Dynamic pricing: why, how, and what hotels should use it

Selling rooms at a higher price and maintaining the occupancy rate is possible. To achieve it, hoteliers once followed the example of airline companies and introduced dynamic pricing. Nowadays, any hotel can benefit from it by making an effort and changes.

If competitors change prices or demand rises, the hotel selects another price level and earns more. This way, demand and supply almost coincide.

Why

There are 3 room pricing methods: flat pricing, seasonal pricing, and dynamic pricing. Dynamic one brings you greater revenue.

Let’s see how this works by way of example.

There are 3 hotels of the same inventory — 10 rooms. They have different pricing strategies:

• Paradise hotel wants to reach full occupancy. It sets a lower room rate of €20. It has 10 rooms booked.
• Beach resort raises the price. It sets the rate of €200 and has 1 room booked.
• Sunrise hotel reaches a balance by setting the price of €70. It has 5 rooms booked.

The first two earned €200 each, but the methods, that they had chosen, led to zero occupancy in one case and an overly understated price in the other. Sunrise hotel got 75% more because it found a balance between occupancy and prices.

How

Step 1: Analyze data.

1. Collect data on hotel occupancy for the last 3 years.
2. Define a number of time steps and price levels. Work out one long time step of low occupancy and set the lowest price for it (the occupancy rate of up to 50%). For every following “step” the price goes up.
3. Make a list of competitors.
4. Choose a reference room.
5. Monitor price changes of the reference room category at competitor hotels.

Step 2: Calculate price levels.

1. Define the lowest price for the reference room.
2. Count an average price for the reference room.
3. Determine an increment.
4. Calculate the rest of the prices.

Step 3: Set dynamic rates on the hotel website and online distribution channels.

What hotels

Before introducing dynamic rates for your hotel, check if it meets the following requirements.

• Annual average occupancy is higher than 40%
• Elastic demand
• Hotel of a lower-mid market
• Inventory of more than 10 rooms
• Apart-hotel instead of apartments

Go to the TravelLine blog to learn details: http://www.travelline.pro/blog/