Dynamic pricing for hotels: what it is and how to do it
Dynamic pricing means changing your room prices with demand: higher on nights more guests want, lower on nights fewer do, instead of one price for the season. It looks at how busy your town will be, how fast your rooms are selling and what the hotels around you charge. It can be done by hand, a night at a time, or by software.
Also called: dynamic pricing for hotels, hotel dynamic pricing, demand-based pricing, surge pricing.
A OneHorizyn page. Updated .
What it means
EHL Hospitality Business School describes dynamic pricing as adjusting prices continuously with demand, competitors' prices and the stock left to sell, so the price is something that moves rather than something set once.
Airlines and taxi apps work the same way. For a hotel the room is the same every night; what changes is how many guests want it, and how many rooms are left.
What to price each night from
- How busy your town will be: festivals, weddings, exams, holidays, conferences and long weekends.
- How fast your own rooms are selling for that night, against the same night last year.
- What the hotels around you charge for that night, and which of them look sold out.
- How many days are left: a night filling early can take a higher price.
- The day of the week: many leisure towns are busier at weekends, business towns midweek.
- How many rooms of each type are left: the last rooms of a type can take a higher price than the first.
How to do it by hand, step by step
- 1Set a price for an ordinary night of each kind: a weekday and a weekend, in each season.
- 2Mark the nights in the coming months that will be busier or quieter than usual.
- 3Set those nights above or below the ordinary price, in a few steps you decide in advance.
- 4Look at the coming weeks every day, or at least every week, and raise the price of nights filling faster than usual.
- 5Send the same price to your website and every booking site, and check what each one then shows.
A worked example
A 30-room hotel in Jaipur charges ₹4,000 on an ordinary weekday in November. For a wedding weekend it sets ₹6,500. Ten days out, 24 of its 30 rooms are sold for the Saturday, more than at the same point last year, so it moves the last six rooms to ₹7,500; if they sell, the Saturday brings ₹6,000 more than at ₹6,500. A quiet Tuesday with four rooms sold stays at ₹4,000 rather than being cut, because the hotels around it have not cut theirs.
Rules to keep
- Use conditions as well as price: a minimum stay on the busiest nights, a non-refundable price, an early-booking price. EHL calls these rate fences: conditions that let you offer different prices to different guests without simply undercutting yourself.
- Set a lowest price you won't go under, and a highest.
- Change prices for a reason you can name. EHL notes that trouble starts when changes feel arbitrary or hidden to guests.
- Raise prices on busy nights before you cut them on quiet ones. A cut on a night the whole town is quiet seldom brings guests who weren't coming.
- Keep every booking site at your website's price after each change.
Booking.com also offers dynamic restriction rules in its extranet: rules you set once that change your minimum stay, or how far ahead guests must book, and if you choose your price too, on unsold nights or the gaps between bookings.
How it relates to BAR, revenue management and software
- Dynamic pricing moves your best available rate, the public price each night. Your other prices follow it if they are set from it.
- It is one part of revenue management, which also decides conditions, which booking sites to sell through, and how many rooms to give each.
- Revenue management software, and some channel managers, suggest or set prices for you from the same readings. Whichever you use, check what each booking site shows guests after a change: a price sent is not always the price shown.
