The total amount of a hotel's operating revenue is heavily influenced by the pricing policy applied.
For illustration, when we board a plane headed to a certain city, if we ask the passengers sitting to our left and right, or in front and behind, we may find that each of them bought their plane tickets at different prices.
This is despite the fact that everyone is on the same plane, headed to the same destination, and receiving the same service. The same applies to hotel guests today; if observed, on the same night, for the same room type, the room rates may vary. With advances in computer systems and IT, the rates applied in hotel operations are influenced by time, the number of sales channels, and the laws of supply and demand.
All of this is aimed at maximizing the total revenue at the end of the month.
Dynamic pricing is the opposite of static pricing. In static pricing, a single rate applies to all conditions and sales channels—one price for all. On the other hand, in dynamic pricing, rates differ based on varying conditions and across different sales channels.
Conceptually, dynamic pricing policies are not too difficult to understand and agree upon. However, when discussing how to implement them optimally, the real challenge becomes evident. The principle behind dynamic pricing is to achieve higher sales revenue compared to static pricing. However, if not executed properly, the result may actually be worse.
Let’s run a simple mathematical simulation for a hotel with 10 rooms.
· Static rate: 10 rooms x 500 = 5,000
· Dynamic rate: 4 x 400 + 3 x 500 + 3 x 600 = 4,900
The simple example above illustrates that merely implementing a dynamic pricing strategy does not guarantee better results compared to a static rate strategy. In other words, if dynamic pricing is not executed correctly, it can become counterproductive.
How can we implement dynamic pricing effectively?
The first thing to do is to prepare a well-constructed budget, right from the very beginning. The budget must be based on reliable statistical data and developed by someone with good knowledge of revenue management, the market, and competition in that location, so that all variables, including the set prices, are accurate. The dynamic pricing strategy should be broken down in detail into the rate structure and the planned revenue streams.
If this is done, it serves as a good foundation for implementing dynamic pricing that will result in revenue maximization. The budget preparation must take place before implementation.
In terms of implementation, dynamic pricing cannot be optimized if done manually. Software tools are required to run the system automatically, based on the budget inputted into the system.
Therefore, it’s essential to have someone who understands which software is appropriate, how to input/setup the budget into the system, and how to monitor the effectiveness of the ongoing strategy periodically. Without the aforementioned elements, the effectiveness of a dynamic pricing strategy is questionable.
About Writer :
Ojahan Oppusunggu : Former Technical PM – DTS ACCOR Indonesia & Malaysia, Former CTO of Topotels Hotels & Resorts, Former Director of Technical & Technology of Artotel Group and Currently as Project Director/Owner Rep. Kapuk Hills Hotel Jakarta – Handwritten Collection
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