Hotel Profit Discovery

6 Psychological Pricing Tricks for Hotel Revenue Managers To Try

In the chaotic universe that is the daily life of Hotel Sales and Revenue Management, it can often be difficult to think of creative ways to approach pricing.  Don’t worry, I’ve got you covered. Here are five studies that reveal insights into some interesting psychological aspects of pricing that you can exploit in your pricing tactics.

1. Effect of Useless Price Points

Dan Ariely,  professor of psychology and behavioral economics at Duke University, analyzed the subscription sales for The Economist magazine and realized that adding a “useless” price point actually increased the sales of the premium subscription.

Dan set these 3 peculiar price points:

  1. A web-only subscription for $59
  2. A print-only subscription for $125
  3. A web + print subscription for $125

Option 2 seems “useless” in that you’d stick with option 3. The result is that an overwhelming number (84%) of subscribers chose option 3 because it looked like more of a bargain that option 1.  In fact, when Ariely removed option 2, the purchase of 3 plummeted to 32%.  In effect, what Ariely’s pricing scheme managed to do was convert “discount” seeking shoppers to “value” seeking shoppers.

Could this relative pricing trick be used to sell more premium rooms?  For example, when you are sitting on a lot of premium rooms because a Group took all of your standard rooms, instead of lowering the rate on the premium rooms, might it be better to raise the rate of the standard room so that the premium looks like a better bargain? Can you bundle hotel services at a premium rate to turn discount shoppers to value shoppers?

Here is Ariely explaining the effects in more detail.

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2. Ending a Price with 9

Close to half of the hotels here in South Beach, Florida end their pricing with a number 9, but does this really create more sales?  Actually it does.

In a pricing experiment tested by MIT and the University of Chicago, a standard women’s clothing item was tested at the prices of $34, $39, and $44.

The researchers were surprised  when the item sold better at $39 than $34 price.  The $39 price, however, could not beat a price that was shown discounted from its original price (i.e. the slashed original price approach that you usually see on OTAs).  Yet for two discounted prices, the one with the 9 sold better.  Can ending your room rates, menu prices, and spa services in 9 increase your sales?

3. “As compared to” Pricing

When a guest makes a purchase they must make an assessment as to the value of the product or service when compared to equivalents.  This is the reason why many hotel restaurants offer “hotel-only” wine brands, thereby limiting the guest from making a comparison to the price of the same wine at retail.  Price Anchoring is the technique of showing a very expensive price before you show a cheaper price.  For example, if you tell a walk-in that the Premium room is $500, but the standard is $300, studies show that you are more likely to sell that standard room than if you just present the Standard room rate.  This technique can also work in menu pricing for outlets and catering.  You may setup a menu item, catering selection or room rate, having no expectation of selling it and knowing that it is unreasonable, only to drive the sale of the cheaper items.

4. Simple Prices

In a research paper published in the Journal of Consumer Psychology, researchers found that prices that contained more syllables seemed drastically higher to consumers.

Three pricing structures where shown to subjects.

$1,499.00
$1,499
$1499

The research revealed that the top two prices seemed far higher to consumers than the third price. This effect occurs because of the way one would express the number verbally: “One thousand four hundred and ninety-nine,” for the comma versions versus “fourteen ninety-nine” for the unpunctuated version. This effect even occurs when the number is evaluated internally, or not spoken aloud.

5. Dollar Signs

Prices marked with dollar signs have been proven to reduce consumer spending. A 2009 Cornell University study by RM guru Sheryl Kimes found that diners in upscale restaurants spent significantly less when menus contained the word “dollars” or the symbol “$.” Although the experiment was limited to lunch at one particular restaurant, they findings indicate that menu-price formats do influence customers’ spending, both in terms of total check and spending per cover.

6. Price Font Size

Marketing professors at Clark University and The University of Connecticut found that consumers perceive sale prices to be a better value when the price is written in a small font rather than a large, bold typeface. This finding can have a massive implication on the way hotels present promotional rates on their website.

Knowing these pricing techniques does not mean that you should avoid using the scientific side of pricing. In fact, they go hand-in-hand. However, these three tactics can go a long way in designing a more intelligent pricing scheme throughout your hotel.


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Robert Hernandez, Statistical Analysis and Data Mining for Revenue Growth Robert is an expert in the field of mathematical Hotel Optimization and Analytics. He has spent the last 17 years building data-driven forecasting and optimization models for companies in over 20 different industries, from tech to tourism. Robert possesses a very unique skill set including cross-disciplinary experience, advanced mathematical and analytics skills, data transformation, industry-specific knowledge and business-process improvement expertise. Robert began his career at the Walt Disney Company in Revenue Planning. Read More+


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