The other day while traveling, a colleague asked me, “Why do hotels publish these ridiculously high prices on the back of the hotel room door? The sign says $799 but we only paid $150”. I went back to my hotel room and snapped this picture.
Although I was unable to find the definitive answer, here is an educated guess. Undoubtedly, Pennsylvania (we were in Pittsburgh) has a law requiring hotel operators to post the room rate at a visible location in the room. (Note that the paragraph below describes a PA law passed in 1913.) The law was probably written to protect consumers by keeping hoteliers from charging higher than normal rates. This was before the time when hotels would commonly adjust pricing based on market conditions and demand.
Under these circumstances and laws, the hotel is best off posting the highest rate they would ever consider charging for the room. They could always charge less, but they couldn’t charge more.
When I described this to my colleague, he persisted, “Who would ever pay $799 for that room? Why did they choose that price?” This answer was simpler. What could that hotel charge for a room if the Super Bowl is held in Pittsburgh? Especially if the Steelers were playing in it. $799 may be too low.
What we probably have here is an antiquated law that hotels must follow. Of course, hotels obey the law in the manner that is most effective for themselves. As a result, the only thing the law really does is make the hotels look ridiculous.
What can we learn from this? How about we shouldn’t pass specific pricing laws? How about we should revisit old laws? Maybe, but those are political issues.
As business people we must follow all pricing laws, but we can obey them in a fashion that is best for ourselves. Here are some lessons: First, when we must publish a price, it should be our highest price. We can always go lower but it’s very hard (if not illegal) to charge more. Second, if you must publish a ridiculously high price, hide it as best you can (like on the back of the hotel room door.) It only makes you look foolish.