Dynamic pricing matches rates with demand
 
Dynamic pricing matches rates with demand
13 MARCH 2014 9:15 AM

Sources suggest dynamic pricing is one tool revenue managers can use to combat rising online-travel-agency commissions.

REPORT FROM THE U.S.—In a recent study examining retail prices, researchers looked at the price of a single microwave oven on three different online channels—Amazon.com, BestBuy.com and Sears.com.

In a 12-hour period, the price of the microwave fluctuated about $75; Sears did not alter the price; however, Best Buy changed the price twice over the time period and Amazon changed the price nine times.

These fluctuations are a result of a pricing trend that is spreading across several industries called dynamic pricing. Dynamic pricing is defined as “time-based pricing that matches goods and services based on time,” according to Vishwas Bhatia, VP of revenue optimization for Aston Hotels & Resorts. In other words, the price of the product is altered to meet real-time demand.

It’s different than variable pricing, which is typically seasonal, Bhatia said during a webinar Wednesday titled “Moving to dynamic pricing” and hosted by the Hospitality Sales and Marketing Association International.

“Dynamic pricing is fluid, which changes on base of demand reflecting true market value at that time,” he said.

Industries that have adopted dynamic pricing as a key part of their sales models include airlines,  theaters, cinemas, professional sports teams—and now hotels.

“Dynamic pricing simplifies the pricing process and allows hotels to make changes across the board instantly while maintaining rate parity,” Bhatia said.

In practice
Fairmont Raffles Hotels International uses dynamic pricing practices to “match rates with demand,” said Cynthia Paynter, director of revenue management development. “It offers the opportunity to grow (average daily rate) and increase demand.”

Often, dynamic pricing can be equated to discounting, Paynter said, but not at Fairmont Raffles

“For me, dynamic pricing does not mean discounting,” she said. “We really want to make sure we’re portraying honesty and truthfulness in regard to our pricing. We want to stand behind a fair price.”

But “fair” doesn’t necessarily mean the same price for everyone, she said.

Anuj Jenveja, VP of customer success with Duetto, said dynamic pricing is one tool hoteliers can use to combat rising online travel agency commissions.

Rising commission prices aren’t sustainable, he said, adding that because of the rising popularity of metasearch sites “it’s hard to define what a true direct booking really is.”

Jenveja said today’s revenue managers need to adapt modern technologies to analyze data trends and make smarter pricing decisions. “A lot of this complex distribution didn’t exist when revenue management practices were first formed,” he said.

For example, hoteliers today can place a javascript tag on their booking engine, which allows revenue management systems to track where customers are clicking and follow them through the booking process, which might give the hotelier some insight into why the customer did or did not end up booking.

“You can grab that data and analyze it,” Jenveja said.

Paynter suggested hoteliers determine how granular they want to get with their data analysis before enacting dynamic pricing. “Efforts should be offering return on investment in increases in (revenue per available room) and profitability,” she said.

Then, once a hotel has employed an initial dynamic-pricing model, leaders should analyze how it’s working, then come back and reassess.

“Especially in the initial months and years it’s important that you regularly review and refine,” she said. “Understand how your system setup and past decisions have impacted past performance. How much of your demand is a product of price?”

Jenveja said setting up dynamic pricing systems take some work up front to restructure how rate codes appear in property-management systems and central reservation systems.

“Don’t always price based on a standard discount off (best available rate),” he said. “Delink those rate codes and make them independent, yieldable rate codes. It’s a lot easier to manage these through a (revenue management system) with independent codes.”

Bhatia outline the pros and cons to dynamic pricing:

• Pros: Derived pricing; simplified yielding process; speed and agility; rate integrity; rate parity
• Cons: Rate parity doesn’t allow to maximize channel potential; hoteliers may or not be able to achieve true market-based pricing.

“That is where hybrid dynamic pricing comes in because that allows you to change processes based on market dynamic pricing,” he said.

3 Comments

  • dspisak March 13, 2014 10:10 AM

    what is the "news" portion?

  • skooshhotels March 16, 2014 2:07 AM

    So, what's the ideal solution for allowing both hotels and OTAs to achieve the optimal market price or do the two necessarily work against each other?

  • Ben Waldeck March 18, 2014 4:51 PM

    I agree - Rate Parity is vital when everyone is operating on a level playing field. However, it is important to recognize that in such cases where a channel is doing a special promotion for a hotel or group, rate parity is not in the channel's, nor the hotel's best interests, because there is no point in them doing a promotion if there is not a marketable advantage over the channel's competitors. Allotz Autopilot is the most advanced channel manager with integrated, real-time automated yield management, that automatically adjusts room rates to meet on supply and demand. This achieves maximum occupancy/profit for the hotel. No other channel manager has this capability. regards, Ben Waldeck Allotz.com Limited

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