Are you ready to maximize your revenue? SWITCH YOUR PRICING STRATEGY!

Revenue management
Kovács Noémi

Have you ever considered entering into the world of dynamic pricing? Nowadays switching from static to dynamic pricing strategy is essential for every hotelier who wants to gain competitive advantage.
First of all, you need to understand the differences in order to see the incredible impacts of dynamic pricing.

What is static pricing?

In this model hoteliers usually have a seasonal approach: high season rates and low season rates. Sometimes there are price differences between the weekdays and the weekends and a higher rate for the holidays; however, the initially settled price will not change during the sales period.

Static pricing strategy doesn’t react flexibly demand and the time value of money. In practice there is no ideal fixed pricing since the demand depends on several factors like hotel value, services, time -booking window, weather, guest segmentation, competitors and so on. Hoteliers with static pricing strategy are usually facing an underpriced or overpriced situation.

Let’s see these cases:

  1. If your static price is low, you experienced huge pick-up intensity and you ran out of capacity far before the due date. Can you recall a period in your business period where you felt you missed the opportunity of gaining more revenue due to that reason?

2. On the other hand with higher fixed prices you are losing out revenue on unsold rooms.

In both scenarios we could see how static priced strategy leads hoteliers to losing revenue either on capacity or average daily rate.

But how can you find the optimal prices and maximize your revenue at each day of the year? Dynamic pricing gives you the opportunity to achieve that goal.

Nowadays the online distribution plays one of the most important roles in the world of hoteliers as well as in other sectors. This online distribution opened the gate to effective e-commerce where dynamic pricing can be managed. The technology that is available for everyone now is able to capture and analyze huge data cubes to provide data visualization, data understanding and price recommendations in real-time.

Due to the fact that the rooms can be sold in advance by analyzing booking data and changes of the competitors’ availability and prices, hoteliers can constantly react to changes in demand of your property with dynamic pricing. In fact every room at a hotel can be sold at different prices at different times, so consequently the prices shouldn’t stay locked. What does that mean? On this chart below you can see a real example of how dynamic pricing can change in time with demand-driven (occupancy based) pricing model. The initial price was set at the P0 level at 88.77 EUR and as the demand occurred it could increase by several small steps till the last days when it reached 187.53 EUR.

In practice, revenue management forecast helps to avoid how to not sell a room today for a cheaper price if we expect that the room can be sold for a higher price later but also how to sell the room today for a cheaper price if we expect demand to be lower higher prices. In an ideal world where the patterns are the same each year revenue management could create perfect forecasts therefore hoteliers could sell the last room at the last moment for a walk-in guest for the highest price.

On the other hand, dynamic pricing is not only demand-driven but supply factors have to be taken into consideration as well.

Yield and revenue management plays a key role in the guest journey at the research and at the return stages because at that stage guests make decisions about the hotels in their pipeline based on price-value.

Consequently, dynamic pricing is effective if it’ is based on closely-monitored consumer demand and the competitors’ prices and availability.

In conclusion dynamic pricing is the best revenue management tool and will lead you to maximized revenue.

Are you ready to start?

Why can every Hotelier gain from revenue management?
Do you often wonder why your property revenue falls below the current market growth even though you felt you did…