Hotel Revenue Glossary · Pricing

Penetration Pricing

A strategy of entering a market or launching a new property with deliberately low rates to build market share, generate reviews, and establish brand awareness quickly. Rates are gradually increased as the property gains traction and reputation.

Why it matters: New hotels and recently renovated properties often use penetration pricing to overcome the cold-start problem. The risk is setting rate expectations too low, making it difficult to raise prices later. A clear timeline for rate escalation is essential.

Worked example: A new 90-room property opens at A$139 while the comp set averages A$205. It runs 20,367 room nights in year one, 62% of the 32,850 available, for A$2.83 million of room revenue. Move to A$159 in year two and every repeat guest, corporate account and OTA ranking is anchored on A$139, so a 14.4% lift reads as a steep rise to anyone who booked at opening.

Common mistake: Opening low with no written exit. Penetration pricing only works when the escalation is scheduled: dates, steps, and the occupancy or review-score triggers that release each one. Without that, A$139 becomes the market's idea of what the hotel is worth, and every move upward looks like a price rise rather than a plan.

All glossary terms BAR (Best Available Rate) Rate Shopping MPI (Market Penetration Index)