Dynamic Pricing In Hospitality Industry †Myassignmenthelp.Com

Question: How to Dynamic Pricing in Hospitality Industry? Answer: Introducation Dynamic pricing as related to the hospitality industry refers to a form of pricing plan that prices products, commodities, or services based on time (Abel Aziz, Saleh and El-Shishiny, 2011). This simply means that a given hotel will transform its room rates regularly if up-to-the-minute market information shows the need for alterations. Dynamic pricing is generally founded on the acknowledgement that the right rate to charge for a given room night is what customers are able and willing to pay. Underpricing would mean that the revenue manager leaves money on the table while overpricing would mean the hotel may price itself out of the market (Guadix, Cortes and Mnunuzuri, 2010). Hotels that practice dynamic pricing tend to believe that hotels should regularly alter rates in reaction to the ever changing demand or supply conditions. The main challenge associated with this type of pricing is always trying o determine the most favorable price on any given day. In the recent past, there have been a number of arguments against and for the constant price changes. A revenue manager will tend to gauge the idea of consistency and price integrity against likely revenue profits through regular tweaking (Aydinliyim and Pangburn, 2012). On the other hand, there are hazards linked to approaching rate controls with a narrow point of view that concentrates on a single key variable which is usually occupancy. Should a revenue manager make a considered decision to make use of pricing as a competitive edge, then dynamic rate management would become one of the most efficient instruments in the fight for price-responsive customers (Pullman and Rodgers, 2010). It is common for a majority of hoteliers to charge higher rates in the course of higher demand periods, or when demand is anticipated to come in strong. This means that the rates are altered down in the course of low demand periods. Notably, dynamic pricing particularly at large hotels tend to vary from having the most favorable rates to having those with full pattern length of stay. Furthermore, they may be controlled by the use of computerized returns management systems. Depending on the types of location, market segments, hotel and total demand, divisions such as marketing mix percentage at recognized hotels could be between 70% and 100% (Baysden, 2014). Dynamic pricing is normally set as cost-based pricing for the lowest level so as to allow hoteliers to cater to their operating costs during low seasons. Advantages of dynamic pricing to a hotel A key advantage that is usually associated with dynamic pricing is that price declines are at times a requirement and regularly boost lackluster sales in order to meet revenue objectives. This is attained by reducing prices in an effort to keep up with market trends, competitor information, and internal stock levels (Atkinson and Ionais, 2015). In turn, it is possible to remain aggressive within the industry and shift inventory quickly when the need arises. Dynamic pricing is more than just price reductions. From what has recently been observed many prices could use a boost in price. This form of pricing is thus a way of maximizing gains and income regardless of the circumstance. Todays hotels are technologically advanced and have incorporated technology into their daily operations. Those who use dynamic pricing software are in a better position of staying up to date on rival pricing, and pricing trends (Baysden, 2014). They will also not lag behind and their gains will enjoy an increase of about 25%. Dynamic pricing enables a hotel to possess the ability to negotiate various year contracts, keeping it active and competitive all year round. Hotels take advantage of dynamic pricing by upselling. This means that they make use of low prices in an effort to lure potential customers while at the same time sell extra high margin commodities or services. Dynamic pricing also offers specific prices for specific customer groups and sales channels (Abel Aziz, Saleh and El-Shishiny, 2011). The most favorable discounting plans are also implemented to guarantee the sale of all inventories. Notably, the flexibility in offering prices allows hotels and other organizations in the hospitality industry to increase their revenues, market share, utilization, and margins. A commonly ignored benefit of dynamic pricing is that it allows hotels to direct demand much more ad hoc. Given the fact that demand may alter strongly on a regular basis, the price can even the peaks and reductions by either lowering or increasing prices. Uber is an example of a company that implements similar principle based on real-time demand (Guadix, Cortes and Mnunuzuri, 2010). Disadvantages of a dynamic pricing to a hotel Dynamic pricing can be disadvantageous to a hotel given the need to take into consideration the long term worth of the guests, not just the price they are willing to pay. There is also extra incremental revenue that may be produced by the guests. Another disadvantage is that changing ones pricing will automatically separate the hotel from its most valued guests, prompting them to look for other alternatives (Aydinliyim and Pangburn, 2012). They will also be led to believe that the hotels offer is suddenly valuable today or at a given time simply because the market demand has increased, or decreased. Dynamic pricing is somewhat difficult to manage whether it is guaranteeing customers are not put off by it, or ensuring the hotels techniques are scalable, and the transformations are implemented on time. Some retailers who are concerned with dynamic pricing tend to worry that the changing prices founded on rival pricing together with other factors will eventually coerce them to engage in a margin diminishing price warfare (Pullman and Rodgers, 2010). Moreover, previous work on this particular pricing tends to apply predetermined secretive set of prices from which they eventually distribute the price for a night. Making use of regular set of prices would mean adding to the already complicated model and thus require a sophisticated large scale programming solver to get the most favorable solution. Dynamic pricing can make customers feel angry or become irritated once they realize that they have been subject to price discrimination (Atkinson and Ionais, 2015). Such a reaction potentially damages a companys brand loyalty. When customers trust a given hotel or organization, they are more likely to become repeat customers who purchase its products and services. They also do not consider looking for alternatives elsewhere. However, organizations that engage in dynamic pricing gives these customers encouragement to consider other alternatives being offered by the rivals to guarantee that they are not spending too much (Baysden, 2014). The lack of commitment to any particular hotel or organization means customers will not hesitate to look for where they can get better deals. Internet shoppers are more likely to compare prices for similar commodities and services at various different businesses. If a given organization prices a product lower than others due to its dynamic pricing techniques, it can coerce its rivals to also minimize their prices so as to remain competitive. This can be good for customers but bad for most businesses. Examples from different areas particularly during special events, peak and non-peak periods Amazon is currently considered the largest online retailer that makes use of its numerous computing resources to evaluate and keep an eye on the prices of thousands of items sold by its rivals (Abel Aziz, Saleh and El-Shishiny, 2011). By implementing dynamic pricing, Amazon is able to convince its consumers that it always offers the lowest prices even though in the actual sense, it does not. The organization may not be the lowest-priced seller of a given product in any given season, but it consistently maintains low prices on best selling and high valued items. As a result, consumers get the notion that Amazon has the most favorable prices generally. Another example where dynamic pricing is implemented during peak, special occasions, and off-peak seasons is in the airline industry. Dynamic pricing means that seats of a given flight are charged differently as per the degree of demand for the seats that are yet to be sold (Guadix, Cortes and Mnunuzuri, 2010). This means that the higher the demand for the seats, the more expensive they are to be. Once in a while, airlines may offer unique discount promotions on chosen seats or paths in the course of certain travel times. During these periods, seats will be discounted from their usual fee, availing lower prices than previously offered. Notably, the discounted seats tend to remain at a stable lower price until a potential customer purchases them or the promotion comes to an end. Uber is the latest illustration of dynamic pricing being implemented to a rather novel service that surpasses the normal products in hospitality and travel (Aydinliyim and Pangburn, 2012). This particular transportation app allows consumers to hire a private vehicle service, alters prices depending on demand, while taking into consideration conditions such as the weather. Interestingly, the Uber service has gained much popularity with its consumers and has managed to lure in more potential ones. Fixed rules-based pricing which is an approach commonly used in the airline and transportation industry means that prices are generally determined based on the time of the day, week within a season, or day of the week (Pullman and Rodgers, 2010). The restaurant industry, for instance, has utilized this particular pricing for its early bird specials. References Abdel Aziz, H., Saleh, M. and El-Shishiny, H. (2011) Dynamic room pricing model for hotel revenue management systems. Egyptian Informatics Journal, 12(3), pp. 177 183. Atkinson, A. and Ionais, M.L. (2015) An approach to pricing in an uncertain environment. Cost Management, pp. 12 18. Aydinliyim, T. and Pangburn, M.S. (2012) Reducing packaging waste and cost via consumer price discounts. Decision Sciences, 43(6), pp. 1063 1089. Baker, R.J. (2009) Pricing on purpose: How to implement value pricing in your firm. Journal of Accountancy, pp. 62 68. Baysden, C. (2014) Times up: The benefits and challenges of moving away from the billable hour. Journal of Accountancy, pp. 28 31. Guadix, J., Cortes, P., and Mnunuzuri, J. (2010) Technology revenue management system for customer groups in hotels. Journal of Business Research, 63(5), pp. 519 527. Pullman, M. and Rodgers, S. (2010) Capacity management for hospitality and tourism: A review of current approaches. International Journal of Hospitality Management, 29(1), pp. 177