Hoteliers Adjust Pricing Strategies to be More Dynamic
Hoteliers’ strategic goals must include a more dynamic approach to pricing hotel rooms that can better adapt to shifts in demand, sources said.
Dynamic pricing—a strategy in which prices continuously change based on algorithms that take into account demand and other external factors—is not new to the hotel industry, but its use is somewhat fragmented and inconsistent.
Part of the challenge is that technological improvements have added transparency to pricing. Guests believe this gives them more control over the rates they pay, but the complexity of the market actually makes it even more of a quagmire to wade through, sources said.
However hoteliers adjust pricing strategies, online travel agencies will remain part of the mix, and continue to be valued partners with hotels in many instances.
“As long as hotels are maintaining hotel rate parity, I don’t think that our hotels will have a chance of competing against OTAs as a search tool,” said Amy Jagenow, VP of revenue management at Yotel.
But educating guests and setting the right rate at the right time with the right technology will help tip scales towards hotel firms, sources said.
One hotel company moving more into dynamic pricing is Swedish firm Scandic Hotels.
Jan Lundborg, chief commercial optimization officer at Scandic Hotels, said his company plans to gradually phase out static pricing in favor of dynamic pricing. The plan initially calls for contract agreements to be renegotiated in 2020, with static pricing making up no more than 10% of its business. He said this will ensure rates are always competitive.
“The general feeling is that we’ve been doing this for years, but there remain leakage of rates,” he said. “Rate integrity is not being adhered to when partners resell our rates, where and how, and what margins they are taking out. With new technology, we can now track this.”
Alex Woodcock, VP of corporate strategy and analytics at RLH Corporation, said his firm works with a variety of third-party technology companies to add to its direct bookings and give its brands an edge over competitors.
“If you’re not pricing dynamically, you’re doing a disservice to your property or to your franchisees,” he said.
Jagenow said that while revenue-management systems increasingly are calculating demand by day as well as by market segment, with retail pricing hoteliers still have to take a human approach to reviewing the competition and considering cultural events.
Lundborg said Scandic’s adoption of dynamic pricing will put the company ahead of its biggest competitors.