rate by 10 euros, its competitors respond and, before long, everyone is selling more cheaply without generating any real additional demand. Occupancy may remain stable, but everyone’s margin is reduced.
This does not mean that rate shopping, or monitoring prices at other accommodations, should be ignored. It is a useful source of information for understanding the context. The key is to interpret it: a competitor’s rate is a signal, not an instruction.
The internal data that should define a hotel pricing strategy
Product and perceived value
Customers do not buy only a bed. They buy an expectation of a stay: location, comfort, trust, design, services and experience. The clearer this differentiated value is, the greater the hotel’s ability to sustain its prices.
Reviews are an especially valuable source of information. If comments repeatedly highlight peace and quiet, the team’s service or the location, those attributes are part of the product being sold. It is also worth reviewing which categories are booked first, which convert best and whether supplements for superior rooms are accepted easily.
Low conversion does not always indicate that the price is excessive. It may be due to unattractive photographs, incomplete descriptions, overly restrictive conditions, a recent poor rating or problems with the booking engine. Lowering the rate may conceal the problem for a while, but it does not solve it.
Costs and net profitability
The published rate is not the same as the income the hotel ultimately receives. Every booking includes variable costs—cleaning, laundry, utilities or amenities—and may also involve commissions, discounts, acquisition costs and included services such as breakfast.
Net revenue = rate charged − commissions − discounts − acquisition costs − associated costs
For example, a 180-euro booking received through a channel with a high commission may leave less margin than a 165-euro direct booking. Therefore, a pricing strategy should not assess only ADR, or average daily rate, but the net result by channel, date and room type.
Knowing the minimum profitability threshold helps prevent discounts that fill the hotel but barely contribute to covering the business structure. The aim is not to set a rigid minimum rate for the entire year, but to know which financial limits should not be crossed without a clear strategic reason.
Own demand and booking pace
The booking behavior of the hotel itself often provides more information than an isolated snapshot of the market. Pickup—the bookings that come in for a specific date during a given period—makes it possible to check whether demand is advancing faster or slower than expected.
If a date sells far in advance, superior categories sell out quickly or the hotel maintains good conversion after moderate increases, it may be selling below its potential. In that case, the response should not be to match a competitor’s price reduction, but to protect inventory, close discounts or increase rates progressively.
When the pace is weak, it is also advisable to analyze the situation before reducing prices. Visibility across channels, rate parity, room availability, cancellations, reputation and destination events should all be checked. A temporary drop in bookings does not, on its own, prove that the rate is incorrect.
Objectives and positioning
Not all hotels pursue the same outcome. A property may want to increase its margin, boost direct sales, attract corporate customers, increase average length of stay or consolidate a repositioning following a renovation.
Hotel pricing must be aligned with that priority. If the aim is to reduce dependence on intermediaries, for example, it makes sense to offer clear advantages to direct customers without damaging the public rate. If the goal is premium positioning, permanently competing to be the cheapest option will send a contradictory message to the market.
Price communicates value. An excessively high rate, without an offering to justify it, reduces conversion and can cause disappointment. However, an excessively low rate can also weaken the perception of quality and attract customers who do not fit the experience the hotel wants to offer.
How to use the market without letting it drive the strategy
The first step is to define a useful competitive set: hotels that are genuine alternatives during the customer’s search. Proximity and official category matter, but they are not enough. A boutique hotel can compete with a property in another category if both attract the same traveler because of their location, design, reputation or type of experience.
Comparisons must be made under equivalent conditions. It is not valid to compare a standard, non-refundable room without breakfast with a flexible junior suite that includes breakfast and parking. Before reacting to a price difference, it is necessary to review the room type, meal plan, cancellation policy, number of guests and visible or exclusive discounts.
It is also important to distinguish an isolated move from a trend. If several relevant hotels raise their prices and the destination has a confirmed event, this may be a sign of strong demand. If a single property suddenly reduces its rate, it may be responding to an internal need unrelated to the rest of the market.
A practical guide to making pricing decisions
A strategy should not remain a general idea: it needs to be translated into working rules. A simple process can help organize decisions:
- Define objectives and profitability limits. Determine what you want to optimize and what minimum margin each booking needs to contribute.
- Create a base price. Establish it by season and room type, taking into account the product, historical data, costs and positioning.
- Design a clear rate architecture. A flexible rate, a non-refundable rate, conditions for long stays or direct benefits should each have a specific purpose rather than accumulating without control.
- Adjust according to actual demand. Occupancy, pickup, booking window, cancellations and available inventory will indicate when to raise prices, protect inventory or stimulate sales.
- Validate against the market and measure the net result. Check the competitive position, but then evaluate the margin obtained, the sales channel and performance by category.
Technology can make this work easier. An RMS, or revenue management system, analyzes large volumes of data and can recommend price changes. However, software does not know on its own the hotel’s differentiated value, commercial priorities or operational limits. It needs correct configuration and human supervision.
Revenue management and operations must also work together. A promotion that drives many one-night stays may increase occupancy but create a turnover that overloads the front desk and housekeeping teams. Hotel profitability depends both on what is sold and on the ability to deliver the service with quality.
An example of a hotel-based decision
Imagine two urban hotels located in the same area. One publishes a rate of 145 euros for a weekend six weeks from now. The other has better reviews, renovated rooms, less available inventory and a booking pace above expectations. If it matches those 145 euros as a reaction, it gives up part of its value without its internal data justifying that decision.
A more reasonable decision would be to maintain a higher rate, review daily demand trends and act only if conversion or pickup show a significant deviation. The competition helps confirm that the positioning is defensible; it should not automatically decide the price.
Frequently asked questions about hotel pricing
Should a hotel take competitors’ prices into account?
Yes, because they make it possible to understand the alternatives available to customers and detect market movements. However, they should be used as a reference within a broader analysis of the hotel’s own product, demand, costs and objectives.
What internal data helps define a hotel rate?
The most relevant data includes the net cost of each booking, historical performance, booking pace, booking window, cancellations, conversion, performance by room type, online reputation, inventory and production by channel.
How can you tell whether a hotel is selling too cheaply?
Some signs include occupancy growing too early, superior rooms selling out in advance, high conversion despite moderate increases or insufficient net margin even when occupancy is high.
Build a pricing strategy based on your own judgment
Before matching a rate or launching a discount, review what is happening at your hotel: how much inventory remains, how pickup is evolving, what margin each channel generates and whether the product is communicating its value correctly.
The hotel pricing strategy should arise from the property’s data and objectives, and then be validated against the market. Competitors may indicate where the hotel stands, but they should not automatically decide how much it is worth.
