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Learn how to recognize the cognitive biases that influence your pricing decisions and put these tips into practice to overcome them and improve your accommodation's results.

Cognitive biases and limiting beliefs about revenue management: examples and tips to overcome them | Smartpricing

Learn how to recognize the cognitive biases that influence your pricing decisions and put these tips into practice to overcome them and improve your accommodation's results.

How many times have you come up with a positive change, only to be met with the response „But we've always done it this way"? And how many times are you the one who has thought "I've always done it this way, and it worked, so why should I change?"

These statements, recurring in both business and private settings, actually represent a deeper and more subtle phenomenon known as cognitive bias.

It is difficult to recognize when biases go into action, because they do so automatically: they are like "shortcuts" that our brains use to make quick choices and save mental energy.

The risk one runs is to perceive reality in a distorted way and, if the bias concerns oneself, to generate a real psychological block that will curb any ability to improve and innovate.

Whether it is the overconfidence in predicting demand for one's facility (overconfidence bias), the tendency to prefer the usual pricing strategies (status quo bias) or the reluctance to consider the adoption of new technologies (risk aversion), cognitive biases can also have a harmful impact in hotel management.

In this article, we will explore the most common biases and the beliefs that fuel them, providing concrete examples of how they can manifest themselves and suggesting strategies for recognizing and overcoming them. Because, as computer programming pioneer Grace Murray Hopper said, "The most dangerous statement of all is: we've always done it this way."

Which cognitive biases affect pricing strategy in hotels?

When you sit down to create your price list, you are guided by the best intentions.

You know that the health of your hospitality establishment depends on those prices, and your only goal is to make good, well-considered decisions.

This may seem like a simple task; you've done it dozens of times before and in a wide variety of market conditions. In reality, however, it is a complex process that is influenced by the way the brain processes and interprets information.

It is at this stage that cognitive biases can occur, but what are they, and how do they manifest themselves?

Here is a list of the most common ones and an example of how they can affect pricing decisions.

Anchoring bias

This bias involves giving undue weight to the first available information (or "anchors") during the decision-making process.

For example, you may have had great success in the past with a particular seasonal promotion (such as a discounted rate for a minimum three-night stay). Anchoring bias, in this case, will cause you to remain anchored to the success of that price even if circumstances have changed. This may limit your ability to respond to changing market dynamics and optimize revenue.

The same thing happens if you look to direct competitors, using their prices as an "anchor."

If a competitor keeps their prices low, you may feel compelled to do the same, even though the quality of service you offer or the unique features of your facility would justify higher prices. This could limit your ability to enhance the value of your hotel, differentiate yourself and maximize revenue.

Confirmation bias

This bias is expressed by the tendency to seek, interpret, and remember information in a way that confirms your pre-existing beliefs or assumptions.

For example, you may be convinced that keeping room prices constant throughout the year is the most effective strategy. This might lead you to selectively interpret customer reviews or occupancy data, focusing only on information that seems to support this belief and ignoring other reviews or data that suggest that a dynamic approach to pricing might lead to higher occupancy rates or increased revenue. If you fall into this pattern, you will find the article devoted to the disadvantages of fixed-list pricing in hotels interesting.

Or, you might make your own the widespread belief that a hotel far from the center should offer lower prices than facilities closer to the city's services and attractions.

The risk of making this generalization could lead you to devalue the specifics of the facility, such as its quality, special service offerings, or unique features that could affect customers' perception of value.

Overconfidence bias

This bias involves the tendency to overestimate one's knowledge, skill, or control over a situation compared to reality.

For example, you may have taken a revenue management course in the past and as a result feel perfectly capable of managing rates without the need for updates or additional support. This overconfidence can lead to ignoring changes in consumer behavior, evolving technology or new market trends. As a result, strategies adopted on the basis of outdated notions may not prove effective.

Availability bias

This bias consists of basing decisions on the information that is most readily available or easy to remember, rather than on a complete and objective analysis.

For example, you may have based your pricing strategy on low or unchanged prices out of fear of negative customer reaction. This fear may be fueled by memories or anecdotes of colleagues who received negative reviews following price increases. As a result, you may decide not to adjust prices to the market level, even though there are indicators that suggest increased demand and potential for revenue optimization.

Status quo bias

This bias leads you to prefer the current option or maintaining existing conditions, even when there may be better alternatives available.

For example, you may want to maintain your static price list instead of testing dynamic pricing because "I've always done it this way”. Fearofchange and clinging to habits could lead you to ignore the benefits offered by flexible pricing and miss opportunities to maximize revenue, adapt to customer needs, and outperform the competition.

What are some limiting beliefs about revenue management?

After examining the different cognitive biases that can influence pricing strategy in hotels, it is essential to also delve into the limiting beliefs that arise from them.

Often, these beliefs represent a kind of automatic response that the mind provides when faced with the opportunity to change one's "static" pricing strategy in favor of one based on revenue management and dynamic pricing.

Here are some of the most common ones:

"Revenue management is too complex for me."

Understanding, thinking about, and applying revenue management may certainly seem like a daunting task, but that is not what is the real obstacle. Studying and adopting a new method is a personal challenge that, once overcome, could bring significant economic benefits to one's hospitality business. It will require devoting resources and time to understanding the fundamentals of revenue management, but anyone can do it, either independently or with the help of software that can break down much of that complexity.

"My hotel is too small to need revenue management."

This is a very common limiting belief, but the truth is that revenue management works regardless of the size of the accommodation. Even those with few rooms are exposed to market trends, are subject to seasonality, and have to deal with the influence that weekends, weather, and events have on demand. Indeed, for a small facility taking advantage of Revenue management will be even more vital because it cannot afford the luxury of having unused or underutilized rooms without significantly impacting profitability.

"Revenue management is limited to raising prices during periods of high demand."

This belief reflects a simplified view of revenue management, which is actually a multidimensional discipline that is about deeply understanding supply and demand patterns, strategically managing room inventory, and applying a set of strategies to maximize revenue. This also includes, for example, the ability to modulate prices during periods of low demand, to understand when to offer promotional packages, or to introduce strategic discounts.

"I need a dedicated team to handle revenue management."

While it is undeniable that having a team dedicated to pricing strategy could be beneficial, this is not a prerequisite. With a clear understanding of the key principles and with the right tools, even one person can effectively implement a revenue management strategy in a hotel.

"It costs too much to do revenue management."

Whether it's taking a course, hiring a revenue manager or implementing dedicated software, starting from scratch with revenue management can cost money.

In this case it is necessary to change perspective, not considering these interventions as an expense, but as an investment that will be repaid by the gains that a proper revenue management strategy can generate.

"Revenue management is only for hotels in big cities or busy destinations."

In reality, revenue management is a crucial element of any lodging establishment's strategy, regardless of type or location.

Even if you are in a less popular location or a smaller city, there are still numerous variables that affect demand and therefore your revenue. These may include seasonality, local events, corporate or convention activities, and more. 

In addition, if you are in a less busy location, you may have an even greater need for an effective revenue management strategy. This is because you may be more exposed to fluctuations in demand and therefore need more sophisticated strategies to attract and retain customers.

"Revenue management is not compatible with customer retention."

This is a common belief, but it does not necessarily correspond to reality. You might think that price changes can confuse or irritate customers, but in fact revenue management, when applied correctly, promotes customer loyalty. In reality, this discipline is not just about price optimization, but involves comprehensive resource management in order to improve the customer experience and increase customer satisfaction. Applying the principles of revenue management also enables you to better understand your customers' needs and preferences through data analysis. This knowledge can be used to personalize the offering and further enhance the customer experience, fostering loyalty.

Strategies to overcome cognitive biases and limiting beliefs

Most of the time we do not realize that we are using beliefs, habits and cognitive biases as they are linked to the unconscious and automatisms of our brain. This has a great impact on our evaluations and strategic choices in terms of marketing and revenue management for an accommodation.

The good news is that it is possible to change habits, beliefs and biases that are deemed to be dysfunctional and acquire new ones. How? Here are some strategies that might help you:

Continuing learning

Continuous learning can help you challenge old ways of thinking and be more open to new strategies and approaches. This can include training courses on revenue management, webinars on the latest industry trends, or reading relevant books and articles.

For example, in this article you will find a comprehensive guide to revenue management to better understand what it is, why it is important, and what tools you need to apply it.

Openness to change

The hotel industry is constantly evolving, and strategies that worked in the past may no longer be effective. Accepting change as a constant can help you overcome status quo bias, the tendency to prefer the current situation over a new and unfamiliar one.

Experimentation and feedback

Another effective strategy is to experiment with different pricing strategies and then evaluate the results. This can help you see which strategies work best and which may not be as effective as you initially thought. Immediate feedback can be a powerful tool for changing your beliefs.

Data analysis

Decisions should be driven by data, not opinions. Data analysis can show which strategies are really effective and which are not. For example, you may have a bias toward a particular pricing strategy because it has worked in the past. However, an analysis of the data may show you that this strategy is no longer effective.

External collaboration and benchmarking

Turning to outside experts can offer new perspectives and challenge pre-existing beliefs through valuable advice based on up-to-date industry knowledge. In addition, benchmarking − that is, analyzing and comparing with successful strategies adopted by other hotels − can stimulate a fruitful revision of one's own pricing habits.


Being aware of one's biases is the first step in overcoming them. This means reflecting on one's decisions and recognizing when personal beliefs or biases can influence them. It is important to ask yourself, "Am I making this choice because it is best for my business, or because I am following an old habit or unverified assumption?"

Set clear goals

Overcoming bias can be easier if you set clear, specific and measurable goals. When the goal is well-defined − for example, to increase revenue by 10 percent within six months − it is easier to examine the effectiveness of a strategy. This goal-oriented approach reduces the likelihood of bias influencing your strategic decisions, since you will focus on the tangible outcome and not on preconceptions or habits.

The best remedy is: taking action!

Finally, the most effective way to overcome bias is to get out there and challenge yourself. Beliefs can only be challenged through action. By implementing new strategies, measuring their effectiveness, and adapting based on the results, one can truly make progress and overcome the limitations imposed by bias.

Remember, every step, even the smallest, is a step toward breaking free from old limiting habits and adopting new practices that are more instrumental to the success of your hospitality business.

If you're wondering how to implement or improve dynamic pricing for your establishment and challenge your preconceptions, but don't have time to spend on theoretical training, creation and ongoing updating of a revenue management strategy, Smartpricing could be your starting point.

You can let the software constantly study the market for you to help you make better pricing decisions, maximize revenue, and support the growth of your hospitality facility.

Book a personalized demonstration with a Smartpricing consultant now!