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How Do Hotels Figure Out Room Pricing Anyway?

Have you ever spent hours researching hotel rates? Why do rooms in a New York City hotel cost so much more in June than in March? How do hotel managers determine rates, and what factors go into pricing? Is there a difference between rates on online booking sites and the ones offered by the hotels directly? Travel journalist Renee Sklarew investigated this issue in today's Hotels Week report.

Room pricing is not really that mysterious, according to hotel marketing and sales manager Helen Morton at Skyland, a rustic resort in Shenandoah National Park. It's all about the competition. "We conduct comparability studies to find rooms that are as similar as we can, like resorts in other national parks, or gateway hotels. We also consider the variety of room types, like suites or family cabins, and in-room amenities," says Morton. "We don't compare ourselves to a city property." She also looks at the value of what's in the actual room—coffee makers, number of beds, or whether the room has been recently renovated.

Time of the year plays a factor too. In high demand seasons like holidays and during the summer, rates at resorts rise, and hotels may require booking more than one night. When there is less demand for hotel rooms, the rates drop. Morton says that prices vary by days of the week too. For a leisure hotel like Skyland, the weekday rate is lower. In an urban hotel that caters to business travelers, the weekday rates are higher. There are discounts available for guests who pay in advance. "We offer 25% off the best available rate, but of course, if you cancel, you lose your entire deposit," explains Morton.

Gabe Eveland, director of revenue management at the Park Hyatt Washington DC, says the two of the most important factors in pricing luxury hotel rooms are standard of service and demand. Standard of service refers to guest services, including valet parking, a butler, spa showers, or the Park Hyatt's new bedside remote that controls lighting in the room.

Yet, even with all those features, hotels still rely on demand to determine pricing. During cherry blossom season in Washington DC, the Park Hyatt charges substantially more than they do in August. Demand can change and hotels react accordingly. They also price themselves against a similar caliber hotel. "We want to play in the same ballpark as our competitors," says Eveland. "We set our room rates the same way airlines set their ticket prices, it's the exact same approach. If I buy early, I'm getting a better price." So contrary to popular belief, hotels rarely discount rates on the day-of or day-before. In most cases, booking early is better.

Another eye opening statement by Eveland: the rates you see on their website are the same as online booking sites like Travelocity and Priceline. He says hotels consistently shop those websites to make sure that everything is in synch. "We strive to maintain rate parity across all of our channels, and our systems are designed so that those websites have the same rates we have." Is there a benefit in booking directly with the hotel? Eveland says discounts are not hidden, but calling the hotel directly may save you time: "When you call the reservation agent directly, we have an opportunity to customize your stay and try to find a package that meets your needs."

The bottom line--hotel pricing is determined by:
· Value of services
· Amenities
· Location
· Seasonality and demand
· Star rating

You may find limited-time discounts on websites like CostcoTravel or Groupon's Flash Deals, but with all online booking sites, look out for hidden fees. "The goal of a hotel is to maximize revenue for any given day," says Eveland. "Obviously, we love to sell every one of our rooms everyday, but that isn't a reality."