The hotelier’s job is to put as many people in as many rooms as possible for the highest price it can charge without damaging its reputation or losing customers and brand loyalty.Yet, one of the challenges facing the industry is finding the sweet spot between what people are prepared to pay for the room and what you are willing to charge.
Because travelers come in all shapes and sizes, having one price for all markets doesn’t work. Travel is volatile, meaning it changes constantly and is affected by things like seasonality, behaviour, competitor trends, loyalty programs etc...
With this in mind, let’s look at the concept of dynamic prices and learn how hoteliers can use it to maximize revenue as well as the software tools available to help make managing easier.
For the sake of clarity Hotel rates can be thought of as either static or dynamic.
Static pricing is where the same price is charged over a period of time. In other words, the room rate you pay does not change during the rate season. Changes in occupancy or demand don’t affect the price. Hotels using static prices know the market very well and the seasonal trends that drive demand.
Static prices were widely used in the day when software tools like the PMS or Channel Manager weren't readily available to help hoteliers manage revenue production. The advantage of static pricing is predictability, making it easier for both hotels and guests to plan ahead, knowing that rates will remain constant. Today however, hospitality and travel have become highly competitive marketplaces so static prices may no longer be ideal for hotels running a business.
Dynamic pricing is the opposite. Think of it as flexible pricing that moves up or down depending on market volatility as mentioned in the introduction. Many hoteliers prefer to use this pricing methodology to achieve the best revenue production from inventory.
Moreover, technology and the internet have made dynamic pricing models easy to implement. Nowadays there's plenty of software vendors that provide cloud based tools featuring real time price management for an affordable monthly subscription. The widespread adoption of these tools have made dynamic pricing mainstream. Hotel prices are often used to differentiate value, and because of the widespread adoption of dynamic prices there's plenty of competition between hotels seeking to maximize revenue. The benefit is clear and this includes better rate execution and revenue performance for minimal cost of sale.
Different hotels, from luxury to budget, can apply dynamic pricing to cater to their unique market segments. The objective of dynamic pricing is to be more tactical about how to charge room inventory and generate the best revenue at any point in time.
Let see how it works in practice:
Seasonality: During the low season in particular there will be dips in the number of arrivals. Low season business is also more volatile because of lower prices and more flexible deals. The revenue manager can use historic booking patterns to identify opportunities and align the price with seasonal demand to boost arrivals. Offering better than market rates, or last-minute deals can open the window for travelers looking for deals. In this instance, dynamic pricing allows the revenue manager to incentivize the traveler to commit to a promotional deal and secure the booking. Then, once the seasonal trough in bookings are filled, prices can move back to normal.
Competitive Behavior: What competitors are charging can influence booking patterns. In volatile markets, your competitors are constantly assessing what you’re charging and positioning themselves to capture revenue opportunities. Sometimes, your competition will price more aggressively to capture market share by providing better rates, promotions or loyalty incentives. Because travelers are looking for special deals and incentives, fine tuning your hotel prices makes sense and ensures you’re staying competitive by capturing the booking opportunity when it happens.
Events: Assume there’s a major event nearby, like a marathon or a MICE conference. Hoteliers can use dynamic pricing to change the BAR rate, by adjusting prices according to demand (usually higher) at a time when demand is buoyant - thereby capturing the revenue opportunities that result directly from the event.
Hoteliers can easily manage Dynamic Pricing Models using cloud based Property Management Systems or Channel Manager. Both platforms let you set dynamic rates tied to market conditions with the flexibility to release inventory into different markets (b2b / b2c or direct marketing) according to the revenue strategy.
Change any one rate or rate plan in bulk or open and close room sales in designated markets or market segments - depending on your rate strategy or in reaction to market conditions. In addition, both platforms have trigger rules built in, which allow you to set “rate yield” variables to maximize revenue opportunities depending on booking patterns.
For example Hoteliers Guru Channel Manager offers a Yield Occupancy function designed to optimize sales efficiency. Instead of manually updating room rates frequently, hotels can set up automated rules for the system to adjust room rates based on the actual number of remaining rooms. The benefits include:
How well the hotelier manages their rate strategy can both positively and negatively impact the hotel's performance.
One advantage of static pricing is predictability. Predictability makes it easier for both hotels and guests to plan ahead, knowing rates will remain steady regardless of demand, seasonality, or market trends. However, with more people traveling and the plethora of software tools on the market that manage rates and inventory - it's no longer worthwhile to follow a static rate regime.
And that’s one of the main reasons why dynamic rate pricing has become mainstream. But more than just making rate management easier, these software applications make it easier for hoteliers to adopt a strategic approach to rate management.
As the industry continues to upscale and evolve, the ability to adapt pricing strategies to market demand becomes more commonplace. With dynamic pricing tools, hoteliers can optimize occupancy, maximize revenue, and stay competitive in a volatile market. It’s a win-win for both the travelling public and the hotel.
So whether you’re managing a boutique beachside resort or a bustling city hotel, the right pricing strategy can make all the difference. Dynamic pricing leverages the strength of available technology like Property Management System and Channel Manager so you can stay adjusted to market dynamics to unlock the full potential of your hospitality business.
