How does personalized pricing boost hospitality revenue?

Not everyone is willing to pay the same price for the same product or service. Especially in the digital world where you can find the same product cheaper or a similar one from a competitor that you might eventually prefer.[1] This consumer attribute is called elasticity and therein lies the value of personalized elasticity. Each individual shares different elasticity and that is where personalized pricing can be used.

Traditionally, we are acquainted with flat dynamic pricing which prices all customers up or down a range on a standard set of variables.

For example, hospitality is extremely seasonal. The final price the consumer pays is influenced by a variety of factors. Factors like capacity utilization, historical sales data, supply — demand, exogenous factors such as: seasonality, special events (Christmas or New Year’s Eve, Religious events, Sports happenings, pandemic) or competition prices et cetera. In order to forecast pricing, we can use an econometric model such as linear regression or a revenue management platform. [2]

It seems unfair because you might make a booking on Monday and the price is 20% more expensive than when you come back the day after, making a lot of customers angry. But data analysis will allow hotels or online marketplaces to offer personalized prices and increase revenue.

Question is, how can you do it in a fair way without discriminating? That’s where automatic revenue management platforms come in. Automatic pricing engines, maximize revenue while keeping manual work to the minimum. The best platform that feats best depends on the size of the hotel or your apartment. With only 10% of hotels using these software tools, imagine the impact in revenue if your operation used this software.

What’s becoming even more useful is Individualized dynamic pricing or Personalized dynamic pricing (PDP). PDP is about individualized offers by being customer centric. This means selecting information and creating bespoke offers for each individual depending on circumstances, profile and market demand.

The goals of these strategies are the same: apart from maximizing profit, providers use dynamic prices particularly to increase customer retention.

At the end of the day, there’s power in choice, both for the buyer and the seller. Your potential guests will tell you how much they’re willing to pay, and you in turn can monetize more of your assets. Keeping in consideration the above can help understand better the market and eventually increase revenue by corresponding with the customer’s reality.