Hotel pricing is determined based on a combination of operational costs, market influences, guest perceptions, and strategic positioning.
In most cases, hotels first calculate their Cost Per Occupied Room (CPOR) to ensure that each rate covers essential expenses such as labor, housekeeping, amenities, and overhead.
Following this calculation, a margin is added to ensure profitability. However, cost is only the first component; pricing decisions are largely determined by demand and occupancy forecasts.
Studies by STR/CoStar and PwC show that room rates typically rise with increased occupancy projections and during periods of peak demand, such as seasonal holidays or major local events. While hotels may use promotions or packages to stimulate demand in low occupancy periods.
Guest perception of value plays a significant role in hotel pricing strategies. Research highlighted by HSMAI and EHL Hospitality Insights indicates that guests are often willing to pay more when the performance of a hotel (i.e., its service quality, location, amenities, or other perks) exceeds their expectations.
For example, luxury amenities, sustainability initiatives, or personalized services can substantiate these higher rates, even within the same star category. The perceived “price fairness” is therefore linked not only to the tangible product, but also to intangible benefits and brand positioning.
Additionally, hotel pricing strategies consider market segmentation and positioning. The location, category (budget vs. luxury), star rating, service quality, and target audience all determine the appropriate pricing.
Luxury hotels can justify higher rates through exclusivity, service levels, and facilities, while budget hotels compete primarily on affordability. Competitive benchmarking tools are another resource to help hotels track local competitors and ensure their own rates align with their positioning. This is complemented by dynamic pricing models, where rates change in real time based on booking pace, competition, and demand.
Finally, price ranges and elasticity vary by market and guest segment. According to Kalibri Labs, corporate travelers may prioritize flexible booking policies and proximity to business hubs, while leisure travelers place more value on packages and experiences.
In practice, this means hotels structure different rate tiers (flexible vs. non-refundable, standard vs. premium rooms, bundled vs. standalone) to appeal accordingly. By combining the factors of costs, demand, differentiation, and perceived value, hotels can create a pricing strategy that balances profitability with competitiveness and aligns with evolving hotel pricing trends.
