Hotel owners need to do all they can to remain competitive in their niche. They want to make a profit and give their guests the best possible experience so they tell their friends and keep coming back. There are various ways owners can get a hotel revenue boost. The owners who have the best chance of maintaining long-term success in this industry use well-established practices that have been proven to work.
With that in mind, let’s talk about dynamic hotel pricing. As a hotel owner, you should know about this strategy and when to employ it.
Dynamic pricing is a technique or strategy that some hotel owners choose to employ. It involves changing the rates of rooms daily. Sometimes, based on real-time market conditions, a hotel owner might even change a room’s rate within that same day.
To put it as simply as possible, the main objective of dynamic hotel pricing is to sell the right room to the right client at the right moment at the right price.
Dynamic pricing functions according to supply and demand. A hotel owner who uses this model has no issue with the hotel’s room prices fluctuating rapidly. The idea behind it is to maximize revenue. Since that’s something virtually every hotel owner is interested in, you can see why the concept of dynamic hotel pricing has so many supporters.
You can use it to track occupancy, experiment with room type preferences, or learn guest segment patterns. You might also use it to respond to any unusual or abnormal market conditions that come up. These are bound to occur sometimes, and having dynamic pricing ready to go can be very helpful when they do.
A real-life example should make the dynamic hotel pricing concept a little more straightforward. Let’s say you own a hotel, and one morning, your occupancy is relatively low. You’re also not seeing a very strong demand for rooms. However, in the evening, many of your rooms have filled up. Consequently, there are fewer ones available, but people are still arriving and trying to book the remaining ones.
In this situation, you would be justified in raising the rates for your few remaining rooms. The demand has risen, while the supply of available rooms has fallen. Charging more for them makes sense, which is why this is one of the most obvious situations where dynamic hotel pricing often occurs.
If a hotel owner elects not to use dynamic pricing, they might use static pricing instead. Static pricing means you leave your rooms at the same price, even when supply and demand fluctuate.
However, if you choose not to use dynamic pricing, that is a mistake. Dynamic pricing is a proven tactic that is sure to maximize your revenue. If you don’t use it, then you are going to leave a lot of money on the table.
Hotel owners who are interested in dynamic pricing might be wondering at this point when the best times are to use it. The reality is that dynamic pricing should be used daily and always. However, there are certain times when it should be particularly beneficial. We’ll mention a few of those right now.
Holidays when you know your hotel is likely to get a lot of attention from travelers or locals would be a good time to try a dynamic pricing strategy. Maybe you know that the city in which your hotel is located gets a lot of travelers around the 4th of July weekend. Perhaps it’s another holiday like Christmas or Thanksgiving when you can expect there to be a lot of demand for your rooms.
It makes sense for you to increase the price of your rooms if this is the case. If you have owned the hotel for multiple years, and you see the demand increase consistently around the same holidays, you should be ready to adjust the room prices when those dates approach.
Maybe there are sometimes special events in the community, city, or town in which your hotel is located. These may not be events that are celebrated nationally, like holidays, but they’re what makes your community stand out.
If you know that you get a lot of tourism in your area when this event takes place, that’s another time when you should think about implementing dynamic hotel pricing. You can feel pretty sure the demand will be higher than usual, and you can cash in on that trend.
Maybe you notice that there’s a sporting event or a very popular musical act that’s coming to the city or town in which your hotel is located. That’s not quite the same as a national holiday or a yearly event that gets your area a lot of attention, but it’s still a situation where you may want to set up dynamic hotel pricing.
A one-time event like the Superbowl, World Series, or Wrestlemania is sure to drive a lot of demand for hotel rooms to your local market. You would be justified in increasing the prices of your hotel rooms substantially because of it. If you hear the new K-pop band that’s blowing up the charts is going to be performing at a local venue, and people will be coming from all over to attend, you can raise your room prices accordingly for that as well.
Now you know about some times that it makes sense to raise your room’s rates as part of your dynamic pricing strategy. But what about times when you might consider lowering your room prices?
Since dynamic hotel pricing is based on supply and demand, it should be relatively easy to pinpoint the lower demand times the longer you own the hotel. For instance, most hotels have an offseason when you don’t see as many customers. It’s up to you as the hotel’s owner to figure out how to increase room occupancy during these times.
If you lower your room prices during low-demand times, you stand the best chance of raising your occupancy. You might not like pricing your rooms so low, but it’s typically part of what you need to do from time to time as a hotel owner.
You might also lower your room prices during the offseason in conjunction with other promotions or an increase in advertising. Your rooms usually sell themselves during peak demand times. During downtimes, when demand is lower, generating interest in them can become more difficult.
Sometimes, it can be challenging to figure out what price you should charge for each hotel room, regardless of whether you’re in the process of lowering or raising prices due to supply and demand. Even if you grasp the basic concept of dynamic hotel pricing and feel you have a pretty good idea of when to raise or lower prices, coming up with an exact number for each room might seem next to impossible.
You can always rely on guesswork or your personal observations based on being a long-time owner of the same hotel. However, some hotel owners have taken to utilizing algorithms that they use to determine their room prices in real time.
There is not a single algorithm that shows hotel owners how and when to use dynamic pricing. Rather, there are many of them. Many entities have developed dynamic hotel pricing algorithms.
Each one works in more or less the same way. They collect and analyze an enormous range of data having to do with your hotel, past industry trends, current market conditions, etc. The intention of these algorithms is to analyze potential demand for your hotel rooms at different price points. Then, the algorithm calculates an exact price for each room that it predicts can maximize your potential revenue.
Do these algorithms work? It’s hard to answer that with a simple yes or no. Most hotel owners who are interested in using them would be wise to do so in an experimental way before accepting their computations as infallible.
If you find and utilize an algorithm that seems to be working well for your particular hotel and situation, then that’s great. However, if you use one of these algorithms and don’t feel satisfied with the information it’s providing, there’s nothing wrong with using a different one or not using one at all.
Like so many other strategies a hotel owner might use, no one is forcing you to continue doing something if you’re not happy with the results.
There are some possible drawbacks if you use dynamic hotel pricing, and they’re worth mentioning. The increased complexity of your pricing operations might be an issue. If you are changing the price of some of your hotel rooms each day, or even changing them within a single day, that might confuse some of your employees.
They might accidentally tell a guest the wrong price for a room because they didn’t check before giving them a quote. If you’re going to use dynamic pricing, make sure your staff knows to double-check the price of each room before they tell a potential guest how much it’s going to cost.
Another issue some hotel owners mention in regards to dynamic pricing is that it has the potential to upset some would-be hotel guests. Maybe you have someone who checked your website and saw a particular price for a hotel room. They assumed they could come back a day later and book, but they weren’t quite ready yet.
If they come back the following day and see that the price has jumped, they might be upset about that. You may get some negative feedback online because of it.
There’s no guarantee that you will experience these issues, but they are always possible. Like dynamic pricing itself, it’s often best to do some experimentation and see how it goes.
Hotel owners should find, though, that even if dynamic pricing occasionally presents some potential drawbacks, that’s no reason to stop utilizing it. It’s still the best technique to use, since it will bring in more revenue than static pricing,
Many hotel owners end up trying dynamic hotel pricing at some point. You can use dynamic pricing to maximize your ADR, which is shorthand for average daily rate. This is a metric that’s commonly used in the hotel industry. It shows you the average revenue that an occupied room earns on a given day. You should always be looking to increase your ADR, and this is one of the ways you can do it.
Dynamic hotel pricing is often a helpful tool. Those who speak about its virtues usually bring up the potential of maximizing your revenue and profitability while decreasing the number of your unsold rooms.
Those who use it often extol the virtues of the particular algorithm they utilize as well. They might mention that it uses machine learning to adjust room rates as the market fluctuates in real time.
Ideally, if you use dynamic hotel pricing, you can keep your rates competitive all throughout the year. That typically includes both the slower offseason times and your hotel’s peak ones.
Your main takeaway about dynamic hotel pricing should be that it is vastly superior to static pricing. Some experimentation with it might be necessary. You must figure out how best to implement it for your particular situation, since no two hotels are exactly alike. If you use it right, though, rest assured that you should see the maximum amount of profit for your hotel.
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