7 Psychological Pricing Tricks for Hotel RMs To Try

September 10, 2018

Categories: Pricing, Restaurant, Spa
by Robert Hernandez

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. Even though my daily focus is transforming hoteliers into mathematical
pricing experts through my best selling course, Data Analytics of Hotel Revenue
Discovery, I believe there is a creativity to pricing as well. On that front, don�t
worry, I�ve got you covered. Here are seven studies that reveal insights into some
interesting psychological aspects of pricing that you can exploit in your RM
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:

A web-only subscription for $59

A print-only subscription for $125
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.

There is a particularly interesting module in the Data Analytics of Hotel Revenue

Discovery that covers from a purely data-driven perspective, the different
approaches to price-setting. It is interesting to compare and contrast the above
viewpoint with the course module.

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. Different Prices for Every Room Type

One common assumption is that if you price higher category room types the same as
lower category room types, the shopper will be motivated to purchase the higher
category room because of the inferred deal. However, you may be forcing the shopper
to have to �research� the value gained in the transaction, especially if they are
not familiar with the different room types in your hotel. According to research
from Yale, if two similar items are priced the same, consumers are much less likely
to buy either than if their prices are even slightly different. In other words, the
shopper goes into �analysis paralysis� when trying to figure out the value
proposition of different room types with the same price and is likely to exit
instead of buy. Therefore, even if there is a minimal price differential, there
ought to be one.

6. Dollar Signs

Prices marked with dollar signs have been proven to reduce consumer spending. A
2009 Cornell University study 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, the
findings indicate that menu-price formats do influence customers� spending, both in
terms of total check and spending per cover.

7. 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. There is no bigger
advocate of that, than I. As a matter of fact, I deliberately took a practical
perspective in the design of the Data Analytics of Hotel Pricing course using real
PMS data to reinforce that data-driven RM is the smarter approach. The path to
Total Revenue Management is also covered in this course. It does not negate the
fact, that in conjunction with a strategy based on science and data, these 7
tactics can go a long way in designing a more intelligent pricing scheme throughout
your hotel.