Revisiting the Psychology of Pricing in Today’s Inflationary Environment

Daniel Skodol, VP of Revenue Management and Distribution at Inspirato, HSMAI Revenue Optimization Advisory Board Member

The HSMAI Revenue Advisory Board recently met to discuss the psychology of pricing in today’s environment. Read on for a snapshot of key concepts in behavioral economics and how it affects pricing strategies.

Key Concepts of Behavior Economics

  • Guests react to how pricing is presented and how transactions are framed; it is all about context.
  • People often behave irrationally when making economic decisions because our brains are not good at thinking in absolutes but make judgments based on contrasts.
  • Our purchasing decisions are framed by reference points from various influences, including experience, the presence of different numbers, and how they are presented to us.
  • Perception, especially of value proposition, is particularly important.
  • People like to be on the winning side of a game and dislike losing or being in a less favorable position than where they started – for example, having to pay baggage fees, resort fees, or upcharges.

How Today’s Market Effects Purchasing Decisions

Advisory Board members shared that as inflation and other forces are causing the pricing to go up, the challenge is not to appear tone-deaf and strive to provide perceived value. Guests’ expectations increase when they pay more for a room, so hotels must examine operations to ensure they can live up to the guests’ expectations. This is made more complex with the current levels of staffing shortages. Guest patience is also down from where we were a year ago because of the higher prices and many guests think we are out of the pandemic hiring shortages.

How to Use Behavior Economics in Pricing

  • Bundling may put hotels in a more favorable position, but we should be wary of the perception of nickel and diming the guests.
  • Luxury markets may not have the same challenges, because of the belief that luxury or boutique properties are where guests want to be.
  • When taking in unfavorable reviews, it is important to look at all available data.
  • It is all about market appropriateness because regardless of how hard a market is, there is only so much you can charge without adding value before someone goes to the competition.

Categories: Revenue Management, Pricing
Insight Type: Articles