“There’s only one boss. The customer. And he can fire everybody in the company… simply by spending his money somewhere else.” – Sam Walton, the founder of Walmart. In hospitality, it’s even more evident than in any other business.
You've got rooms sitting empty while your competitors get fully booked. You offer better service, and your spa is amazing, so why do guests walk by? The answer is simple – your rivals offer a better price. They adjust prices in real time, capturing every opportunity with dynamic hotel pricing.
So, don’t sit still – make a change today. Let’s build a dynamic hotel pricing strategy to transform your fixed-price inventory into a flexible revenue generator.
Hotel dynamic pricing explained
Dynamic hotel pricing is a sophisticated pricing strategy that adjusts room rates in real time based on multiple factors. Unlike traditional static pricing, which locks rates for extended periods, dynamic pricing is fluid, responsive, and data-driven. The big question is: does it bring tangible value?
Hotel price optimization isn't just about maximizing profit — it's about maximizing occupancy and attracting more diverse customer segments. By using time-based pricing, hotels can attract budget travelers during low-demand periods and premium guests during high-demand times.
Hotels implementing dynamic pricing strategies achieve remarkable results. By embracing dynamic pricing algorithms and using historical hotel price data, properties are getting rewards: a 15% increase in average occupancy, a 20% boost in total revenue, and an impressive 30% revenue spike during special events.
Static rate vs dynamic hotel rate strategy
Understanding the difference between static rates and dynamic rates is crucial for building an effective hotel rate strategy. The distinction lies in flexibility and responsiveness to the market.
- Static rates
Static rates are a traditional, fixed pricing approach that stays put for some periods — weeks or even months. These rates include a standard weekday price, a slightly higher weekend price, and some adjustments for peak seasons. However, they are unaffected by fluctuations in traveler demand, competitor pricing changes, or unexpected local events. They are predictable but less flexible to respond to changing factors.
- Dynamic rates
Dynamic rates are all about flexibility and real-time adjustments powered by dynamic pricing algorithms. These rates fluctuate frequently — sometimes daily or even hourly — based on demand, competitor pricing, seasonal trends, local events, and booking patterns.
Unlike static pricing, dynamic strategies involve tracking hotel prices, analyzing trends, and adapting instantly. For example, a hotel might increase rates during a major festival or reduce them during off-peak times to attract more bookings. This adaptability answers questions like “Why do hotel prices change daily?” or “Do hotel prices fluctuate during the week?”
Summing up, static pricing is rigid and straightforward, while dynamic pricing and revenue management combine real-time data and market insights to get the most out of your inventory.
But if you think that’s all you should know about the dynamic pricing approach, it’s not as simple as it sounds. There are several types of dynamic pricing, each with its benefits and risks.
Types of dynamic pricing
Here are the main strategies for tracking hotel prices and using them to optimize rates.
1. Best Available Rate (BAR)
The traditional cornerstone of hotel pricing, BAR is like a flexible price tag with predefined parameters. Imagine a hotel in the cinematic mountain area with a base rate system:
- Low-demand weekdays: $150 standard rate
- High-demand weekends: $200 standard rate
- Special event days: $250 standard rate
BAR comes with built-in modifiers. For instance, a mountain view might automatically add $75 to the base rate. Corporate clients might receive a standard 15% discount. It's essentially a structured pricing approach with predetermined price points and modifiers.
2. Open pricing
Think of open pricing as the more adaptable sibling of BAR. While BAR locks you into a handful of fixed price points, open pricing gives you virtually limitless flexibility to adjust rates. Let’s say your hotel is hosting a major business conference. Here’s what your pricing may look like:
- Standard rooms could range from $200 to $350
- Deluxe rooms might vary between $400 and $600
- Suites with executive amenities could fluctuate from $500 to $900
- Group booking discounts could be tailored anywhere from 5% to 25%
The major advantage? The lowest price might be lower to attract a large guest audience wider audience with diverse budgets and preferences. Also, you get precise control over pricing. Open pricing ensures every customer finds a rate that matches their willingness to pay, maximizing both occupancy and revenue.
3. Rule-based pricing
By combining automated yet structured, rule-based pricing, hotels can implement predefined conditions that adjust rates automatically, creating an efficient and responsive system. Let’s explore this with a business conference example using the mostly used if-then logic:
- If the conference center across the street books out its event spaces, then standard room rates increase by 10% to capitalize on heightened demand.
- If a guest books directly through the hotel website, then a 5% discount is automatically applied to incentivize more direct bookings.
- If loyalty program members reserve a deluxe room, then they receive a $20 nightly discount, ensuring they feel valued and return for future stays.
- If competitor pricing in the area drops for similar ocean-view suites, then your pricing adjusts downward to remain competitive while retaining revenue margins.
It's like having a set of if-then pricing rules that automatically adjust rates based on predetermined conditions. The result? Higher occupancy rates, maximized revenue, and a more personalized experience tailored to both market conditions and customer preferences.
4. Machine learning-driven pricing
The most advanced approach, machine learning pricing goes beyond preset rules. These sophisticated algorithms:
- Analyze thousands of data points in real-time
- Predict demand patterns
- Automatically adjust rates based on complex market dynamics
- Learn and improve pricing strategies continuously
An AI system that predicts the impact of this business conference on your hotel’s demand, adjusting prices milliseconds before peak booking times, goes beyond a single if-then rule approach. The best thing is – it’s highly customizable, especially if you don’t integrate an off-the-shelf ML model, but opt for tailored artificial intelligence solution development.
