In the good old days, hotel room pricing used to be simple.
NB: This is an article from RoomPriceGenie, one of our Expert Partners
Hotels set rates by season and rarely changed unless the World Cup or Superbowl was coming to town. As a result, however, hotels were often under priced when travellers were willing to pay more and overpriced when travellers were price sensitive.
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Today, most hotels take a dynamic approach to pricing. This means adjusting rates frequently in response to shifts in demand for rooms. When demand is strong, such as during weekends, holidays, and special events, prices increase to capture a higher average rate. When demand is soft, such as during the winter season and on shoulder nights, prices go down to attract more bookings.
By ensuring your pricing is always positioned relative to market conditions, you can increase occupancy, average daily rate (ADR), and revenue. And because many hotel costs are fixed, a higher proportion of the incremental revenue goes straight to the bottom line.
Obstacles to Dynamic Pricing
While large hotels and chain properties have practiced dynamic pricing for decades, smaller, independent properties have been slower on the uptake. Why?
We speak with hundreds of passionate, hardworking hoteliers every day, and we know it’s not due to a lack of awareness or will. Rather, it’s due to:
- Lack of sufficient time to monitor competitor rates
- Limited access to information about market conditions
- Uncertainty about when to change prices and by how much
- Fear of upsetting guests by pricing too high or too low
- Frustration with trying to manage dynamic pricing manually
These obstacles put independent properties at a serious disadvantage when trying to compete.
The Taylor Swift Effect
Let’s look at an example. Taylor Swift is a force to be reckoned with, not just in the music industry but also in the hospitality industry. Last summer, the so-called “Taylor Swift Impact” brought over $208 million in additional revenue to U.S. hotels. And the Eras tour is now making its way around the world.
Imagine that a Taylor Swift concert is announced in your city, resulting in a spike in demand from all the Swifties swarming in for the big event. But you’re too busy making beds and bussing tables due to staffing shortages to hear the news. By the time you raise your rates, your property is already sold out with lower-rated bookings.
Now imagine that the concert is cancelled, resulting in a flurry of cancelled bookings. Hotels across the city drop their rates to try to recapture business from other sources, but you decide to hold your rates, banking on a busy weekend nonetheless. While bookings do pick up, most of them go to your lower-rated competitors, and you end with a lot of empty rooms – and no Taylor Swift.
Dynamic Pricing is Smart Business
It’s a fast-paced world out there. A concert is just one of many events that affect demand for rooms. Only by responding quickly to changing conditions, with market data to back your decisions, will you be able to reach your true revenue potential.
Dynamic pricing isn’t about taking advantage of travellers, and it’s about charging market rates. Travelers expect to pay more when demand is high. (Have you booked a flight lately?) And they know it works both ways. When demand is low, they get better deals.
Aligning your hotel’s pricing with the market is not only smart business, it’s a customer-friendly practice.
Automated Pricing: A Game Changer
The big question is, how can smaller hotels take advantage of dynamic pricing when they have such limited time? The solution lies in automated pricing. Most revenue management systems (RMS) are complex, time-consuming, and pricey – built for large, chain hotels with a dedicated revenue manager.
Today’s automated pricing solutions are custom-built for smaller properties. They strip away advanced features that smaller properties don’t need and focus on automating the pricing process. Easy to learn and operate, pricing software doesn’t require the expertise of a revenue manager and requires only one or two hours of time per week.
Automated pricing software is a game changer for smaller, independent properties. Now, you too, can leverage the power of dynamic pricing to capture more bookings and revenue.
