Focusing on real-time pricing and inventory monitoring for optimal RevPAR

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 occupa

Published: 03 Sep 2009

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 optimise 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 customise 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 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.

(Contributed by Jean Francois Mourier, CEO and founder of Revpar Guru)

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