When we talk about dynamic pricing, it is usually related to a time-based pricing strategy used by hoteliers to sell their rooms and up-sell their products and services. Hoteliers determine the price of their rooms based on demand and supply. The room prices are not fixed but rather change as the demand and supply fluctuate. The period and season of the year also affect the hotel room price in dynamic pricing. This is because there are certain periods or seasons in a year such as the holiday season, that can increase the demand for rooms, therefore, increasing its price.
Read also: Hotel Pricing Strategy for Hoteliers
Benefits of Dynamic Pricing System
There are some benefits that dynamic pricing has over fixed pricing. Firstly, it is the ability of hoteliers to adjust their prices daily, weekly, monthly, or even hourly to fit in with the demand at hand. For example, if there is an event or a concert near a hotel, there is a high probability that the hotels around the venue of the events will sell out their rooms. In this case, hotels can increase their hotel room prices during this event and also reduce it after the event.
Secondly, dynamic pricing gives the hotelier room to maximize profit. This is because when the hotel increases its room rate during high demand their profit margin increases. Therefore, dynamic pricing gives the hotelier room to increase his room rate when he is sure that he is going to make more profit.
Fixed Pricing vs. Dynamic Pricing
When we talk about fixed pricing strategy, we are talking about maintaining a constant room price for the hotel no matter what the period or season is. In a fixed pricing strategy, the hotel room price remains the same even during holiday seasons. That is to say that the demand and supply do not affect the price of rooms. This kind of strategy can’t help hoteliers to maximize their profit. This is because when other competitors are maximizing their revenue following the high demand, those hotels adapting the fixed pricing strategy will still maintain the same room price.
When it comes to dynamic pricing, one of the differences is that hoteliers can change their room prices because of their competitors' actions. These days, hotels keep close attention to their competitors, and they can detect when their competitors' price changes. When this happens under dynamic pricing, hoteliers can likewise change their room prices based on their competition actions.
The main difference when it comes to fixed and dynamic pricing is flexibility. In dynamic pricing, the room price can change any time while in fixed pricing the room rate remains the same no matter in what situation. In dynamic pricing, the hotelier makes more profit because the increase in price during high demand will result in more profit. While in fixed pricing the hotel profit remains the same.
In conclusion, you have done your research before deciding on any pricing strategy, and find out what pricing strategy best suits your hotel. Don’t just decide blindly or choose a particular pricing strategy because your competitors are implementing it.