Like Yield Management, Dynamic Pricing is a discipline of the Revenue Management, which is to set the “best” price, able to generate the best margins according to fluctuations in demand for accommodation.
The Revenue Manager
The ultimate goals of a hotel consist of:
- generating the maximum income
- getting better customer satisfaction
- having the best online reputation vis-a-vis competitors
The Revenue Manager’s function is essential to help hoteliers achieve more profit and revenue by properly identifying the hotel’s customer groups, establishing the right stocks and setting the optimal prices to offer.
Profit maximization strategy consists of setting the higher prices to increase short-term profits. Revenue maximization strategy involves setting low prices to achieve higher sales volume.
There is no miracle recipe for setting the “best” price. The Revenue Manager must apply regular rate adjustments based on hotel occupancy rates, demand trend, and competitors’ pricing strategies.
The Best Available Rates
Generally, hotel room rates are set well in advance by the Revenue Manager and consider the seasonality, as well as attractive one-off events for hotel guests. These rates may vary on a monthly or a weekly basis, but also depend on the day of the week (midweek / weekend).
The Revenue Manager, even if he sets the rates in advance according to expected variations in demand, must be able to act promptly on the rates, to offer customers the Best Available Rate. Mostly, the Best Available Rate is the lowest public rate that customers can find on the hotel’s website.
Dynamic Pricing allows hotels to benefit from additional revenue by adjusting their rates daily and even several times a day, in case market information reveals the need to change a price at a steady pace.
It also allows to set independent pricing on each market segment, channel, offer and type of available room, to maximize the profitability of a hotel in case of high demand and during off-peak periods as well.
A hotel with dynamic pricing has a definite competitive advantage.
Earnings in terms of turnover can range from 5% to 8%.
Some simple and effective management tools
Today, many Business Intelligence solutions allow to compare prices in real time with those of the competitors. Hotels can then adjust their rates and offer their customers the best prices.