Importance of Implementing Dynamic Pricing for your Hotels

dynamic pricing

A hotel room is a product like any other. The prices of products go up when the demand is high and go down when the demand is low. That’s exactly how your room pricing system should work as well. This is known as a dynamic pricing model. This article will tell you exactly why it is so important and why you should start implementing it.

If you are a hotelier, you know very well that there is no such thing as an Executive Suite. In fact, there is nothing called a Deluxe Suite either. All you have are rooms that take on many names and are sold at various prices. This dynamism of categories, as well as prices, depends on many different factors. 

You are already familiar with the concept of seasonal pricing changes. Of course, a room will cost more during December (the holiday season) than, say, in August. Previously, these pricing changes could be managed by a simple pricing model that just had to be adjusted seasonally. 

Then, of course, hoteliers realized that this wasn’t nearly enough and started making more minute adjustments to their prices. For example, they started varying their prices according to the occupancy rate. The more rooms are occupied, the more the prices of the remaining rooms go up.

But that isn’t nearly enough either. Several other factors have come into play. You need to keep in mind what prices your competitors are offering. And more importantly, you must have a crystal clear idea about what the perceived value of a hotel room is. I am going to delve into this in detail soon enough. First, you need to realize that the dynamic pricing model is not just an option. It is a necessity. And dynamic pricing models are becoming more nuanced and more cutting edge with time.

Keep reading if you want to keep up with your competitors. 

Why Is An Automated Dynamic Pricing Model A Necessity? 

Let me first clarify that it’s not just a dynamic pricing model that is a necessity. The most advanced dynamic pricing model is a necessity. 

Why? Because these are particularly volatile times that the hotel industry is passing through. Due to COVID-19, it is almost impossible to mentally predict what the future trend of travel is going to be like. A travel ban might immediately ruin your best laid-out plans. Rampant cancellations are a part of the New Normal. No one, neither you nor your guests, has any control over it. 

This is why predictions need to be automated. You need algorithms to tell you what your room prices should ideally be. The reason for this is simple. No human mind can keep up with the dizzying barrage of news that we receive every day. No human mind can compare the prices of each of your competing hotels every second in real-time. You are not trying to fluctuate your room prices biannually anymore. You are looking for a way to fluctuate them by the second. 

This is exactly why you need to opt for a Property Management System (PMS). A PMS is a cloud-based software which supplies you with a range of automations. These automations help you control everything about your hotel management and administration from a single platform. A PMS has loads of different functions but here, we are going to focus on only one of them. 

The fully automated Dynamic Pricing Model. Revenue Management and even simple Inventory Keeping would be impossible without this feature. I will soon explain how a dynamic pricing model boosts your revenue management. First, let us understand how a PMS makes the work of predicting the optimal room prices so much easier.

When you are trying to fix the price of a room, you have to look at the following factors:

  1. Seasonality
  2. Current Occupancy Rate
  3. Competitor Pricing
  4. Consumer Demand

Mind you, these are the most basic factors. You also have to predict how likely a certain group is to cancel or extend their stay. 

Let’s leave seasonality out of this discussion since a hotelier like you will be able to handle that. But what about the current occupancy rate? To keep up with fluctuations like these in real-time, your best bet is a PMS like StayFlexi. 

With StayFlexi, you can easily fix an occupancy rate and a corresponding price hike or reduction. For example, let’s say you set this condition:

“If the occupancy rate reaches 70%, raise the room prices by $15.”

Then automatically, whenever that occupancy rate is reached, the new room prices will be updated. The inventory does not need to be manually managed in a PMS. Whenever the room prices go up, they go up on every OTA channel as well. StayFlexi is responsible for keeping this entire system in sync. Yes, you can link up 100+ OTA channels with StayFlexi. And you never have to worry about manually adjusting the room prices again. 

The same is valid for a reduction in room prices when the occupancy rate is low. You can specify a condition like: 

“If the occupancy rate delves below 30%, lower room prices by $15.”

The room prices will automatically go down whenever the occupancy rate plummets. This is especially useful in case of abrupt cancellations. You need to resell these rooms as quickly as possible. So, dropping the room prices immediately acts as an efficient hook. 

PMSs similarly take competitor pricing and consumer demands into account. If you aren’t aware of your competitors’ pricing, it creates a rather awkward situation. The customers see every room in that area priced at $100 whereas your rooms are priced at $50. They have some pretty good reasons to be suspicious. This is exactly why your room prices should be relatively lower but not absolutely low. And yes, this is still valid if your occupancy rate is low. Having suspiciously cheap rooms does not help draw in more guests. 

As for consumer demands, we finally get to the issue of “What is the perceived price of your room?” That is, how much does a guest think your room costs. Sometimes, trying to offer cheaper prices irrespective of the guests’ demands acts antithetical to your needs. You have to understand how much a guest is willing to pay.

But how can you understand what your customer is thinking? 

Simple. Trace their behavior through a PMS. Look at the patterns. Look at what people in the past have been willing to pay for that room. Of course, it’s not as simple as that. It’s a nuanced peek-through into customer behavior. But thankfully, you don’t have to browse through mountains of data to analyze this. A PMS like StayFlexi will offer you detailed analytics and audit reports that you can base your dynamic pricing model on. 

How Does A Dynamic Pricing Model Boost Your Hotel Revenue?

You make zero profit on a room that goes unsold. This is why optimizing room occupancy rate is the main intention of all hoteliers. 

On a very crude level, a dynamic pricing model makes sure that your rooms don’t go unsold. The constantly enticing prices are bound to hook in at least a handful of guests. But this is just the bottom-most rung of its overall potential. Dynamic Pricing Models help increase your hotel revenue in multiple other ways. 

Having a Dynamic Pricing Model increases your RevPAR or Revenue Per Available Room. This metric increases because of two reasons. Your dynamic pricing model makes sure that the occupancy rate remains high. And that each room is sold at the market price. The optimal number of rooms sold at the optimal prices. Obviously, this raises your revenue. 

Moreover, with a dynamic pricing system, you can offer time-bound discounts. This is a sure-shot strategy of selling your rooms. Keep your room prices high. Then suddenly offer a discount that says “Offer only valid till tonight!” And then raise your prices again. This U-turn pricing method is bound to entice guests and get you more revenue. In fact, with a PMS, you can specifically target some sections of your guests. For example, offer discounts to business guests during the holiday season. This way you can ensure that your single rooms don’t go unoccupied during this time. 

And most importantly, a dynamic pricing system simply increases your revenue by keeping your guests happy. You base your pricing on the perceived value of the room. So, your guests feel like they are getting the room at a fair price. The happier your guests are, the more loyal customers you can depend on. 

In Conclusion

Not only do you need to start using a dynamic pricing model. You need to start using an automated algorithm-based dynamic pricing model in your hotel.

The list of factors that I have mentioned in this article, that affect room prices, is not exhaustive. Soon many other factors will come into play as well. Artificial Intelligence will learn how to make better and more nuanced predictions. To keep up with the times, you need to opt for a PMS. A PMS like StayFlexi supplies you with nothing less than a cutting-edge dynamic pricing model. The room prices get updated in the inventory in real-time and you don’t have to worry about it at all. Plus, your hotel revenue also rises with a good dynamic pricing model.

Which other factors do you think the automated dynamic pricing model should take into account? Let me know in the comments below.

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