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Small-Scale Hostel Business Pricing Plan To Gain Competitive Advantage 🛋️


Amidst the growing demand for travel, small-scale hostels find themselves caught in a relentless race for survival. The rise in demand for budget accommodation has led to a surge of corporate-owned hostels entering the market, squeezing out many smaller businesses. As these larger companies often have deeper pockets for marketing and advertising, it’s become increasingly difficult for small operators to keep up. In most cases, the only way for a hostel business to compete is to plan for a price increase


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The problem is that hostels are now facing an increasing number of travellers who find themselves at odds with the soaring prices. With dismay and frustration, they argue that high prices are eroding the very essence of the travel experience. The affordability once associated with hostels is now overshadowed by concerns over fair pricing.


In this article, we are going to discuss how small-scale hostels can properly price their offers. First, we discuss the recent trend of price hikes in the hostel business, why this is happening, and how it affects customer behaviour. We argue that raising hostel prices will be unsuccessful if travellers are no longer willing to pay for hostel lodgings. Then, we provide recommendations on how hostels can employ customer value-based pricing strategies.


At Value Culture, we believe that as small-scale hostels innovate and raise prices, they must not lose sight of the value they offer. By the end, you’ll understand how small hostel businesses can leverage pricing to stay competitive and profitable.


Developing A Pricing Plan For A Small-Scale Hostel Business 


Hostel surge pricing, according to critics, is killing the fun of travelling. Travellers used to be able to secure a room in a shared dorm in Rome or Paris for 20 or 30 euros (A$33-A$49) per night; now, a 16-bed dorm costs around A$90 per night. Meanwhile, those planning to book a private room in a hostel will have to pay around A$545 for just one night. 


Some travel bloggers believe that increasing hostel fees are the result of the corporatisation of hostels, especially in Europe. According to them, there has been a significant increase in the number of corporate hostel chains that operate comparable to hotels.


Based on the most recent Hostels Global Market Report, the rise in solo travel is driving the expansion of the hostel industry.


In fact, the market is predicted to grow from $6.04 billion to $6.35 billion. As part of their growth strategy, corporate-owned hostels are moving closer to more reliable fire safety plans, industrial kitchens, yield managers, data analytics, AI, and surge pricing methods. 


They consider demand, competitor prices, events, seasonality, and an array of additional variables. Smaller hostels have had to do the same in order to compete. As a result, the remaining small-scale hostels are raising their prices. Hostels will set higher rates if they know they can, especially since smaller hostels are forced to compete with the corporations.


While prices may slightly drop when demand falls, a higher and increasing baseline price is likely. Nonetheless, as hostels continue to innovate and raise their prices, they must not lose sight of the value they offer. They can set higher prices, but it won’t help if travellers are no longer willing to pay for budget hostel accommodations. That being said, hostel managers must always stay current on consumer trends and preferences, and then price accordingly.


Discussion On Optimising A Small-Scale Hostel Business Pricing Plan


hostel business plan


Value-based pricing is a strategy where prices are set based on the perceived value that customers derive from a product or service. It involves understanding the unique benefits and advantages offered by the offering and setting prices accordingly.


Customer-centric pricing, on the other hand, focuses on tailoring pricing strategies to meet the specific needs and preferences of different customer segments. It recognises that customers have varying willingness to pay and aims to maximise customer satisfaction and revenue by adjusting prices accordingly.


Small-scale hostels should use value-based and customer-centric pricing because it allows them to differentiate themselves from competitors by emphasising the unique value they offer. By understanding the needs and preferences of their target market and setting prices based on perceived value, hostels can attract customers who are willing to pay for those advantages. This approach can also lead to increased profitability by justifying higher prices based on the value provided.


Additionally, customer-centric pricing enables small-scale hostels to effectively cater to different customer segments. By customising pricing strategies to meet specific customer needs, hostels can attract and retain various types of customers, which ultimately enhances revenue and customer satisfaction. It also helps to ensure that prices are perceived as fair and reasonable, leading to repeat bookings, positive reviews, and positive word-of-mouth recommendations.


How can a small-scale hostel business develop a pricing plan to compete with larger corporate-owned hostels? 


Below are five steps that small-scale hostels can follow to utilise value-based and customer-centric pricing. Doing so, enables them to compete with larger corporate-owned hostels amidst rising prices.


1. Conduct market research.


Small-scale hostels should gather information about their target market and identify the unique value propositions that set them apart from larger corporate-owned hostels. This research helps them understand customer preferences and the specific advantages they offer.


2. Segment customers.


By dividing their customer base into distinct segments based on characteristics such as demographics, behaviours, and preferences, small-scale hostels can tailor their pricing strategies to meet the specific needs and willingness to pay of each segment. This approach ensures that pricing is customised and maximises customer satisfaction.


3. Align pricing with perceived value.


Small-scale hostels should set prices based on the perceived value that customers derive from their offerings. By emphasising the unique benefits they provide, such as personalised service or local experiences, hostels can justify higher prices and compete effectively with larger corporate-owned counterparts.


4. Communicate benefits effectively.


It is crucial for small-scale hostels to effectively communicate the advantages and unique features they offer to customers. Clear and compelling messaging highlighting the value customers can expect helps build trust and justifies the pricing, making customers more willing to pay for the experience.


5. Monitor and adapt the hostel business pricing plan.


Small-scale hostels should continuously monitor customer feedback, market trends, and competitor pricing to ensure their pricing strategies remain relevant and competitive. By staying agile and responsive, they can make adjustments when needed to maintain competitiveness in the face of increasing prices in the market.

Implications Of Strategic Hostel Business Pricing Plan Amidst Growing Market


With market growth, competition intensifies. Small-scale hostels must establish a strong competitive position to attract customers. Strategic pricing becomes essential to differentiate themselves from larger corporate-owned hostels, showcasing the unique value they offer despite resource constraints.


Limited resources and rising costs make it imperative for small-scale hostels to optimise profitability. Pricing strategies that align with customer preferences and capture the perceived value of their offerings are vital. Maximising revenue while covering operational expenses enables small-scale hostels to maintain financial viability in the face of market expansion.


Pricing greatly influences customers’ perception of value and quality. Small-scale hostels must carefully price their services to ensure customers perceive fair value. By focusing on customer-centric pricing and providing exceptional experiences, they can build customer loyalty and generate positive word-of-mouth, offsetting the advantage of larger corporate-owned hostels.


Small- and medium-sized firm employees frequently have their hands full of workloads. But, our findings show that with the right set-up and pricing plans in place, incremental earnings gains can begin to occur in less than 12 weeks. After 6 months, your teams can capture at least 1.0-3.25% more margin using better price management processes. After 9-12 months, businesses often generate between 7-11% additional margin each year as they identify more complex and previously unrealised opportunities, efficiencies, and risks.


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Bottom Line


As the market grows, small-scale hostels must prioritise pricing despite resource limitations and increasing operational costs. It enables them to position competitively, optimise profitability, and cultivate customer loyalty, ultimately driving their success in a rapidly expanding market.


Shifting to value-based and customer-centric approaches is essential for small-scale hostels to improve their pricing mechanism and offerings. Conducting comprehensive market research allows hostels to understand customer preferences and needs, enabling them to segment their customers effectively. By aligning pricing with perceived value, small-scale hostels can ensure fairness and customer satisfaction.


Effective communication of the unique benefits and advantages of their offerings strengthens customer relationships. Furthermore, continuous monitoring of customer feedback and market trends allows small-scale hostels to adapt their strategies promptly, ensuring competitiveness in the evolving market landscape. By implementing these approaches, small-scale hostels can differentiate themselves, boost customer satisfaction, and achieve long-term success.


For a comprehensive view of ensuring the continuous growth of your business, Download a complimentary brochure on How To Drive Pricing Strategy To Accelerate Sales & EBIT Growth.


Are you a small or medium-sized business in need of help aligning your pricing strategy, people and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 8607 7001.

You can also email us at if you have any further questions.


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