What is a potential disadvantage of the rack rate pricing model?

The potential disadvantage of the rack rate pricing model is that it doesn’t account for variation in demand. Rack rate pricing usually refers to the standard price set by hotels or other accommodations for their rooms, often without consideration for fluctuations in demand throughout the year, such as during peak tourist seasons or local events. As a result, a hotel may charge the same rate regardless of whether occupancy is low or high. This rigidity can result in lost revenue during high-demand periods, where the establishment could charge a premium, and can also lead to lower occupancy during off-peak times when more competitive pricing could attract more guests. Consequently, this disadvantage reflects a lack of dynamic pricing strategies that could optimize revenue based on real-time demand conditions.