When hotels implement dynamic pricing, they are constantly adjusting their room rates based on mathematical algorithms aimed to increase occupancy based on area demand.
NB: This is an article from Cvent
To accurately focus the algorithms to increase occupancy without sacrificing ADR and RevPAR, hoteliers must understand their customers and their customer behaviour.
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Dynamic pricing algorithms can be targeted to focus on:
● Occupancy demand.
● Guest booking patterns.
● Different market segments.
● Day of week patterns.
● The average length of stay (ALOS) of guests.
● Room type preferences.
Successful hotel revenue managers understand their peak seasons, shoulder seasons, off-seasons, areawide special events, market segment performance and other demand generators for their market. They use market research to better understand their customers and what they are looking for. Detailed market research allows hoteliers to anticipate market fluctuations and develop a rate strategy aimed at increasing ADR, RevPAR, and occupancy.
The success or failure of price optimisation often depends on how the strategy is specifically implemented at an individual property. Hotels may choose to offer discounted rates on OTA bookings, increase or decrease rates based on hotel occupancy levels, or set boundaries on the number of fluctuations that occur during a specific time period. Dynamic pricing can be tweaked and targeted in many different ways depending on the revenue goals of a specific property.
What are the pros and cons of dynamic pricing?
Dynamic pricing has an upside and a downside, like most hotel revenue strategies. How well a hotelier manages their rate strategy can both positively or negatively impact a hotel’s overall performance.
The Pros
1. Create or increase demand.
Hoteliers can also use dynamic pricing to appeal to different market segments that don’t typically book at their property, expanding their audience, increasing revenue potential, and minimising the potential that rooms go unsold.
2. Offer competitive rates.
By consistently adjusting room rates based on activity in the market, hotels that use dynamic pricing are able to stay in line with the competition. Pricing algorithms can be set to include the rates being offered by the comp set and overall area demand, to ensure that hotels are staying competitive with other rates in the market. Offering rates higher than other hotels in the area will likely push guests to book elsewhere, and under-pricing will lead to low RevPAR and ADR indexes in revenue reporting.
3. Better appeal to your audience.
Revenue managers who choose to use dynamic pricing are interested in offering room rates based on what guests are willing to pay. When this occurs, it benefits both parties: hotels see increased occupancy because more guests (who feel that they’re getting a good, fair rate) are booking at the property. Everyone wins, and hotels continue to gain a better understanding of their target audience while bringing in new guests and increasing hotel customer loyalty.
4. Save time and increase profits.
Manually pulling and analysing data from various sources is a lengthy process that is incredibly time-consuming for hotel revenue managers. Rate maintenance is only one of the many responsibilities revenue managers tackle on a daily basis. They need ample time to focus on other important duties such as creating marketing campaigns, developing MICE business strategies, event management, and other tasks depending on the delegation of duties at their hotel.
When systems communicate with one another, comprehensive data from multiple sources can be viewed easily allowing for quick decision making. Not only can dynamic pricing lead to higher occupancy percentages, average daily rates and RevPAR performance, it saves a lot of time on forecasting future demand, optimising rates, and monitoring performance.
The Cons
1. Frequent price changes & rate integrity questions.
While frequent changes in room rate may help a hotel maximise its profits, it may lead to questions of rate integrity from potential guests. If a guest see’s a room rate of £99 at 10am, for example, but the rate is £104 when they go to book at noon, that could cause the traveller to view the hotel as inconsistent, unreliable, or worse—greedy. Seeing constant fluctuations in pricing, especially over short time periods, could end up pushing guests to book with the competition.
