Dynamic pricing in hotels

Room procurements are in for some roiling with many large hotel companies opting for dynamic hotel pricing according to an article on BT Online. Most buyers echo the notion that dynamic pricing is just another way for hotels to generate more profits. That may well be true but in reality it is more a case of optimizing their profits. And in that as in so many other instances, the hotel industry is absurdly behind the curve.

Dynamic pricing is what economists call price discrimination and the empirical evidence from other industries (air travel for instance), is that it allows for high fixed costs to be covered without pricing out a significant section of its market. That hotels have high and immovable fixed costs (unlike airlines who can shed gates, destinations and even aircraft) that makes them all the more susceptible to the ills of a downturn. The internet further enhances the ability of industries with high fixed costs and low variable costs (compare the cost of not selling that additional room to the labor and utility cost of selling it) to use dynamic pricing. Corporate travel buyers who insist on adhering to their “preferred rates” based on the ancien regime should pause to consider how their performance would eventually stack up when executives from their company are able to obtain lower rates simply by going to the website of the big chains. They are frequently likely to find rates lower than their “negotiated fixed rate” particularly in a declining market. That can hardly be the outcome they desired when they plugged in their fixed rates.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

One thought on “Dynamic pricing in hotels”

  1. couldn’t agree with you more. the resistance to dynamic pricing is backward. flexible pricing is in everyone’s interest (including the corporation). now that retail pricing is dynamic there is no way to reconcile the purported value of a contracted rate with the public price. i think the reason you have seen resistance is corporate travel managers are afraid and don’t understand. They (misguidedly) believe that their value comes from demonstrating year-over-year change in contracted rate, rather than looking at their total travel cost and finding efficiencies. But that is what happens when there is no competitive pressure in an arena.

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