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Dynamic Pricing and reservation software

Dàzz Hitijahubessy
Dàzz Hitijahubessy
Front end Developer

Dynamic Pricing and reservation software

How about if the rates in your reservation software and on your website would automatically adjust based on, among other things, the weather, availability and historic reservation data? That sounds very exciting, doesn't it? Exciting, but it actually is where we are headed! This functionality is called ‘Dynamic Pricing’. Dynamic Pricing is a method that adjusts rates of your vacation rental accommodations, based on several variables, in order to calculate the optimal rate with the goal of stimulating growth of sales and margins.

Dynamic Pricing has been used for years at the larger retailers, like prices of flight tickets and articles at and Amazon. In this article we will share our view on Dynamic Pricing for vacation rental organizations such as vacation parks, hotels, campgrounds and other similar rentals.

How are prices of vacation rental organizations determined with Dynamic Pricing?

In order to get to work for vacation rental organizations with Dynamic Pricing. it first must be determined which variables may affect the price. It is our opinion that this must be based, among other things, on the following components:

  • Historical booking data.
  • The (present) weather.
  • The location of the guest during the reservation.
  • Statistics from Google Analytics.
  • Competitive vacation rental organizations.
  • The time of the booking and the number of days until the date of arrival.
  • Events and activities in the area.
  • Length of stay.

Historical booking data & Dynamic Pricing

In general, all kinds of reservation data is kept track of in a reservation software: when does the guest book, when does the guest arrive, when does payment take place, what is the origin of the guest, etc. With machine learning and smart algorithms this data can be analyzed and then be used in the Dynamic Pricing strategy for future periods.

The (present) weather & Dynamic Pricing

Concerning the weather there are several variables, namely: 1. The weather at the time of the reservation, 2. The weather forecast for the date of arrival (for short term bookings) and 3. What the weather normally is like during the period or the season of the booking (long term).

1. Present weather on the location of the booking of the website visitor.

We have measured for a long time what the weather circumstances are at the time of bookings. It might sound weird, but we have noticed that there are more bookings during nice weather than when it rains, even if the booking is months into the future. Maybe this has to do with the "vacation mood" that people get into when the weather is nice? ;-) In any case, this is very relevant information for a Dynamic Pricing strategy.

2. The weather prediction for the day of arrival (short term booking).

For a certain type of vacation rental organizations it applies that they have mostly short term bookings, such as hotels. If the weather forecast for the coming weekend is favorable, the rate could be increased.

3. The expected weather during the season for which the booking is made.

Many vacation rental organizations are dependent on seasonal rentals. The rates increase as the summer approaches and then they decrease when high season is over. In general, this data goes hand in hand with the occupancy rate and can be used excellently as a source for Dynamic Pricing.

Location of guest & Dynamic Pricing

Do you have a certain type of accommodation that is very popular with people from Germany? Then it would be wise to increase the rate in that region. Every website visitor leaves an IP address behind. Based on that IP address the location of that guest can be traced, making it possible to show alternative rates, based on the location of where the visitor is at that moment.

Vacation periods with location & Dynamic Pricing

In the Netherlands there are several vacation periods, sometimes dependent of the location in the country. Based on the IP address of the website visitor we can trace where he or she comes from. This makes it possible for someone in Limburg to be shown a different rate than someone in Groningen.

Google Analytics & Dynamic Pricing

We have used Google Analytics ever since we delivered our first website. This system keeps track of all kinds of statistics of the visitors of your site. The advantage of reservation software in the cloud, such as Recranet Booking, is that every step in the reservation process is measured in Google Analytics, because both Analytics and Recranet Booking are in the cloud. On top of that, reservation software such as Recranet Booking is linked directly to your website, making it possible for rates to be adjusted in realtime.

This means that in theory it is possible to increase or decrease the rates, based on for instance the number of visitors on your site at that moment (how many people are interested). Of course, you need to take into account that not every time when a page is refreshed, another rate is shown. It is even possible to use this data right away and show how many visitors from which country look at a specific rental object, such as a room or an accommodation.

Competitive vacation rental organizations & Dynamic Pricing

Based on the rates of your competitors it is possible to wield an adjusted rate for your rental objects by using Dynamic Pricing. Basing your rates on those of the competition has an attention point: your organization is unique and the accommodations that you offer are probably not exactly the same as those of your competitor. Even if they are the same, maybe the location of your accommodations are more favorable? This makes comparison based on the prices of the competitor more difficult. In retail this is much simpler; a TV of the same brand and type only needs to be compared on price and maybe delivery conditions or warranty.

The time of the booking and the number of days until arrival & Dynamic Pricing

Does a guest make a reservation for next weekend or for four months down the road? Based on the type of vacation rental organization and the booking period, an adjusted rate can be shown. For hotels it is quite common to have short term bookings, for vacation parks and campgrounds we find that reservations are often made far in advance.

Events and activities in the area & Dynamic Pricing

When there are large events in the area where your organization rents out accommodations, no doubt you manually increase the rate of your rental objects during those specific period. With Dynamic Pricing you can (for instance) set a minimum rate during such periods, so that based on the number of incoming reservations the rate can be increased step-by-step. This data can be used the next year with all kinds of other data (such as the speed until fully booked) to determine a new rate for it.

Length of stay & Dynamic Pricing

Depending on the length of stay another rate can be wielded, this is comparable with discount rules.

Points of attention with Dynamic Pricing

Automatically adjusting rates of your vacation rental accommodations has many advantages, but keep the following in mind:

  • Your guest may be upset when he/she is "used" to certain rates and has to pay much more all of a sudden.
  • When guests discover that they have paid more than other guests it can lead to frustration, requests for repayments and less positive reviews.
  • Prevent that the price becomes leading for a guest, after all it is about your organization and what you have to offer.

In any case it is important that you communicate well about the pricing model of your vacation rental organization. When you are transparant about applying Dynamic Pricing, then your client will understand this. After all, the rates can be a lot more favorable for your guests when they book at the right time.

Saying goodbye to set rates

One consequence of using Dynamic Pricing is that you have to say goodbye to set rates. Of course, you can choose to wield set rates during certain periods. Downloading a PDF with rates on your website and in brochures are a thing of the past with Dynamic Pricing!

Links with modern APIs for data exchange for Dynamic Pricing

Our reservation software has been built with modern techniques and is completely in the cloud. This enables us to exchange information with other systems, using ‘APIs’. API is short for Application Programming Interface. There are many interesting APIs that we can communicate with, such as current weather information, regions, IP addresses and vacation periods. You surely understand that this is super interesting data to use in the Dynamic Pricing strategy!

Choice of lost income because of no rental or rent out anyway with Dynamic Pricing?

When an accommodation, room or camping site is not rented out, this is lost revenue. With Dynamic Pricing a price can be set, based on the current availability of accommodations (‘supply’), with a minimum price that has been determined in advance, so that margins are guaranteed.

We would love to hear your reaction and your view concerning Dynamic Pricing for vacation rental organizations. Please contact us.