Driving Revenue Growth: What is Dynamic Pricing in the Hotel Industry?

Amanda McDowell
Amanda McDowell
Updated
November 21, 2024
/
Published
November 21, 2024
Driving Revenue Growth: What is Dynamic Pricing in the Hotel Industry?

Imagine if your hotel room rates could shift as smoothly as gas prices, responding to demand, seasonality or even events in town. Even better, what if these rooms could add ancillary revenue when you have a full house? That’s the power of dynamic pricing in the hotel industry. It’s not just about adjusting numbers — it’s a game-changer for filling rooms and boosting revenue.

In this guide, we’ll share the details on dynamic pricing, from understanding the fundamentals to maximizing revenue once your hotel is full.

Understanding Dynamic Pricing in the Hotel Industry

Think of dynamic pricing as the opposite of a “set it and forget it” approach to determining room rates. It's all about a real-time, responsive approach to hotel revenue management.

Instead of choosing one static rate for weekdays and weekends, or busy and slow seasons, dynamic pricing adapts based on shifting conditions, ensuring you maximize revenue whenever demand spikes or dips.

hotel dynamic pricing

The concept of dynamic pricing is simple: as demand rises and supply shrinks, prices increase. But unlike traditional price adjustments (like a gradual shift in food and beverage costs), dynamic pricing for hotels can adjust daily or even hourly.

Consider this: If a nearby hotel fills up, demand in your area rises. When this happens, a dynamic hotel pricing strategy raises rates to meet that demand.

Conversely, if other hotels in the area are dropping their rates for days that your hotel is also less busy than usual, dynamic pricing adjustments will reduce rates, helping you stay competitive without losing revenue. It’s a hotel pricing strategy designed for real-world flexibility and maximum profitability.

The resulting benefits are clear: By optimizing occupancy and maximizing average daily rates, dynamic pricing ensures every room generates the highest possible revenue. This responsive strategy helps you stay ahead of the competition by flexibly adjusting rates as market conditions shift.

Real-Life Examples: How Las Vegas Bets Big on Hotel Dynamic Pricing

Las Vegas, a city packed with more hotel rooms than any other in the U.S., thrives on dynamic pricing to maximize revenue around events that draw in big crowds.

Here are a few recent examples that illustrate how these hotels dynamically manage pricing in different scenarios:

     
  •    Prices surge on event announcements: Within hours of announcing the 2015 Floyd Mayweather vs. Manny Pacquiao fight, hotel room rates across Las Vegas more than doubled. Some hotels also enforced minimum stay restrictions to fully capitalize on demand. At MGM Grand, telephone booking lines were jammed once online reservations appeared sold out, underscoring a surge in demand against fixed room supply.  
  •  
  •    Rates drop, leaving guests disgruntled: For Las Vegas’s Formula 1 debut, hotel prices were initially hiked in anticipation. When demand didn’t hit targets, some hotels reduced rates by up to 83%, leaving those that booked during rate hikes demanding refunds. While price drops are part of dynamic pricing, the guest experience also has to factor into these decisions.  
  •  
  •    Super Bowl draws record rates: Every Super Bowl weekend sees a rate hike no matter what city is hosting, but in 2024, Las Vegas shattered records as hotels charged more than any Super Bowl host city before.  

Even for hotels not in Las Vegas, hotel pricing optimization still applies everywhere. Take the example of Taylor Swift’s Eras tour: Every show announcement sparked hotel price surges, driving an additional GBP 1 billion in spending across the UK. By staying aware of special events and other factors that can create a surge in demand, hoteliers can make sure to capitalize on the opportunity to increase revenue as much as possible.

How to Boost Revenue: Implement Dynamic Pricing in Your Hotel

The rise of dynamic hotel pricing strategies is made possible by advanced technology, empowering hoteliers to react in real-time to market shifts. Today’s systems can put actionable insights at your fingertips and alert your team to demand changes.

Here’s how to get started with dynamic pricing:

Step 1: Responding to Supply and Demand

     
  1.    Track competitor rates: Competitor prices offer a window into local demand trends. Rate-shopping tools track nearby hotels’ prices across channels and dates, automating the research process and allowing you to anticipate demand.  
  2.  
  3.    Set alerts for nearby events: To get a head start on demand spikes, set up notifications for major venues near you to track local happenings that might increase bookings.  
  4.  
  5.    Leverage your network: Not all demand comes from publicly announced events. Local conferences, corporate gatherings and large private events also impact bookings. Staying connected with your network can reveal hidden demand trends that you may not otherwise be aware of.  

While technology simplifies these steps, you can still implement dynamic pricing on your own by following these principles. Once you’ve adapted your rates to demand, you’re ready for the next step: maximizing revenue.

Step 2: Maximize Revenue with a Full House

So you raised rates for a big event — now it’s time to make the most of every guest in the building. When your hotel is fully booked, it’s an ideal opportunity to increase your total revenue through ancillary opportunities.

Here’s how to capitalize on peak occupancy:

     
  •    Dynamic Upsells: Boost additional revenue by offering food and beverage packages, spa services, tailored experiences and other extras from booking to checkout. Dynamic Upsells can increase upsell revenue by up to 250%.  
  •  
  •    AI-powered Upsells: When staff are stretched thin, upsell tools powered by AI can automatically suggest add-ons at the exact right time. For instance, when a guest messages about early check-in, AI-powered hospitality tools like Canary’s can offer relevant upgrades in the same interaction, increasing conversion by more than 4x over traditional tech-based upselling.  
  •  
  •    Gather Reviews With Mobile Checkout: Use a full house to generate positive reviews. Automated Mobile Checkout can prompt guests to leave feedback as part of the process, helping hotels double their reviews. More reviews lead to higher rankings, which drives demand and brings you right back to increased pricing opportunities at the top of the cycle.  

Why Dynamic Pricing is the Key to Future-Proofing Your Hotel

Dynamic pricing is more than just a trend — it’s becoming an essential strategy in modern revenue management. With the right tools, tracking and a bit of local insight, any hotelier can implement dynamic pricing principles to respond to demand fluctuations and capitalize on peak occupancy.

As technology continues to evolve, dynamic pricing will likely become even more targeted, enabling hotels to forecast and respond to market conditions in real-time. Whether your property is a Las Vegas resort or a small boutique hotel, dynamic pricing empowers you to not only optimize rates but also enhance total guest revenue during every stay.

Curious about what’s next in revenue strategy? Check out our free eBook on Total Revenue Management for even more insights.

Learn How Canary Can Help Your Properties Thrive

Hotel Room Reservation System Guide: Top Benefits, Features and Trends

Hotel Room Reservation System Guide: Top Benefits, Features and Trends

Not sure how to decide which hotel reservation management system to invest in? Read this detailed Selection Guide to learn more.

Read More
Hotel Market Segmentation 101: Definition, Types and Tips

Hotel Market Segmentation 101: Definition, Types and Tips

Hotel market segmentation lets you impress guests at every touchpoint… and did we mention it also boosts revenue? Learn more here.

Read More
What Can Guest Experience Management Do for Your Property?

What Can Guest Experience Management Do for Your Property?

Guest experience management is one of the key elements that sets hotels apart. Learn how to drive satisfaction, loyalty and memorable stays with techniques, technology and more.

Read More
How to Conduct a Comprehensive Hotel SWOT Analysis

How to Conduct a Comprehensive Hotel SWOT Analysis

While doing the work to compile a hotel SWOT analysis is a great first step, putting it into action is what will actually make a difference. Learn how here.

Read More
Maximizing Profitability: Understanding Hotel Distribution Channels

Maximizing Profitability: Understanding Hotel Distribution Channels

When you balance direct and indirect channels thoughtfully, and employ technology skillfully, you set the stage for sustainable growth and greater profitability.

Read More