Likely, you’ve come across dynamic pricing, the strategy that applies variable pricing to products and leaves fixed pricing in the dust. Essentially, this strategy allows for a fluctuating price point that targets different purchasers at various times, with the same product optimising profits based on availability and demand.
We commonly see dynamic pricing used with hotels, airline tickets, ride-sharing services, and e-commerce stores. This model equips businesses to update their prices whilst responding to the market, ultimately optimising profits by fine-tuning the prices to your customer’s perceived value.
Hotels have been applying dynamic pricing for decades, moving away from seasonal room rates to drive RevPAR (revenue per available room). They have been updating room rates for real-time market conditions to optimise ADR (average daily rate). This is all a balancing act. Management wouldn’t want to over-price or miss out on selling hotel rooms for the sake of occupancy or adversely underprice, leaving money on the table in this highly competitive industry.
“The hospitality industry is notoriously complex when it comes to pricing and distribution. This has become even more pronounced with massive market fluctuations in the wake of the pandemic. In order to effectively leverage the automation techniques required for effective hotel dynamic pricing, you’ll need to incorporate competitor pricing and market data so granular that it’s simply impossible for a human to catch up without computational assistance.”
– Hotel Tech Report
Tour businesses learn from hotel management
Now let’s overlay how the hotel industry uses dynamic pricing whilst conceptualising how tour operators may sell and market their products in a similar fashion. It makes sense that the higher price-point products or services in the industry led the way in adopting revenue management (air, hotel, cars), but it’s now time for the tours and activities sector to take what was learned and repeat.
Standardisation has the experience sector in a holding pattern. Our products have many variables, customisations and tend to be more complex than A-to-B connections with limited product choices. However, tour operators can still apply some of these methods.
Naturally, business owners want to secure the highest profit available for their product and adjust pricing during high-season, weekends, or special events, and these are places we can logically do this.
Is dynamic pricing only for eCommerce websites?
The short answer is NO. However, this is one of the most plausible avenues to trial, test, and tweak. Your own website is an isolated environment and a place to roll out new models. Just like how testing new tour product offerings is done in a controlled environment, we can apply the same.
Will OTAs work with dynamic pricing?
Yes, online travel agencies (OTAs) will accommodate dynamic pricing. However, we need to ask ourselves: how will the contracts with the OTAs change, what types of requirements will they have about price parity, will there be extra politics involved, and what is the directional flow of data?
For OTAs to roll out the options to operators for implementing dynamic pricing on their platform, there will be many conversations with the industry at large.
What tour operators will want to know
COVID taught operators to increase average spending per person, given the fewer tourists per destination. This was accomplished by maximising products, offering add-ons, VIP options and cross-selling. Fast forward to dynamic pricing, operators will be trying for the same boost in revenue, but now in a different way. We are maximising via full vehicles or tours while adjusting the pricing based on perceived value, date, and demand.
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