Dynamic Hotel Pricing: Signs of a Trend?

17th Jul 2008

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CWT (company) - WikipediaNB: This is an article written By:  Michael Mannix

Dynamic pricing in hotels is a strategy used to improve revenue and ensure maximum occupancy for the hotel based on supply and demand. It is also known as “time-based pricing” due to the fact that these prices are manipulated in real time based on algorithms.

Hotel room rate pricing strategies can be broken down into two primary categories: static and dynamic pricing.

Static pricing occurs when a hotel keeps the same room rates over a period of time. Room rates do not fluctuate based on market trends like occupancy or demand, but instead remain the same night after night. Hotels that use static pricing techniques know their market well, have closely monitored year over year trends, and are confident in the occupancy and rate they will be able to capture.

A hotel using dynamic pricing, however, constantly fluctuates room rates based on market trends like occupancy and overall demand. Rates can change from day-to-day, or even hour-to-hour, based on real-time market data. By focusing on area supply and area demand, hotel dynamic pricing allows room rates to fluctuate constantly to capture more business.

Dynamic pricing is also commonly referred to as “demand-based” or “time-based” pricing. Hoteliers that use demand-based pricing strategies see their room rates fluctuate based on traveler demand. When demand is low, room rates are lowered in an attempt to capture their fair share of the minimal demand in the market. When travel demand is high, however, such as during an area-wide special events or during peak season, room rates are raised—reflecting the heightened demand.

While the concept of demand-based pricing is not new, it has become more popular as technological developments have allowed hoteliers to manage and measure demand information in real-time. High speed internet connectivity, revenue management monitoring software, and faster data processing capabilities allow revenue managers all over the world to track moment-to-moment changes. Hoteliers can also change their pricing strategy with a few quick clicks thanks to impressive software developments, compared to the much more time-consuming and tedious process in the past.