Dynamic Pricing Models in the Hotel Industry

While the hotel industry does not work this way, various factors affect the pricing strategy of your rooms such as competitor rates, seasonal events, demand and supply patterns.

To increase your hotel revenue and maximize occupancy, you need to adopt the smart pricing model – a dynamic pricing strategy that doesn’t follow a one-size-fits-all approach.

It scales the prices either up or down considering demand and supply factors. This way, you would set the right price for the right guest at the right time. 

In this blog, let’s dive into the intricacies of hotel dynamic pricing, the benefits it provides, and the best ways to apply it. 

An Overview of Hotel Dynamic Pricing

Initially, revenue managers set the room prices in advance and follow the same old flat rates on weekends or weekdays. Whether the demand slows or increases, hoteliers will continue to follow the old pricing approach.

Dynamic pricing means when a hotelier adjusts the pricing of rooms depending on the market conditions such as demand, what competitors are offering, time of booking, and even the seasonality factor.

Dynamic hotel pricing allows hoteliers to earn the maximum revenue during peak season and set the optimal rates when the demand is low. The hotelier will set the room prices based on current demand and supply factors. 

Whenever market forces change, hotels change their room rates daily or hourly. 

Dynamic pricing strategy is popularly known as demand-based or time-based pricing. Demand-based pricing model works as per the traveler’s demand.  

When there is less demand in the market, hoteliers set a minimal price for each room so they can survive and thrive in this competitive marketplace. 

Alternatively, higher market demand gives a positive signal to hoteliers to raise their room prices and get more revenue. 

Most importantly, hoteliers can change their room rates with a few clicks and taps because of the wide availability of automated software solutions like revenue management system.

Which Factors Influence Dynamic Pricing?

Many factors affect the dynamic pricing model and the room rates. These include the time of booking, guest booking pattern, competitor rates, market demand, etc. 

1. Demand and supply pattern

The hotel industry operates on the demand and supply ladder. Let’s say your hotel is near a tourist destination, and the demand is high during the peak season. That means more guests are looking for accommodation.

In this case, hotels can increase their prices to draw in more guests because more demand equates to higher rates. Therefore, 

Higher rates = Higher revenue

If your hotel targets business travelers, you might notice that the demand for business trips usually dips on weekends.

During this time, you can offer weekend packages for those travelers or lower your room rates because you want to entice them to book a stay at your hotel. 

2. Special events

Special events such as local gatherings, conferences, or a music festival near your hotel affect your dynamic pricing strategy. An increase in customer demand pushes hoteliers to raise their prices and earn more revenue.

3. Competitor prices

Competitor prices also influence hotel dynamic pricing strategy. Consider a situation where competitors lower their hotel rates for a specific time as they want to capture a larger share of the market.

If you raise your prices to par, you will decrease the demand for your hotel. There are times when the hotel industry experiences lower demand and raising your prices tells the guests to leave you and choose your competitors. 

Thus, you can fine-tune your rates keeping in mind what competitors are offering and by how much. 

What are the benefits of a dynamic pricing model for hotels?

Let’s discuss the various benefits of choosing a dynamic pricing strategy in hotels over static selling -

1. Maximize your hotel revenue

For any hotelier, maximizing the hotel revenue is super important. The hotel revenue manager already knows what the demand during peak season or low season would be. That’s why they adopt this pricing model to make the best out of each hotel room. 

But they don’t need to set the room rates manually, as AI is integrated into today’s hotel management software that adjusts the room rates accordingly by analyzing various factors such as competitor rates, changes in market demand, number of available rooms, etc. 

Thus, hoteliers can maximize their revenue during high demand, fill the occupancy and attract more guests when the demand falls.

2. Save your cost

This hospitality pricing model is a cost-saving strategy as it focuses on the optimal utilization of resources by pricing the rooms based on the current market trends. 

A dynamic pricing model enables hoteliers to predict market demand, analyze historical data, and consider seasonality. So, the hotelier need not regret later spending more money on hiring unnecessary staff that would otherwise not be needed.

Automated software saves you time doing hours of manual research to do real-time market analysis. Your staff can focus on other productive tasks which maximizes your bottom line.  

The software sets competitive room rates ensuring you earn maximum revenue and won’t miss any potential booking. 

3. Share insights about the customer

This pricing model helps hoteliers to understand their customer behavior.

They get detailed insights on whether their customers are price sensitive, are they waiting for last-minute deals or are they willing to pay a premium price for the rooms you offer. 

This way you can understand the booking patterns of guests and curate your marketing campaigns accordingly.  

For instance – You noticed that Gen Z travelers prefer group bookings so next time you prepare a better forecast and set optimal prices to earn more hotel revenue.

4. Gives you a competitive edge

Modern guests tend to compare your hotel room prices with others, so why not take a competitive advantage in the market?

That’s where you can leverage a dynamic pricing strategy to spy on your competitor's rates in real time and set optimal rates to draw in guests’ attention and get more bookings.  

Through this pricing model, your rates aren’t static throughout the year, and you won’t face a loss of revenue from unsold rooms.

Thus, your hotel remains competitive in the market as you are dynamically adjusting your room prices depending on market demand.

5. Offers you flexibility

In the changing hospitality landscape, dynamic pricing offers flexibility to hotels to scale up/down their room rates depending on competition or if an unexpected event happens in the future.

If they go with a static pricing model, they will go with the same rates on all days. Let’s say if the demand is lower during a certain period, but you follow the static model, then you will lose your guests (especially price-conscious) which results in a loss of revenue. 

Alternatively, if the demand is high due to an event near your hotel area, you don’t raise your prices. Then, your revenue would go all-time flat.  

Hence, dynamic pricing is a game changer for your hotel business as it gives you real-time market insights considering guest behaviour and current market trends. 

Most importantly, your hotel business will stay competitive and make the best out of each room during highs and lows.

What are some of the best ways to set dynamic pricing for hotels?

Here are some effective ways to apply dynamic pricing in your hotel- 

1. Keep an eye on occupancy

Creating a dynamic pricing strategy becomes super easy when you keep an eye on your occupancy and compare it against competitors. 

If you find that the hotels in your area engage in an aggressive price war and sell the inventory at higher prices. 

You observed that they sell out whole inventory, then it provides an advantage for you to sell the remaining rooms at higher prices. 

While if you notice that the market demand is low and your competitors are charging lower prices from travelers, reduce your prices to fill your occupancy.

2. React to uncertain market conditions

The occurrence of unexpected events such as flight cancellations leads to an increase in demand for accommodation. That’s where the dynamic pricing model helps you adjust your prices in real time to get more bookings or earn maximum profit. 

3. Understand your guest's pattern

Another way to use a dynamic pricing strategy is by understanding guest patterns.  

If you notice most of your guests go for last-minute reservations during a specific month of the year, then you would curate packages accordingly and raise prices to earn revenue for each room.  

Next time, you can forecast the demand and tailor your pricing strategy accordingly. 

4. Play with different room types

Keep the dynamic pricing handy with you especially when you experiment with various room preferences.

For instance – If the rooms near the gym are more popular on weekdays and not on weekends, you would adjust your prices in real-time. That’s where the dynamic pricing model helps you stand out.

How Can BOTSHOT Help You with Hotel Dynamic Pricing?

BOTSHOT can help hoteliers and revenue managers successfully adopt a dynamic pricing strategy.

In this competitive hotel landscape, prices fluctuate every then and now, and using a revenue management system can help you set the best possible rate in real-time.

Get a 14 Days Free Trial for Hotel Management Software

Its smart algorithm uses various permutations and combinations to calculate room prices by considering demand, market trends, guest booking patterns, and competitor rates.

This way, your hotel business can earn maximum revenue and become more profitable.