Dear WuBookers, we hear more and more about cognitive biases in our daily lives. These are unconscious prejudices and small distortions that our minds put into action during certain reasoning and decision-making processes. However, these “shortcuts” – which are completely natural – risk compromising our ability to make the right choices, especially when it comes to setting room rates. Here are some cognitive biases related to hotel pricing, how to recognize them, and how to counteract them.

What are cognitive biases and how do they influence hotel pricing?

The word “bias” has its origin from Old French. The original meaning is “oblique,” but today biases identify the propensity to rely on beliefs that later prove to be wrong. A bias activates automatically, especially when we have to make quick decisions in contexts governed by uncertainty. In these situations, it is as if our brain takes refuge in established and secure beliefs without really reflecting on their actual relevance. This is also what happens when it comes to setting the price list for our products: instead of relying on tangible analysis, we run the risk of trusting our instincts through reassuring and “comfortable” cognitive biases. These are unconscious interferences that can, however, prove detrimental to business.

But what are these cognitive biases and how many are there?

Confirmation bias

Confirmation bias is the tendency to value only information that confirms what you already believe, ignoring contrary signals and data. It is a counterproductive attitude because it prevents you from clearly evaluating other indicators, leading you to make choices in line with your prejudice. Let’s take an example: in August, your hotel is always fully booked, but this year sales are slow. Despite the possible evidence (negative reviews, new competitors on the market, prices that are too high, etc.), you insist on leaving your offer unchanged, with potentially disastrous results for your profits, simply because you are conditioned by your need for confirmation.

Anchoring bias

This bias is rather subtle: it consists of relying on so-called “anchors,” or the first information available, without considering the current context or your particular situation. A typical case is that of promotions: perhaps last year you got a lot of reservations thanks to a special discount. This year, instead of asking yourself whether it’s really worth it or not, you activate it again, expecting the same results. The anchoring bias thus produces uncritical decisions that risk putting you out of the market or setting your rates too low.

Status quo bias

How many times have we heard (or said to ourselves): “We’ve always done it this way, so there’s no reason to change”? This approach is the result of the status quo bias and reflects a reluctance to embrace change, which, in the long run, can backfire. Existing conditions are not always the best, and opposing changes that could be more profitable just because you’ve never done anything differently before can cause you to miss out on opportunities for profit and growth. This is what happens, for example, with fixed rates: keeping the same price unchanged without adjustments over time or without trying more effective approaches such as dynamic pricing is not always the best thing to do.

Overestimation bias

Even experience can play tricks on you, especially when it leads to overconfidence.

Overestimating one’s abilities means exactly that: being convinced you’re right just because you’re familiar with a certain subject. This mindset can expose you to losses and missed opportunities. You might end up interpreting certain situations – like a particular market trend – in a certain way simply because your confidence blinds you, leaving out objective and useful data. Questioning yourself and looking “beyond your own navel” helps avoid the overconfidence bias.

Loss aversion

Finally, there is one last pitfall to try to avoid: loss aversion. No one likes to lose money, but in some cases, a small immediate contraction in earnings can lead to higher future returns. Let’s imagine we are in the low season: demand is at a minimum and rooms are not selling. By lowering rates, the Revenue Manager may fear making a loss, but if they don’t, the rooms are likely to remain unsold anyway. So it’s necessary to avoid preconceptions and make a careful assessment of the costs and benefits of all available options in order to decide what is best.

Even travelers “suffer” from cognitive biases: here are some examples

Biases do not only affect those who set prices, but also those who see them, like potential customers of the property. Some are very similar to those we have already seen, while others leverage typical purchasing mechanisms.

Let’s list the main ones and how you can use them to your advantage:

• Confirmation bias: travelers usually seek a positive experience. Showing images and providing descriptions that reinforce this belief is essential to secure reservations.
• Anchoring bias: people tend to base their decisions on the first information available. An initially high price followed by a discount is an effective ploy to work with this bias.
• Scarcity bias (combined with loss bias): if something is scarce, it means it is valuable. You can fuel this belief through limited-time or limited-quantity offers to stimulate demand.
• Authority bias: this is what triggers when we see or hear someone we consider authoritative and who, for this reason, can influence our behavior. Influencer marketing for hotels relies on this very bias;
• social proof bias: imitating what others do is another powerful cognitive bias. How can you exploit it? For example, by displaying positive reviews and comments from guests to increase the perception of value and encourage direct reservations.

So, cognitive biases can be beneficial when it comes to customers, but they are dangerous enemies when they interfere with revenue management strategies. Reducing their impact (and therefore their potential damage) is possible thanks to specific external tools.

The PMS as a tool to avoid cognitive pricing biases

Being aware of their existence is not always enough to avoid them. An effective way is to get help from technology. Which technology? To start with, definitely a good hotel PMS, such as Zak by WuBook.

Thanks to this software, designed specifically to support hoteliers and property managers, it is possible to carry out all the key operations of an accommodation facility, collecting useful data to help it grow in the best possible way. In addition to allowing you to record reservations, manage guest check-ins and check-outs, and organize housekeeping, Zak provides valuable information on the performance of your hotel or B&B, including data such as: sales velocity, ADR, RevPAR, cancellations received, and much more. This gives you a complete, real-time overview of your property’s performance and allows you to use objective data instead of mere assumptions.

In addition, it can also be easily connected to other essential tools for making sensible assessments of hotel profitability, such as Revenue Management Systems: specialized tools that, thanks to the data provided by the PMS, can predict demand and suggest cost-effective pricing strategies. This allows you to make truly informed decisions.

Because, let’s face it, when it comes to business and margins, relying solely on your intuition and feelings is almost never a good idea, don’t you think?