Dynamic Pricing in hotel rates: how does it work?

As the summer season arrives, many of us find ourselves immersed in online searches to find the perfect vacation hotel. Choosing the ideal property can seem like a titanic task: constantly fluctuating prices, mixed reviews and last-minute deals. But what are the mechanisms and technologies behind these constant price changes? The answer lies in an advanced and increasingly popular strategy in the hospitality industry: dynamic pricing.

Dynamic pricing, or dynamic pricing, allows hotels to change room rates in real time based on several factors, we have listed below the most relevant ones, and the correlation between them:

1. Demand: During high season periods, such as the summer vacations, demand for rooms in resorts increases, and as a result, prices also rise. During off-season periods, hotels can lower rates to attract more guests, using pricing as a real lever.
2. Events: Concerts, fairs, and festivals can have a significant impact on hotel prices. During such events, room availability decreases and prices tend to rise.
3. Hotel occupancy: Hotel occupancy rates are crucial. Hotels tend to vary room prices based on the level of occupancy. When the facility is nearly full, prices increase; if there are many rooms available, prices may be reduced to stimulate demand.
4. Last-Minute Reservations: Hotels often lower prices as the check-in date approaches to fill unsold rooms, but if demand is high, prices, conversely, may increase.
5. Reviews: Hotels with excellent reviews on property comparison platforms can maintain higher rates without risking a significant impact on demand. Online reputation plays a crucial role in customers' perception of value and evaluation of pricing.
6. Length of stay: Rates can also vary by length of stay. In most facilities, longer stays may qualify for discounted rates or the free addition of extra services.

As we have seen in other articles, dynamic pricing is not simply a reaction to changes in the market, but a complex strategy supported by advanced technologies, including artificial intelligence (AI) and data analysis.

• Data collection and analysis: Hotels use advanced software to collect a wide range of data: booking trends, customer behavior, competitor rates, local events, and weather conditions. This data is then analyzed to identify patterns and demand forecasts.
• Machine Learning Algorithms: Machine learning algorithms play a key role in dynamic pricing. They analyze collected data and learn from historical patterns to predict future demand and optimize rates in real time.
• Yield Management: Yield management aims to maximize total revenue by actively managing room inventory and optimizing rates based on expected demand. AI helps make more accurate and faster decisions than traditional methods.
• Rate Shopping tools: Rate shopping tools continuously monitor competitor prices, providing hotels with a real-time overview of market rates. This allows hotels to adjust their rates competitively.

The concept of Revenue Management originated in the 1970s and 1980s, mainly through the aviation industry. In the 1990s, the hotel industry began to adopt these techniques to maximize room revenue. With the advancement of technology and the availability of real-time data, dynamic pricing has emerged as an extension of revenue management. Unlike static pricing strategies, dynamic pricing allows hotels to change prices in real time in response to changes in demand and other relevant factors.
Revenue management and dynamic pricing are closely related, but they are not the same thing. Revenue management is a broader strategic approach that includes capacity and demand management, while dynamic pricing is a specific technique used within revenue management to optimize pricing in real time.

Dynamic pricing is thus a strategy that enables hotels to optimize revenues. Using advanced technologies and AI, hotels can quickly adapt to market changes and provide prices aligned with the demand coming from the market. Knowing these mechanisms can also help consumers navigate price fluctuations and get the best deal for their chosen stay. Planning ahead, using price comparators, signing up for newsletters for exclusive offers and taking advantage of hotel loyalty programs are just some of the strategies that can make a difference. With the right steps and wise planning, it is therefore possible to ensure a perfect stay without breaking your budget.