Dynamic Pricing

Successful hotels charge different room rates at different times of the year. However, even as they have varying pricing models depending on market demands and the season, hotel revenue management systems can further optimize revenue management with dynamic pricing strategies.

What is Dynamic Pricing for Hoteliers?

In the hospitality industry, dynamic pricing refers to the continual, consistent adjustment of accommodation prices based on algorithms and basic derivations. These algorithms account for the alternating consumer demand level during seasons. It also encompasses relevant details such as competitor pricing, seasonality, current occupancy, and a lot more external factors to maximize hotel revenue generation while keeping tabs with attractive customer-satisfaction rates.

Dynamic pricing strategies is more commonly practiced in the travel and tourism business since the onset, it has begun to gain momentum in the hotel industry especially for using automated revenue management which allows for convenient alternation. When hotel owners or managers switch to hotel revenue management software, dynamic pricing tools keep monitoring market demand and supply of rooms and use the data to engineer a fluctuating pricing strategy instantaneously to increase conversion rates consistently.

How does the Dynamic Pricing Strategy Work?

The Dynamic pricing strategy employs artificial intelligence (AI) on an RMS to track all revenue-related aspects including various segments of your target audience and major consumers, their booking patterns, the duration they usually stay, their preferences in terms of rooms, demands, and amenities, as well as the segments of your hotel that attract maximum guests while consistently tracking your competitor’s pricing structure.

Dynamic pricing system, when practiced properly, efficiently adapts the hotel’s average room rates as per the changing preferences of customers, special occasions, and seasonal peaks to attract maximum bookings and increase occupancy to stay at the top of the competition at all seasons. With static room prices, hotels sell rooms at the same rates all year round, and their revenue solely depends on the number of rooms occupied which will hit rock bottom if not accounted for progressively. This significantly increases the ginger to increase conversion rates during the offseason.

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The Difference Between Fixed Pricing and Dynamic Pricing

Fixed Pricing

Here the price remains the same throughout with no scope for price negotiation or bargain regarding season and time. It is a very rigid system. It restricts you to increase profit by the number of rooms occupied at a time.

Generally, there is no automatic interaction with the data systems to accurately forecast. Setting the room rates for every day/every season takes a big amount of time.

Dynamic Pricing

Pricing is time-based. This means the price changes in real-time. You can increase or decrease the room rates as per the demand. RMSs like those by PricePoint collect accurate data to forecast accurately and automatically change the room rates by watching competitor pricing using AI technology.

PricePoint RMS uses fully-integrated technology to constantly capture and analyze data to adjust room rates and increase occupancy.

What kind of hotel data is needed for a successful dynamic pricing strategy?

There are a lot of data points that can be exploited to assess the future demand fluctuations for all seasons in a year. These data points are generally categorized into 2 groups which are: the Macro and Micro levels.

“Macro” level data is entirely external data. These data are in the form of published room rates. There are readily available in the market now for free and can be accessed through various rate shopping tools. On the other hand, “Micro” level data is internal hotel data. Usually in the form of booking frequencies, daily statistics, and a lot more. Only staff members of a hotel are granted access to this data through its PMS system.