The current economic situation has thrown the hotel industry for a loop. After a boom period that saw a huge increase of the supply of hotel rooms in most major markets, the recession is now stripping the demand out of those same markets. This presents hotel operators with a difficult decision: offer deep discounts to draw in guests- and thus increase occupancy, at any cost- or try to maintain the right margins by keeping rates at budgeted levels and risk lower occupancy rates.
But discounting is not a viable long-term strategy, even as a growing consumer segment is seeking value exclusively and looks to continue doing so for quite a while.
Fortunately, there are ways for hotels to optimize both occupancy and RevPAR. The best method is dynamic pricing.
Much Ado about Dynamic Pricing
There has been a big ado about dynamic pricing in recent months by revenue management firms. But although they may claim that they are doing “dynamic” pricing, true dynamic pricing is only achieved when a hotel’s price is being updated according to many types of information – the competition’s prices, timing, booking pace, booking window, internet demand, page positioning, hotel guest reviews, hotels listed without prices, to name a few, which should be collected continuously – in real-time as the factors change.
As well, a true dynamic pricing system will allow a hotel to customize their system to reflect their business rules and specific distribution channels. In short, with true dynamic pricing, the revenue management system will reflect the individual value of each request, as well as the actual market and competitive situation.
Survival of the Fittest
Dynamic pricing provides the answer to the occupancy/rates vs profit margin dilemma by allocating price points to the demand in real-time; in other words, balancing what the market wants with what it’s willing to pay and providing pricing updates continuously – not just once a week. It’s a tool by which hoteliers can reach a natural equilibrium point in their given market, and also within each individual booking transaction.
In terms of hotel rooms, which are inherently perishable, achieving this equilibrium is critical for hotels to remain profitable (or even surviving) in a demand-depressed economy. Good revenue management systems use information transparency- the relative ease with which pricing data is obtained from hotels in a client’s competitive set and its destination along with demand data from multiple sales channels- to optimize pricing on a moment-by-moment basis.
Dynamic pricing isn’t new, but it’s been updated to reflect the speed of consumer’s purchasing decisions. Automated pricing programs and revenue management systems- like REVPAR GURU’s- allow hotels to manage multiple sales channels more efficiently and enlarge their market share.
Dynamic pricing is also an improvement over traditional pricing methodologies, like historical or seasonal rate setting, which are still in wide use at many hotels. It aims to not overprice a room and leave it unsold, but neither sell a room too cheap and compromise margin.
Continuous real-time pricing and inventory monitoring is designed to approach full occupancy, and create optimal RevPAR. This is the way hotels can achieve necessary market equilibrium and weather the current economic storm.
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Jean Francois Mourier is CEO & Founder of REVPAR GURU a company that has developed an alternative type of revenue management and real-time pricing solution (combined with automated online distribution) to help hotels maximize occupancy and increase their profits. The company’s Yield Dynamic Price Engine, an integrated revenue management and pricing solution, adds unprecedented power and real-time adaptability to the pricing process, leaving managers more time to run their hotels. REVPAR GURU has grown rapidly, now working in 30 cities and 11 countries, and offers full XML integration through its partnerships with leading travel booking sites. Reach him at jfmourier@revparguru.com or visit www.revparguru.com for more information about the company’s services.
Jean Francois Mourier is CEO & Founder of REVPAR GURU , a company that has developed an alternative type of revenue management and real-time pricing solution (combined with automated online distribution) to help hotels maximize occupancy and increase their profits. The company’s Yield Dynamic Price Engine, an integrated revenue management and pricing solution, adds unprecedented power and real-time adaptability to the pricing process, leaving managers more time to run their hotels. REVPAR GURU has grown rapidly, now working in 30 cities and 11 countries, and offers full XML integration through its partnerships with leading travel booking sites. Reach him at <a href=”mailto:jfmourier@revparguru.com”>jfmourier@revparguru.com</a> or visit <a href=”http://www.revparguru.com”>www. www.revparguru.com</a> for more information about the company’s services.
Blogger Jean Francois Mourier
Jean Francois Mourier is CEO and founder of REVPAR GURU, creators of a revolutionary revenue and inventory management solution that increases hotels’ RevPAR, occupancy and online bookings. The company’s Yield Dynamic Price Engine, an integrated revenue management and pricing solution, adds unprecedented power and real-time adaptability to the pricing process, leaving managers more time to run their hotels. REVPAR GURU has grown rapidly, now working worldwide, and offering full XML integration through its partnerships with leading travel booking sites. Reach him at jfmourier@revparguru.com or visit REVPAR GURU for more information about the company’s services.
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Continuous real-time pricing and inventory monitoring is designed to approach full occupancy, and create optimal RevPAR. This is the way hotels can achieve necessary market equilibrium and weather the current economic storm.