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Dynamic Pricing — The Future of Hotel Revenue Management

Posted on Jul 2, 2019 1:28:00 PM

The hotel industry has evolved over the years, from travel agents to online booking, the industry is moving forward in the digital age. Today technological advancement has not only simplified customer interactions with hotels, but it also has made the market fiercely competitive. 

Hotels across the industry aim at optimising their profits. To meet this goal, hotels target customer satisfaction whereby 98% of guests would be ready to spend more if satisfied. Pricing better than competitors could make the difference between guests visiting your hotel instead of your competitors. Studies have revealed around 75% of people book hotels online because they get better pricing. 

Fierce competition in the market is one of the reasons why revenue generation is a big challenge in the industry. And this is exactly where strategies like Dynamic pricing has become one of the better options for generating higher and better revenue.

dynamic pricing graph

Photo from WooCommerce Dynamic Pricing

What is dynamic pricing?

Also known as time-based pricing, this approach is used for products and services which are highly flexible in nature.  This is currently used in industries where prices of goods are tweaked to create a balance between market demand and supplies.

Impact of dynamic pricing in the hotel industry

Traditionally, hotels would fix prices based on room categories and the number of rooms allotted to each category. All these factors were carefully priced back then. With Dynamic pricing, hotels keeps tabs on market demand alongside their availability of rooms. The price of a room increases hand-in-hand with an increase in demand. Dynamic pricing not only attracts the best travelers for the hotel, but it also helps hotels maintain a constant flow of revenue.

dynamic pricing

Photo from Hotel Desk Hotel Management Solutions, Dynamic Pricin

Based on a survey conducted on 200 travelers it was found that approximately 22% of hoteliers operate via dynamic pricing today. It was discovered that hotels using dynamic pricing had cost savings of up to 47%, with 33% access to more room types with a transparency rate of 25%.

How does it work?

Dynamic pricing has helped hotels in forecasting a tentative number of bookings until a specified period. If by that time the bookings exceed or meet the estimated forecast, new & increased prices can be quoted for following bookings. 

The Benefits of dynamic pricing 

There are countless factors responsible for lowering the rate of rooms at your hotel. Dynamic pricing not only helps hoteliers generate revenue based on market demand, but also allows hotels to touch up on various segments.   

For example, your hotel brand serves in the niche luxury market, where guests visit you for your luxurious appeal. Here your brand can get more exposure through dynamic pricing via the booking engine due to widespread distribution. This will help you in getting your lower ranged rooms sold. 

 

Since price is a point that converts visitors into buyers, dynamic pricing allows hotels to compare prices with those of competitors. It even allows a hotel to take into account the pricing equivalent to market prices.

 

Dynamic pricing can simplify pricing management alongside providing discounts for all kinds of rooms offered by your hotel annually.

How can dynamic pricing add value to hotel operations?

Previously hotels initiated pricing methods such as forecasted pricing, rate parity, price per segment, discount codes, package deals and more. Since each of these methods perform in an absolute unique manner. 

Which made hoteliers spend a huge amount of money since their operations used to get complicated and denser. Resulting in pressurising the hoteliers while conducting their regular marketing campaigns on the social media or while circulating personalised mailers.  Which became a huge challenge for the small hoteliers.

The impact of Dynamic pricing can be seen in Asian countries like China, Japan and Korea. Where hotel brands managed to maneuver through various market segments. This has resulted in a growth of about 70-100%.

The construction of dynamic pricing has allowed hoteliers in maneuvering through all such elements without impacting their existing operations.


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About Blog Author

hi Inc. Content Editor delivering hospitality technology news on the travel & tourism industries. Staying ahead of what is happening & trending. Providing hoteliers with actionable insights and helpful tips to help them enhance guest engagement and increase incremental revenue.