What Hotels Can Learn About Price Optimization from Other Industries

The truth is, you’ll need a next-level pricing strategy for today’s competitive market and the flexibility to make changes when needed. Pricing optimization and revenue management are the most important aspects that any business should address.

Although the hospitality industry is truly unique, when it comes to price optimization, we can learn a lot from outside industries. We look at sectors, from airlines to retail, to help hotels develop an aggressive price optimization strategy that maximizes future profits. And we find many takeaways that hoteliers can incorporate into their revenue management practices for greater success.


In the 1970s, airlines were early adopters of revenue management technology and among the first to implement dynamic price optimization. Airlines that have not adapted their strategy and pricing practices to market transformations and that have not implemented revenue management methods have either merged or simply ceased their activities. Today, airlines reign supreme in this area, adjusting fares several times a day in response to fluctuations in supply and demand. Many airlines also calculate the total lifetime values ​​of each passenger, using this data to generate additional revenue through personalized offers before, during and after a flight.

Takeaway meals for hotels: Just like with airlines, demand is the most important factor affecting your hotel rates. Optimize pricing with accurate forecasts that account for daily or even hourly fluctuations in demand. Plus, a revenue optimization platform that communicates with your other systems lets you determine who your most valuable customers are so you can price and upsell based on that value.


Factors such as economic uncertainty, rising interest rates, increased fee transparency, regulatory obligations, etc., are putting pressure on bank revenues. Revenue management best practices for this industry include volume-based pricing, appropriate discounts based on tiers, rewards for customers transacting outside of peak hours, location-based discounts on service charges, selling a set or bundle of products (usually internally products like mortgages, loans, credit cards, insurance, investments, etc. There are also points of loyalty and cashback programs.

Takeaway meals for hotels: Banking and Financial Services focuses on a revenue management strategy that anchors on a personal touch, acquiring a customer with relationship-driven, personalized pricing approaches. They shape their products and value propositions while managing customer lifetime value through prospecting, cross-selling, upselling and retention. Hotels cannot rely on generic, one-size-fits-all pricing strategies and need revenue management tools capable of smart pricing, advanced calculations, reporting and analytics capabilities to automate price adjustment based on of changing circumstances.


Cruise cabins are perishable inventory, their value loses all value once a ship has set sail. Thus, cruise lines often use a practice known as “reverse return”. Lower fares to stimulate bookings of unsold cabins closer to a departure date. This is particularly effective because cruise lines limit refunds to about a month before departure, preventing customers from canceling and rebooking at the new lower fare. Additionally, the revenue that many cruise lines make on board or through shore excursions is important in the revenue equation. For example, a passenger might purchase a discounted ticket (which historically would have automatically considered it a low value booking) and end up spending a significant amount of money on onboard activities such as off-board purchases. taxes, restaurants, Internet access, gambling, etc…

Takeaway meals for hotels: Hotel rooms are also perishable inventory, and when managed carefully, hoteliers can also use reverse yield to replenish struggling inventory. Since hotel guests can usually cancel and rebook a room less than 24 hours before arrival, hotels should use price barriers, such as opaque booking channels that conceal their brand and avoid diluting revenue through direct channels. Hotels should also consider ancillary revenue opportunities from discounted rates that can leverage what might have been overlooked as a low value booking.


Retail trade is defined as the art of understanding changes in behavior and end customer demand through various methods, offering proposals to solve needs rooted in rapid changes in the environment and rapid delivery of product to customers. (Tekin and Erol 2016). Many retailers use a reference or contrast pricing strategy to make a particular price more appealing. For example, suppose a window supplier comes to your house, records all the required details for your new window, and announces that the price will be $1,000. As your mind balks at this pace, the salesperson quickly reminds you that the company runs a “50% off” sale, and your price will only be $500. With a sigh of relief, you sign the papers without hesitation. (Fascinating TED Talk by behavioral psychologist Dan Ariely on this concept!)

Then there’s the Amazon effect – when prices change so quickly that consumers can’t keep up. This is the e-commerce giant’s price optimization strategy: prices that constantly adjust to stay ahead of the competition and maximize profits.

Takeaway meals for hotels: You can increase upsells by including strikethrough prices and offering side-by-side comparisons in the booking process. Highlighting the extra amenities guests receive when they choose a more expensive suite over a standard room can also be effective. Some customers are willing to pay more when they feel they are getting what they pay for.


Restaurants have sought to increase profits by managing the length of customer meals, reconfiguring seating to accommodate more customers per hour, service charges, surcharges, no-show fees, “disposable” fees to be paid for packaging and carbon offsets, and the use of merchandising and upselling towards more expensive menus during peak hours. However, some restaurants may overstate the price consumers are willing to pay. A recent article on Today.com cites that Some restaurateurs push back, arguing that the surcharges are unjustified and that their explanations printed at the bottom of our receipts are indefensible. There has also been a backlash as restaurants across the country add an 8% to 10% fee to checks to cover inflation costs.

Takeaway meals for hotels: Hotels are notorious for adding mandatory resort fees and other charges to guests’ stay. However, the key is to easily disclose these charges when travelers make a reservation and to let customers know when they check in, so they won’t be shocked when they check out and see how much their room really costs. Since the hotel’s resort fee includes things that some guests don’t use, consider implementing a negotiated, more reasonable a la carte room rate as an alternative.


Sharing economy titan Airbnb has grown explosively, building a multi-billion dollar business in record time. Initially, however, Airbnb’s bottom line was affected by underpricing. Property hosts couldn’t adapt to changing market conditions or consider the multiple factors needed to optimize rates. Thus, the company has advanced employee artificial intelligence (AI) and machine learning (ML) to streamline operations and help hosts optimize their dynamic pricing strategy for any given day. Uber raises fares for times of high demand, such as when demand is higher due to a concert, inclement weather, holidays, etc. As stated on their site, Our aim is to be as reliable as possible in connecting you with a driver whenever you need one. In times of high demand, the number of drivers we can connect you with becomes limited. As a result, prices are rising to encourage more drivers to make themselves available.

Takeaway meals for hotels: Legacy hotel systems are often technically flawed and lack integration with other systems. Hotels can use data-driven revenue management (RM) software powered by AI and ML to quickly respond to real-time changes in market conditions, generating optimal prices daily.


There is a consistent theme throughout the analysis of pricing strategies in other industries. No company can afford to neglect price optimization. To set optimal prices, revenue managers need superhuman data processing powers or be equipped with the right revenue management technology. And with only about 3% of hotels globally currently using revenue management technology, we still have a long way to go in this area. To gain and maintain a competitive advantage, hotels must change their approach to pricing and turn to AI-powered revenue management systems to understand demand and optimize revenue. By using a revenue optimization solution, hoteliers tap into a wealth of knowledge that the human brain cannot decipher on its own to achieve high-impact growth. In a world where guest demands are constantly changing and new technologies are emerging, hotels must continually adapt to stay ahead of the competition.

About LodgIQ

LodgIQ™ provides advanced travel industry revenue optimization technologies. Its revolutionary next-generation revenue optimization platforms, LodgIQ RM, were developed by seasoned revenue management executives and technologists in Silicon Valley. Currently working with over 550 hotels, LodgIQ’s products combine sophisticated machine learning with an intuitive and powerful user interface delivering advanced recommendations and actionable analytics. LodgIQ is headquartered in Silicon Valley, with offices in New York, Phoenix, and Bangalore.

Puzzle Partner (for LodgIQ)
Ivana Johnston, co-founder

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