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What Is Hotel Dynamic Pricing?

Hotel dynamic pricing: what it means and what you need to know

6 min
Posted: 01 February 2024
Female Business Traveler in Hotel Room with Suitcase

The past few years have been a time of peaks and valleys for the hospitality industry. And while we’ve certainly seen an upward trend in its recovery, there continues to be fluctuations in demand and rising hotel room rates. To keep up with the ever-changing landscape, hotels have had to adapt and adopt different strategies.

For business travel arrangements, many hoteliers are relying more and more on hotel revenue management strategies. Collecting and analyzing data to predict guest behavior and demand, and dynamic pricing to maximize profitability are tactics that are often used.

But what do those strategies mean, exactly? Well, depending on the demand patterns, local factors and hotel occupancy, prices for hotel rooms will fluctuate so that hotels can maximize the rates in real time. That poses a challenge for companies that utilize static caps in their travel policy’s hotel daily rate, since they can potentially miss out on savings. Luckily, features like Egencia’s dynamic hotel rate cap policy can help optimize business travel savings while also providing an efficient and curated booking experience.

What are dynamic rates?

Dynamic rates are a pricing method used in the hotel industry that adjusts hotel room rates based on real-time demand. Room prices are determined by various things, including the number of available rooms and reservations at a hotel.

Through the use of machine learning, a dynamic rate cap determines the price-per-night rate for travelers based on a median price. Rate caps are automatically adjusted to reflect price fluctuations without the need for travel managers to do it manually.

How does dynamic pricing work?

Hotels will adjust the prices of rooms they have available based on several factors, including occupancy, season, time of booking, and competitors’ pricing. For instance, let’s say a hotel's average off-season price is $120 per night for a standard room, but every year a large conference takes place in the area that brings in many professionals from out of town resulting in a high demand for rooms. As demand increases and room availability dwindles, the hotel adjusts the price to $170 to take advantage of the surge in reservations and optimize their profits. On the other hand, if a hotel sees a dip in bookings or an increase in cancellations, they can lower their rates to incentivize travelers to book with them.

Hotel dynamic pricing for business travel

While dynamic rates are a great way for hotels to maximize profits, the strategy can create a bit of a challenge for travel managers and business leaders. Since most companies set their own rate caps manually by town, city, or country, travel managers have to invest time in analyzing everything from company booking behaviors to local trends to determine a suitable per-night rate.

Even though much time is spent figuring out an adequate rate, it’s still possible to miss out on deeper savings in various cities and towns. However, with Egencia’s dynamic hotel rate cap, your company can optimize spending while also getting personalized options for all your corporate travelers.

Benefits of dynamic pricing caps

Dynamic caps provide the flexibility to adjust rates as the median changes without the need to do it manually, saving time as well as money. The caps can also help employees follow your company’s travel policy and elevate their overall booking experience.

Save time

Because dynamic caps automate the process of finding the best available rates and adjust rate caps in real time, travel managers don’t have to spend as much time analyzing and researching past data or local trends to determine price rates. And, since dynamic cap features like Egencia’s curate results based on your company’s travel policy and booking patterns, travelers spend less time booking their hotel rooms.

Staying in line with policy

Egencia’s dynamic hotel rate cap feature is tailored to your company’s travel policy. If a traveler tries to book a hotel room that has a rate outside of policy, they won’t be able to. Instead, they’ll get a clear explanation why the booking was unsuccessful, saving your company money by avoiding unwanted costs.

Optimize your traveler’s booking experience

Egencia’s dynamic rate caps can help companies and travel managers deliver customized rate cap adjustments for all hotel bookings. That means you get to decide what’s best for your travel program—a one-time setup or a mix and match of static and dynamic rate caps.

Once the setup is complete, Egencia will search for the median rate in a city and adjust the price setting based on that median. Adjusted rates will automatically show up as part of the booking experience for travelers searching for rooms.

Gain personalized insights into booking trends and savings

Travel managers will also be able to benefit from detailed reporting and visual dashboards that will show the median rate, the booked rate, and how savings are measured.

Save money

Travelers and travel managers can enjoy a quick and intuitive booking experience that provides smarter and cost-effective search results. Since its launch, Smart Mix for hotel has helped our customers save hundreds of thousands of dollars (and counting)1. Want to optimize savings? Read about our Savings Finder for Hotel.

Dynamic pricing and machine learning

Most companies set hotel rate caps manually by city, town, or destination. Yet Egencia’s dynamic hotel rate cap policy feature saves travel managers time by using an AI-powered algorithm to dynamically adjust hotel rate caps in real-time based on the median rate.

With this automated feature, travelers can enjoy an elevated, fast, and curated booking experience while your company saves money. For instance, if you have different levels of travel groups (such as executives who typically have a higher per diem), search results are automatically adjusted to reflect the traveler’s characteristics at the time of booking.

Dynamic policy impact

One of the biggest ways that a dynamic policy can benefit your business is with the time it saves travel managers. Instead of having to manually adjust the caps for hotel rates in a certain location or for various travel groups, they’re adjusted automatically, giving travel managers back valuable time while providing a personalized booking experience for employees.

With the flexibility of dynamic caps, your company doesn’t have to miss out on savings. You can choose to have a static cap for some cities and activate dynamic caps for others. You can also choose just how strict you want your policy to be by specifying the minimum star rating for median rate calculation. That way, travelers have the benefit of finding the lodging that meets their needs and still save money. On average, it’s estimated that Egencia’s dynamic hotel rate cap policy saved travelers $20 per hotel booking. That’s $2M saved in just 2022 alone and over 200K bookings with optimized savings.1

Take savings further with Egencia

We’re in the business of providing an excellent travel booking experience for corporate travelers while also helping your company evolve with the pace of change in the travel industry. To learn more about how we can help your company, fill out the form below and contact one of our corporate traveler consultants.

For more details on hotel trends and findings, please check out the Amex GBT 2024 Hotel Monitor.

1 Amex GBT Egencia internal reporting, September 2023.

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