For many hotels, developing effective pricing strategies remains a complex issue for revenue managers; their goal, ultimately, is to maximize companywide revenue and profits while building strong hotel partner relationships within their marketplace.

The emergence of rate optimization has made strides to demystify pricing practices and help revenue managers understand the demand characteristics of their products, understand the price sensitivity of demand and design a rate spectrum that is tuned to all these.

This allows hoteliers to take full advantage of their business opportunities, ensuring that they are capturing the maximum revenue at all times through an optimized rate spectrum.

Beyond the scope of regular revenue management practices such as selecting the correct overbooking, rate restrictions and best available rate, lies the challenge of selecting the correct rates to choose from in the first place.

Rate Optimization is the practice of selecting the rates offered in a rate spectrum based on the historical price sensitivity of demand.

The goal of rate optimization is to understand the demand characteristics of products and the price sensitivity of demand and define a rate spectrum that will capture the maximum revenue over time.

Price Sensitivity, or Elasticity of Demand

The Price Sensitivity of Demand is a measure of the change in demand to a change in price. If a small change in price is accompanied by a large change in demand, the product is said to be elastic, (or responsive to price changes). However, a product is inelastic if a large change in price is accompanied by a small amount of change in demand.

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