The New Science of Hotel Pricing

“Heads in beds.” That simple mantra drove the hotel business for decades. Too many open rooms? Cut the rate. A competitor raised prices? Follow suit. It was a mix of spreadsheets and gut instinct — and it left heaps of money on the table.

Now, hotels are overhauling how they set prices. Across the $340 billion U.S. industry, software is replacing instinct with precision. Pricing systems use “teams of algorithms” — models that shift depending on market conditions, much like a baseball manager choosing pitchers for specific situations.

Few know that shift better than Michael Morton, who joined Best Western 16 years ago. Back then, setting rates meant hunching over Excel sheets with front desk staff. “You really only had what your competitors were doing as a guide,” he recalled. “Many times you were just following.” In 2010, Morton pitched a radical idea to his bosses: what if hotels could price rooms like Amazon prices products?