Overcoming Dynamic Pricing Challenges in the Hospitality Industry

“At RevenYou, we work with a wide range of accommodation providers, and one of the first actions we implement, depending on the functionality of the PMS, is dynamic pricing. It is a quick and highly effective way of achieving revenue growth within a short space of time.

The challenges we can face are:

• Finding usable data to guide our decision-making process. If the PMS cannot provide usable data, we must go to market and look for alternative sources of information such as STR, OTAs, GDS and our own knowledge.
• Convincing owners that varying the price daily will not lead to the loss of loyal customers. Sharing case studies from previous clients and working within the owner’s comfort zones ensures we can get more done in a brief period of time.
• Implementing a sales strategy to migrate loyal customers to contracted corporate rates.
• Training team members responsible for inputting reservations not to override the price they see in the system but to sell what they see.
• Training team members how to communicate with customers that the rates are subject to change, and we recommend booking now to secure the best rate.

Any strategy that is put in place will be evaluated within 3 and 6 months to identify areas for increased revenue gain.”

“One of the biggest challenges is when a group has been booked at a rate that ends up being higher than what the market is selling for transient rooms. Sometimes this happens if the group is booked far in advance and conditions change by arrival time. One way to get around this is to keep the retail rates positioned to keep the group price protected, but to focus on heavily fenced, or non-public rates for the group dates.”

“Introducing dynamic pricing beyond rooms, (for example, for things like F&B, spa services, or event spaces), is what can still cause friction with customers, as they are still getting used to that. It is going to be a similar process to the one experienced when going from static pricing to dynamic pricing in rooms. However, as customers get used to changes happening at a faster pace in their daily lives, the transition in this case should be a faster one.

For that to happen, clear communication here is key. The message is not “it’s more expensive on Saturday night”, but instead framing it as “you can enjoy your meal at lower prices during the weekdays”.”

“The highest challenges in adopting dynamic pricing are hesitation and fear on the side of the owner/operator. They fear their guests won’t understand, they fear their team will be overwhelmed, and they are hesitant to go full dynamic, opting for a misbreed hybrid model unable to live up to the expectations.

The truth is:

• Dynamic pricing is industry standard.
• Guests already expect prices to be adjusted based on demand.
• The team might already know the concept, and yes, change management is needed.

But leading with confidence, increasing financial stability and job security will ease this process – and let’s be real: how many bookings are made via an agent anyway? Overcome these obstacles by understanding your opponent’s fears, addressing them directly and consistently. Present facts and industry best practices.”

“The biggest challenge is relating to the current market and linking pricing to competition. When your competition is not on top of things or has a different revenue perspective, it can make you own pricing off point.

You want to make sure that it complements your strategy. What is your aim? When are your guests booking? What are the best times to update your pricing? Who do you consider your competition? A big challenge is also the last minute rate drops in the dynamic markets, which again influences the cancellation ratios (increased).”

“While dynamic pricing is highly advantageous for revenue management, it doesn’t align with all segments of the travel industry. Corporations with substantial travel volumes need to forecast expenses, but face challenges when hotels provide discounts off BAR (Best Available Rate) instead of offering fixed rates.

Additionally, some leisure travel distributors still require static pricing to calculate consumer prices and profit margins accurately. Although implementing a hotel’s tech stack enables dynamic pricing across all distribution and reservation systems – making it an effective model for B2C channels, OTAs, and direct bookings – it has proven less compatible with B2B requirements.”

“Dynamic pricing without an integrated Revenue Management System (RMS) can be quite challenging for hotels. This pricing strategy depends on accurate, real-time data to make informed decisions. Without an RMS, gathering and analysing data becomes tedious and can lead to missed revenue opportunities. Additionally, monitoring competitors’ prices is essential, but it can be time-consuming without the right tools.

These challenges are even greater when dealing with the wholesale market, where existing contracts set specific rates and limit flexibility. Even if a hotel wants to adjust its pricing dynamically, it may be restricted from changing prices across other channels to maintain rate parity, making it hard to respond quickly to demand changes.

Investing in an integrated RMS is crucial for overcoming these obstacles. A good RMS helps streamline data management, providing real-time insights into booking trends, competitor pricing, and market conditions. This allows hotels to make more accurate pricing decisions and adapt quickly to changes in the market. Additionally, an RMS can help manage wholesale contracts better by showing how pricing adjustments affect overall revenue and occupancy.

In short, investing in a strong RMS is essential for effectively implementing dynamic pricing strategies, helping hotels improve their revenue management and meet financial goals in a competitive environment.”