Dynamic pricing, or time-based pricing allows accommodation providers of all sizes to price-to-market, increasing revenue and lowering costs.
Effective yield and revenue management is a great balancing act between achieving the best possible average daily rate (ADR) and occupancy percentage based on booking lead time and demand.
Maximising Revenue Is a Sum of Many Parts
Accommodation providers have a finite revenue earning potential. Once a room is sold, or the property is full for the night, they’ve reached the maximum potential for that day.
Simply increasing rates because it is high season, or lowering them because it is low season isn’t necessarily going to ensure you’re maximising the potential revenue. Accommodation providers need to consider what’s happening in town, look at forward bookings, think about what traditionally happens at that particular time of year, what they offer in services and “add value” options, and most importantly, use this knowledge and experience to implement a strategic rate plan!
Why Should You Look at Room Revenue and Not Occupancy Alone?
By shifting focus from occupancy to room revenue, accommodation providers can increase profit margins and lower costs.
Consider this, a property that reaches a higher occupancy or fills before a competitor will typically sell at a lower rate. They may have filled more rooms. However, based on the same level of demand, that same property could have achieved a higher average rate and the same if not more room revenue.
This can be achieved by watching their inventory levels in advance and increasing the rates for the remaining portion of rooms to achieve the best possible yield. Fewer rooms sold at a higher rate not only means more total revenue, but less rooms to service, hence reduced costs can also be achieved.
Dynamic Pricing Using Artificial Intelligence Is the Way Forward for Revenue Management
Artificial intelligence is making its way into most industries in some way, shape and form – Hospitality is certainly no different. Already, OTAs such as Booking.com and Expedia have released software-based rate management tools. These are designed to help accommodation operators set rates based on the booking demand into their property and the demand of their pre-determined competitor set.
Other sectors in the travel and tourism industry have already adopted revenue management strategies. Anyone who books flights will know the price is never fixed and simply comes down to how far in advance the seat is booked and the level of demand for the flight date. Similarly, business savvy properties across the world have been taking advantage of dynamic pricing for years now.
It is predicted that it is only a matter of time before revenue management and dynamic pricing is expected across all facets of the accommodation sector including small to medium providers. Because of this change, we will see a shift away from the traditional fixed ‘one rate all year round’ or ‘high and low’ season rates models.
This article is provided by Rooms Online that guides accommodation providers through the changing digital landscape, offers honest and unbiased advice on promotions and assistance with dynamic pricing strategy to grow profitability via online channels. Their Wellington-based team offers no obligation chat.