Running a business, revenue is always the first priority. If losses persist for several months, eventually, it will become challenging to sustain the business. On the flip side, even with incoming revenue, if there's no profit left, the business may limp along without much flexibility.
In the hotel industry, there are various pricing strategies employed to keep hotels afloat and competitive. Just like any other business, each hotel chooses its pricing strategy based on market conditions, consumer behavior, and market competition. One such strategy we'll delve into today is Dynamic Pricing.
Dynamic Pricing involves setting prices based on the demand for products or services at different times. It's a common strategy in service industries where customer demand varies.
Factors influencing Dynamic Pricing may relate to demand, not necessarily direct demand for the product, but factors indirectly affecting consumer demand. For instance, customer satisfaction, remaining inventory, and even market competition can all influence pricing decisions.
Dynamic Pricing fundamentally stems from two main reasons:
1. Eliminating Excess Demand (Not Enough Sales): If a hotel has insufficient rooms to accommodate all potential customers, employing Dynamic Pricing means raising room rates temporarily to reduce the number of customers.
2. Eliminating Excess Supply (Not Selling Enough): Conversely, if there are vacant rooms, reducing room rates is a way to eliminate excess supply. While reducing prices may decrease profits, remember that our costs remain the same. It's better to have some revenue than to have empty rooms generating no income.
Most hotels using Dynamic Pricing set seasonal prices, raising rates during high seasons and lowering them during low seasons. Additionally, they adjust prices between weekdays and weekends, typically charging higher rates on weekends.
Furthermore, there's Real Time pricing, where rates adjust based on occupancy rates and competitor pricing. Hotels with automated pricing systems can adjust prices in real-time without manual intervention.
While Dynamic Pricing offers advantages, it also has downsides. Hotels considering this strategy should analyze and understand its implications thoroughly. It might be beneficial to combine it with other strategies as per market conditions, as some situations may favor other strategies more.
