How Dynamic Pricing Is Impacting Your Booking Rate
dy·nam·ic: (of a process or system) characterized by constant change, activity, or progress
Like the description above, the definition of dynamic when it comes to your lodging pricing, suggests a constant change of rates.
In this article, we look at how dynamic pricing is impacting your booking rate, and why it’s a viable option for you to continue to use.
What is Dynamic Pricing for Hotels?
Airlines, rental car agencies, sporting events, online retailers, and even theater venues practice it.
Dynamic pricing is real-time, time-based pricing for your hotel reservations. It’s an effective strategy employed across multiple industries, but most often in the hospitality and airline industries.
Dynamic pricing is the real-time updating of your lodging rates based on how many rooms you have left available and the demand for them.
Bottom line – if you don’t have many rooms left, and the demand is high, you might increase your rate. Conversely, if you don’t have many rooms left, and the demand is low, you might decrease your rate.
Gone are the days of fixed rate pricing in the hotel industry. Dynamic pricing can in turn maximize your profits, help you fill your rooms, and enjoy a greater rise in revenue.
The Benefits of Dynamic Pricing
Your customers already know that rates change depending on the day of the week such as when the rate is higher on Fridays and Saturdays than on Mondays.
Your booking rates also change depending on the season and the month of the year as well as the tourist season in your area.
When you use advanced technology to implement the dynamic pricing system, you can match your prices to the demand for your rooms. The benefits include:
- Being able to change room rates up to the minute, hour, or day you need to.
- Helping you to maximize your profits each day of the week.
- Allowing you to implement the most effective pricing model for your property.
- Providing you the option to adjust room rates based on supply and demand.
Ultimately dynamic pricing helps you keep your hotel booked on a more regular basis.
How to Know When to Use Dynamic Pricing
Demand dictates when to use dynamic pricing to impact your booking rate.
This demand is usually related to seasonality. Most lodging owners adjust room rates based on the demand of their guests during a specific time of the year.
Generally, rates rise in high season, and they get lowered in the low season. This is the most basic form of dynamic pricing.
You might also use dynamic pricing as a time-based strategy. This might occur in price increases for special events, weekends, or during another time of increased competition.
You’ll find that your potential guests are willing to pay more for a room when demand is high, so a slight increase in your prices is acceptable.
Do consider different rate plans as well. For example, you might increase the cost of your three-night room stay over Thanksgiving weekend, just slightly. But, if your guest only wants to stay one night, you can increase the price of that night even more.
How to Change Your Pricing Strategy
So, how do you know what to charge for your rooms on different days during the year?
First, you have to know your market and what it can handle. Know what your competition is doing. You also need to have a detailed knowledge of your target audience and how far they’re willing to go on the price spectrum.
You can create different pricing strategies based on different target audiences as well. For example, you might offer one strategy when the season dictates a lot of families in your hotel opposed to when you might have a lot of businesspeople in your hotel.
Analyze your target audience, your competition, the events in town, your occupancy during different seasons, and then you can form a distinct dynamic pricing strategy. (tweet this)
Artificial Intelligence Can Help
Many hoteliers use artificial intelligence (computer software) to help them with their dynamic pricing. You’ll find that Booking.com and Expedia are already using this type of software.
Computer software can help you manage your dynamic pricing strategy based on your booking demand. Dynamic pricing can also help you get away from the traditional pricing strategies per season and provide one that is more needs based each month.
Dynamic Pricing Has a Positive Impact on Your Booking Rate
Most hoteliers see dynamic pricing as a positive. Because its been part of the airline and car rental industries for years, most of your guests accept it as a general practice.
The most important thing you can do is be transparent and forthright with your customers.
As long as you are actively monitoring your dynamic pricing and practicing a sense of fairness in your bookings, your customers will continue to accept your slight price changes.
Dynamic pricing is positive for your property as long as you understand your different audiences, demand flows, unique booking channels, and the overall competition in your area.
How Dynamic Pricing Increases Revenue
While some properties may decide to manage their rates hourly or even daily, you can use a pre-determined dynamic pricing policy.
This is one way you can be more profitable when there’s a lot of competition.
Using dynamic pricing, you can increase your room revenue, keep an eye on competitor pricing to match changing prices, and as we mentioned earlier, use artificial intelligence to compare hotel prices and track room inventory.
This helps you adjust your rates and increase revenue.
One final note on dynamic pricing and your flexible pricing strategy is a word of caution. You want to be careful when practicing dynamic pricing, especially when competition is stiff.
You don’t want your customer to think you practice price discrimination and be upset with your dynamic pricing. Your strategy has to make sense.
Spend some time mapping out your potential demand. You don’t want to overprice your property and alienate customers using the dynamic pricing model.
Your utmost goals are providing the best customer service and increasing brand loyalty. To do this requires a careful balancing act when employing dynamic pricing. If you have the right strategy, you will positively impact your booking rate.
We are your hotel’s digital advertising specialists. Whether it’s a new website, search engine marketing, social media marketing or website design, we are here to help. Contact us today to start a conversation about your hotel’s digital advertising needs.
Images: Chronis Yan and Alexander Kaunas on Unsplash
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