The tendency for demand to change with changes in price is the price elasticity of demand. In pricing and selling, enterprises must have a clear understanding of the elasticity of demand. Watch this video to learn more about price elasticity and how it relates to revenue management.

To match, set one rate to match the competition and another rate slightly higher. For instance, if the competition is charging $ 79, you might also charge $ 79 for one type of room and have an $ 89 rate available for a better room or option.

To penetrate, set your rates lower than those of the competition. If the competition is charging $ 79, offer rates such as $ 69 and $ 59 in hopes of getting consumers to try your products.

To skim, set your prices higher than the competition does so you can "skim off" the higher-paying customers. If the competition is charging $ 79, you might set your rates at $ 89 and $ 99 in hopes of getting the people who are willing to pay a bit more.

To surround, offer one price that's lower than the competition's price and one price that's higher. If the competition is charging $ 79, offer a $ 69 rate to attract the bargain seekers and offer an $ 89 rate for a slightly better room or option.

To undercut, offer a price that is the same as your competition and a lower one as well. If the competition is charging $ 79, offer a $ 79 rate and a $ 69 rate in hopes of attracting more customers.

One rate is available to all transient customers. This approach is not designed to respond to changes in demand and does not take into account customer ability or willingness to pay.

In the hotel industry, it's important to determine how you measure up to your competition. Are your competitors offering a higher-end product or a product of slightly lower quality? How do you compare in terms of location or access? With these considerations in mind, you can set prices.

Many factors influence the pricing decisions you make, including the rates your competitors charge and how your product compares to your competitors' products. The following approaches will help you analyze these factors to position your room rates appropriately relative to the competition.

Creating an optimal price mix includes pricing, positioning, and selling.

Understand variable pricing. Prices are set according to traditional methods within a revenue management framework. Positioning prices in relation to those of your competitors.

Discover different methods of using available prices in the selling process, characterize key positioning and selling strategies, and discuss pricing decisions in terms of price elasticity.

The starting point for top-down price quoting is the highest available rate. From there, the seller applies discounts as required to arrive at an acceptable price. In the hospitality industry, a booking agent may begin by quoting a high rate and gradually reduce that rate if the caller expresses an unwillingness to pay. But this method can cause customer dissatisfaction.

A method of price quoting whereby reservation agents quote the best available
rate for each night of a multiple-night stay. As a result, guests may pay a different
rate for each night they stay at the hotel.

A quoting strategy whereby reservation agents quote prices beginning with the
lowest rate.