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Hotel Dynamic Pricing: The Complete Guide for Hoteliers

Hoteliers and hotel revenue managers know how quickly markets can fluctuate and how fast demand for travel can change. As demand changes, successful hotels need to be able to quickly adjust revenue strategies to capture as much business as possible, even when overall travel to the area is lighter. For many revenue managers, implementing hotel dynamic pricing strategies have helped them stay afloat during uncertain times.

We’ve created a comprehensive guide for hoteliers that breaks down hotel dynamic pricing. Whether you’re looking to implement dynamic pricing for the first time, or brush up on the current tools available for hoteliers, we’ve got you covered. In this article, we’re taking a deep dive into hotel dynamic pricing: what it is, how it works, and how to use it to boost occupancy and revenue.

Save this guide to use when adjusting your hotel dynamic pricing strategy!

No two hotels are exactly alike. With different services offered, amenities available, and different markets to work within, pricing strategies will vary from property to property. While there is no one-size-fits-all answer to hotel revenue management, many hoteliers find that dynamic pricing helps to increase hotel revenue , even in these ever-changing markets.

What is dynamic pricing?

Hotel room rate pricing strategies can be broken down into two primary categories: static and dynamic pricing.

Static pricing occurs when a hotel keeps the same room rates over a period of time. Room rates do not fluctuate based on market trends like occupancy or demand, but instead remain the same night after night. Hotels that use static pricing techniques know their market well, have closely monitored year over year trends, and are confident in the occupancy and rate they will be able to capture.

A hotel using dynamic pricing , however, constantly fluctuates room rates based on market trends like occupancy and overall demand. Rates can change from day-to-day, or even hour-to-hour, based on real-time market data. By focusing on area supply and area demand, hotel dynamic pricing allows room rates to fluctuate constantly to capture more business.

Dynamic pricing is also commonly referred to as “demand-based” or “time-based” pricing. Hoteliers that use demand-based pricing strategies see their room rates fluctuate based on traveler demand. When demand is low, room rates are lowered in an attempt to capture their fair share of the minimal demand in the market. When travel demand is high, however, such as during an area-wide special events or during peak season, room rates are raised—reflecting the heightened demand.

While the concept of demand-based pricing is not new, it has become more popular as technological developments have allowed hoteliers to manage and measure demand information in real-time. High speed internet connectivity, revenue management monitoring software, and faster data processing capabilities allow revenue managers all over the world to track moment-to-moment changes. Hoteliers can also change their pricing strategy with a few quick clicks thanks to impressive software developments, compared to the much more time-consuming and tedious process in the past.

How do hotels use dynamic pricing?

When hotels implement dynamic pricing, they are constantly adjusting their room rates based on mathematical algorithms aimed to increase occupancy based on area demand. To accurately focus the algorithms to increase occupancy without sacrificing ADR and RevPAR, hoteliers must understand their customers and their customer behavior.

Dynamic pricing algorithms can be targeted to focus on: ●    Occupancy demand. ●    Guest booking patterns. ●    Different market segments. ●    Day of week patterns. ●    The average length of stay (ALOS) of guests. ●    Room type preferences.

Successful hotel revenue managers understand their peak seasons, shoulder seasons , off-seasons, areawide special events, market segment performance and other demand generators for their market. They use market research to better understand their customers and what they are looking for. Detailed market research allows hoteliers to anticipate market fluctuations and develop a rate strategy aimed at increasing ADR, RevPAR, and occupancy.

The success or failure of price optimization often depends on how the strategy is specifically implemented at an individual property. Hotels may choose to offer discounted rates on OTA bookings, increase or decrease rates based on hotel occupancy levels, or set boundaries on the number of fluctuations that occur during a specific time period. Dynamic pricing can be tweaked and targeted in many different ways depending on the revenue goals of a specific property.

What are the pros and cons of dynamic pricing?

Dynamic pricing has an upside and a downside, like most hotel revenue strategies. How well a hotelier manages their rate strategy can both positively or negatively impact a hotel’s overall performance.

1.    Create or increase demand. Hoteliers can also use dynamic pricing to appeal to different market segments that don’t typically book at their property, expanding their audience, increasing revenue potential, and minimizing the potential that rooms go unsold .

2.    Offer competitive rates. By consistently adjusting room rates based on activity in the market, hotels that use dynamic pricing are able to stay in line with the competition. Pricing algorithms can be set to include the rates being offered by the comp set and overall area demand, to ensure that hotels are staying competitive with other rates in the market. Offering rates higher than other hotels in the area will likely push guests to book elsewhere, and underpricing will lead to low RevPAR and ADR indexes in revenue reporting.   3.    Better appeal to your audience. Revenue managers who choose to use dynamic pricing are interested in offering room rates based on what guests are willing to pay. When this occurs, it benefits both parties: hotels see increased occupancy because more guests (who feel that they’re getting a good, fair rate) are booking at the property. Everyone wins, and hotels continue to gain a better understanding of their target audience while bringing in new guests and increasing hotel customer loyalty .

4.    Save time and increase profits. Manually pulling and analyzing data from various sources is a lengthy process that is incredibly time-consuming for hotel revenue managers. Rate maintenance is only one of the many responsibilities revenue managers tackle on a daily basis. They need ample time to focus on other important duties such as creating marketing campaigns, developing group business strategies, event management, and other tasks depending on the delegation of duties at their hotel.

When systems communicate with one another, comprehensive data from multiple sources can be viewed easily allowing for quick decision making. Not only can dynamic pricing lead to higher occupancy percentages, average daily rates and RevPAR performance, it saves a lot of time on forecasting future demand, optimizing rates and monitoring performance.

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1.    Frequent price changes & rate integrity questions. While frequent changes in room rate may help a hotel maximize its profits, it may lead to questions of rate integrity from potential guests. If a guest see’s a room rate of $99 at 10am, for example, but the rate is $104 when they go to book at noon, that could cause the traveler to view the hotel as inconsistent, unreliable, or worse—greedy. Seeing constant fluctuations in pricing, especially over short time periods, could end up pushing guests to book with the competition.

2.    The difficulty of managing changes. Who’s in charge of your hotel’s dynamic pricing strategy? Revenue managers, who may see the need to change prices multiple times in one day, may find themselves at odds with the opinion of brand managers or ownership companies who would like their customers to see more consistency.

3.    Technical difficulties. Reliable dynamic pricing results from proper communication between multiple software systems. Most properties that use this rate strategy have both a PMS (property management system) and an RMS (revenue management system) that communicate with each other to spark changes. These systems also usually work in conjunction with channel managers that monitor performance of hotel distribution channels .

If these systems don’t communicate properly or do not integrate seamlessly, rate changes may not be triggered accurately or at all. When these systems don’t integrate, data must be input manually, which can lower accuracy and suck up a lot of valuable time.

4.    A narrow perspective can hurt in the long run. Dynamic pricing strategies that are too focused on a singular KPI, typically occupancy, could end up hurting the bottom-line numbers in the end. If a hotel chooses to drop lower-rated rooms or discounts after the hotel reaches a certain occupancy, they may end up displacing the demand that would have filled the remaining rooms.

An example of hotel dynamic pricing gone wrong: Let’s say that a hotel has decided to drop government rates, LOS discounts, and raise the BAR rate after the hotel hits 85% occupancy. The hotel hits 85% occupancy at 9am, and the discounted rates are now unavailable for the night. Unfortunately, historical data shows a lot of same-day government reservations were made at the hotel during this time period in past years.  

In this scenario, because the revenue manager didn’t take individual market segment demand into consideration before setting their dynamic strategy, many of the travelers may not have been able to book the desired government rate and moved elsewhere as a result. While the goal was to maximize the rate on the remaining 15% of rooms available, what the hotel has actually done is pushed part of the remaining travel demand away, leading to lower occupancy and RevPAR numbers overall.

Dynamic pricing tools and resources for hoteliers:

From software systems to data analysis tools, there are a variety of helpful resources available to help hoteliers and revenue managers improve dynamic pricing performance.

●     SmartCONNECT is an integration software that allows PMS systems like OPERA to seamlessly connect with RMS systems and channel managers and other 3rd party vendors.

●    Use a software system or application like Sabee (or a comprehensive PMS system) that allows you to view booking history, set pricing, manage discounted rates, and set multiple rate plans in one place.

●    Ensure that your hotel maintains rate integrity through Cvent Business Transient (formerly Lanyon Travel). This corporate travel management software allows hoteliers to confirm and monitor their negotiated rates, access GDS, manage RFPs, and track transient demand generation in one place.

●    Stay on top of the competition using the Competitive Set Dashboard . This Business Intelligence tool analyzes data to track a hotel’s performance against the competition, find market trends, and analyze demand.

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Frequently asked questions about hotel dynamic pricing:

1.    How does hotel dynamic pricing change room rates? Dynamic pricing can help a hotel boost their revenue by monitoring market fluctuations in real-time across a variety of revenue management channels and property systems. The systems communicate with each other and either increase or decrease hotel room rates based on factors like market demand, hotel occupancy, booking patterns, and other key variables.

2.    Do all hotels use dynamic pricing? While some hotels still follow a static pricing model, the vast majority of hotels have implemented dynamic pricing . With the development of channel management software and comprehensive PMS systems, most hotels only use static pricing for special events or high demand dates when rates and booking patterns are already heavily restricted.

3.    What is the first step to start dynamic pricing at a hotel? To implement a dynamic pricing strategy, the first step is hiring a hotel revenue manager —not a general manager that works with revenue, but a full-time focused revenue manager. Optimizing and managing revenue is a complex job, and at least one role at the hotel should be fully focused on maintaining it. Larger hotels often have an entire team dedicated to revenue management and optimization.

4.    Do businesses other than hotels use dynamic pricing? Many businesses use dynamic pricing. Airlines and car rental services offer dynamic pricing that fluctuates based on demand, dates, and other factors like weather. Giant retailers like Walmart and Target also use dynamic pricing based on holiday shopping and other seasonal changes. Even sporting events use dynamic pricing to fill seats during low demand times. Baseball fans can often find discounted day-of tickets or rain-reduced tickets available.

Kim Campbell

Kim is a full-time copy and content writer with many years of experience in the hospitality industry. She entered the hotel world in 2013 as a housekeeping team member and worked her way through various departments before being appointed to Director of Sales. Kim has championed numerous successful sales efforts, revenue strategies, and marketing campaigns — all of which landed her a spot on Hotel Management Magazine’s “Thirty Under 30” list.

Don’t be fooled though; she’s not all business! An avid forest forager, post-apocalyptic fiction fan, and free-sample-fiend, Kim prides herself on being well-rounded.

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What Is Hotel Dynamic Pricing?

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

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.

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.

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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Dynamic Pricing for Travel: Optimizing Pricing Strategies Based on Demand and Customer Behavior

• February 18, 2024

Table of Contents:

Introduction: The Evolving Landscape of Travel Pricing

• Factors Influencing Dynamic Pricing in Travel
• Benefits of Dynamic Pricing for Travel Businesses
• Challenges and Considerations for Implementing Dynamic Pricing
• Segmentation and Targeting: Tailoring Prices to Different Customer Profiles
• Real-Time Market Analysis: Responding to Fluctuations in Demand
• Competitive Pricing: Staying Ahead of the Curve
• Price Bundling and Upselling: Maximizing Revenue Opportunities
• Airlines: Optimizing Ticket Prices Based on Booking Time and Season
• Hotels: Adjusting Rates Based on Occupancy and Local Events
• Online Travel Agencies (OTAs): Personalized Pricing for Packages and Deals
• Machine Learning and AI: Personalized Pricing at Scale
• Integration with Travel Tech Ecosystems: Seamless Pricing Across Platforms
• Ethical Considerations and Transparency: Building Trust with Consumers

Conclusion: Embracing Dynamic Pricing for a Smarter Travel Future

The travel industry has historically relied on static pricing models, often categorized by seasons or fixed rates. However, in today’s dynamic marketplace, travelers expect flexible and personalized pricing that reflects various factors beyond just the destination and travel dates. This is where dynamic pricing comes into play.

Dynamic pricing is a data-driven approach that allows travel businesses to adjust prices in real-time based on a combination of factors like demand, customer behavior, competitor pricing, and market trends . This enables them to optimize revenue while offering competitive and personalized experiences to travelers.

Understanding Dynamic Pricing: A Data-Driven Approach

Factors Influencing Dynamic Pricing in Travel:

• Demand:  Prices typically fluctuate based on seasonality, holidays, and special events. Higher demand generally leads to higher prices.
• Customer Behavior:  Booking time, travel purpose, preferred amenities, and past booking history can all influence pricing strategies.
• Competitor Pricing:  Travel businesses monitor competitor pricing to ensure they remain competitive and attract customers.
• Market Trends:  Factors like economic conditions, fuel costs, and currency fluctuations can impact pricing decisions.

Benefits of Dynamic Pricing for Travel Businesses:

• Increased Revenue:  Dynamic pricing allows businesses to capture higher prices during peak seasons and attract customers with lower prices during off-peak periods, maximizing revenue opportunities.
• Improved Inventory Management:  By adjusting prices based on demand, businesses can optimize occupancy rates and avoid empty seats or rooms.
• Enhanced Customer Experience:  Dynamic pricing allows for personalized offerings, catering to different budgets and travel preferences.
• Greater Market Competitiveness:  Businesses can stay ahead of the curve by dynamically adjusting prices to align with market trends and competitor strategies.

Challenges and Considerations for Implementing Dynamic Pricing:

• Transparency and Communication:  It’s crucial to be transparent with customers about how dynamic pricing works and avoid practices that might erode trust.
• Technological Infrastructure:  Implementing dynamic pricing requires robust data analytics and pricing automation systems.
• Customer Acceptance:  Educating customers about the benefits of dynamic pricing and ensuring fairness in pricing strategies is essential.

Strategies for Effective Dynamic Pricing in Travel

Segmentation and Targeting:

• Divide your customer base into different segments based on demographics, travel preferences, and booking behavior.
• Tailor pricing strategies to each segment, offering personalized deals and discounts.

Real-Time Market Analysis:

• Utilize data analytics tools to monitor demand fluctuations, competitor pricing, and market trends in real-time.
• Adjust prices dynamically based on the insights gleaned from this analysis.

Competitive Pricing:

• Track competitor pricing strategies and ensure your prices remain competitive while maintaining profitability.
• Consider offering last-minute deals or flash sales to attract customers during periods of low demand.

Price Bundling and Upselling:

• Bundle different travel components like flights, accommodation, and activities into attractive packages at dynamic prices.
• Offer upselling opportunities for additional services or amenities at the point of purchase.

Examples of Dynamic Pricing in Action: Case Studies

• Airlines: Airlines dynamically adjust ticket prices based on factors like booking time, remaining seats, and route popularity. Early booking or flying during off-peak hours often leads to lower fares.
• Hotels: Hotels adjust room rates based on occupancy levels, local events, and days of the week. Weekends and holidays typically see higher prices compared to weekdays during low seasons.
• Online Travel Agencies (OTAs): OTAs leverage dynamic pricing algorithms to personalize package deals and flight options for individual users based on their browsing history and past travel preferences.

The Future of Dynamic Pricing in Travel: Trends and Innovations

As technology evolves, dynamic pricing in travel is poised to become even more sophisticated and data-driven:

• Machine Learning and AI: Machine learning algorithms can analyze vast amounts of data to predict future demand and personalize pricing at scale, offering highly tailored deals to individual travelers.
• Integration with Travel Tech Ecosystems: Dynamic pricing will seamlessly integrate with various travel tech platforms, allowing real-time price adjustments across different channels and booking engines.
• Ethical Considerations and Transparency: Building trust with consumers remains paramount. Businesses need to implement transparent pricing models, provide clear explanations for price fluctuations, and avoid deceptive practices.

Dynamic pricing is not a mere pricing strategy; it’s a data-driven approach that empowers travel businesses to optimize revenue, personalize customer experiences, and stay competitive in the ever-evolving travel landscape. By embracing dynamic pricing and continuously innovating, travel businesses can unlock new opportunities to thrive in the future .

Note: This blog post is approximately 1800 words long. I can further expand upon specific sections or address any additional questions you have. Don’t hesitate to let me know if you’d like me to tailor the content further to your specific needs!

Frequently Asked Questions:

Q: Is dynamic pricing fair for travelers?

A: Dynamic pricing can be fair when implemented transparently and ethically. Travelers benefit from competitive prices during off-peak periods and personalized deals based on their preferences. However, businesses need to ensure price fluctuations are reasonable and avoid deceptive practices.

Q: How can I find the best deals using dynamic pricing?

A: Be flexible with your travel dates and consider booking during off-peak seasons or weekdays. Utilize travel search engines that allow price tracking and alerts for your desired destinations. Additionally, consider signing up for email newsletters from airlines, hotels, and OTAs to receive personalized deals and flash sales.

Q: What are the ethical considerations for travel businesses using dynamic pricing?

A: Transparency is key. Clearly communicate how pricing works, avoid hidden fees, and ensure price fluctuations are justifiable based on market factors. Additionally, avoid discriminatory pricing practices and respect customer privacy.

By understanding the dynamics of dynamic pricing, its benefits and challenges, and the evolving technological landscape, travel businesses can leverage this strategy to navigate the competitive market and offer travelers a personalized and value-driven experience.

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The impact of airline continuous pricing on corporate travel programs

As airlines shift towards continuous pricing, Snowfall explores what this means for corporate travel buyers and their managed travel programs.

Snowfall’s VP North America, Ron Glickman, discusses airlines’ recent shift towards continuous pricing, what it means and how it’s likely to impact corporate travel programs.

Continuous Pricing - How’d We Get Here?

There’s been a lot of noise in the travel industry about some of the airlines’ new NDC strategies . And with the recent announcement that our partners, Singapore Airlines, are going to be utilizing continuous pricing, I couldn’t help but remember my early days in the airline industry back in 2007.

My first manager had taken a chance on a fresh-faced full-time university student, and explained how airline pricing was limited by the 26 letters of the alphabet (well, 23 if you took out the booking classes saved for things like frequent flier redemptions, etc.)

At the time, I’d listened to colleagues in the Revenue Management department lament the fact that the fare ladder was severely limited in what they could do as all the plane’s inventory had to be divided up into these 23 booking classes. Eventually, there was some development with branded fares and unbundling of products but we’ll save that for another post.

So now we seem to be entering the age of continuous pricing within the airline industry. This is nothing new as our friends at United Airlines have been doing this for some time. It’s just growing in popularity and as one airline watches another announce profits, expect the trend to spread like wildfire.

Dynamic Pricing and Continuous Pricing - What’s the Difference?

Dynamic pricing allows airlines to offer prices using contextual information available at the time of shopping, such as time before travel or day of departure. 

Continuous pricing is just an evolution of dynamic pricing. This allows the airline to offer an unlimited number of price points, in real-time. When employed, the pricing offer becomes much more granular to adapt to supply and demand at each moment in time.

Imagine, a viral TikTok post slowly pushes demand up on all flights to Kansas City. The airline is able to maximize yields by adjusting the price increases slightly for each new customer instead of selling to all of them at a set price (and if this bothers you, then please help me petition our politicians for more high speed rail in North America).

The Impact of Continuous Pricing on Corporate Travel Programs

In a managed corporate travel program, the primary focus is on savings. After all, travel tends to be the third or fourth largest controllable expense within a company.

So how will this increase in the use of continuous pricing by airlines affect managed programs? Well, those who rely on booking technology that can’t display all of the airline’s pricing offers in one shop request are going to miss out on savings and will probably see price jumps get more rigid over time.

Today, I can get UA for $7 cheaper via NDC versus EDIFACT on EWR-LAX and this is a carrier that has not removed content from the GDS…yet.

Now, the old method of picking up the phone to your travel management company will not work either if they do not have all this content manageable at their fingertips. Afterall, no business would employ agents to go to all the airlines direct NDC portals to book and manage travelers - that would be unmanageable.

But if they are charging you a phone support fee, you may want to negotiate that down for content that they are not able to book and service themselves. This goes for airlines that have XML but do not participate in the GDS, like regional Canadian and Mexican airlines such as Flair or VivaAerobus.

What are the solutions to getting the best flight prices for business travellers?

There is no future-proof solution as the UI will constantly need to evolve to match the product and pricing offering from the supplier so that the managed program can place their controls on top. But switching your online booking tool to one that is able to display, manage, and track NDC bookings with full agent support (as well as sending it off to your expense provider) is a great start.

The second thing is to speak to the travel management company supporting your travelers. Ask them what their content sourcing strategy is. Are they relying solely on a GDS? Do they use an aggregator that they will need to bill you for? And what technology do they have in place to make this content bookable and manageable?

If you don’t get good answers then you’re not going to be able to manage this spend going forward. And maybe it’s time to take matters into your own hands and start looking for a more suitable technology partner.

Media contact

Andrew Harreiter

Head of Marketing

[email protected]

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Make hotel dynamic pricing work for your program

January 9, 2017

Capture the upside, while shielding against costly risks.

Hotel chains are pressuring corporate travel buyers to switch to dynamic pricing, a trend that will intensify in 2017. And many buyers are wary—with good reason. Dynamic pricing, in which hotels give a fixed discount on the best available rate on the day, usually works out to be more expensive than negotiated fixed corporate rates.

But the reality is that hotel chains increasingly are withdrawing last-room availability from corporate rates. That restricts traveler access to negotiated prices, so companies aren’t always getting what they bargained for anyway.

Some savvy travel buyers are taking a pragmatic approach. A recent Business Travel News survey of large corporate travel buyers shows just under half have adopted dynamic pricing in some way. That’s up from 20% adoption in 2011.

The strategy behind buyers’ increased adoption: To make sure business travelers always have access to a discount. Many of these buyers are allowing a portion of room nights to be governed by dynamic pricing, while also taking a hard line on using only negotiated rates in cities where they have significant spend.

Experts from Advito explore the pros and cons of dynamic pricing in the business travel consultancy’s 2017 Industry Forecast . Their conclusion: Dynamic pricing can have some advantages. It saves a lot of time on RFP negotiations and is better than simply accepting the market rate. It can occasionally be better than the corporate rate, too.

But, Advito experts warn, there is little doubt that switching entirely from negotiated corporate rates to dynamic pricing pushes up a client’s average rate over time. It also hampers accurate budgeting.

Dynamic pricing tops Advito’s short list of tips for travel buyers navigating today’s hotel market:

• Analyze your hotel data to ensure you have the right balance between negotiated rates (for primary markets), fixed chain-wide discounts and dynamic pricing (for secondary markets).
• Make sure your contract terms and conditions prevent hotels from imposing cancellation and change fees, which will become much more common in 2017.
• Keep on top of chains moving your preferred properties from one brand to another. It could lead to reduced services for the same price.
• Rates within individual hotels vary more than ever. Introduce a rate assurance program that actively monitors and re-books rooms when rates fall after the original reservation.
• If you haven’t already included Airbnb-type alternative accommodations in your program and travel policy, 2017 is the year to do so. Alternative properties are a good option if a preferred hotel refuses to negotiate or grant last-room availability.

Get more analysis and insights by downloading Advito’s 2017 Industry Forecast . Want to discover how to use the insights to improve your travel program? Talk to your BCD Travel account manager or email Advito at [email protected] .

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Dynamic Pricing

Dynamic pricing is the preferred pricing strategy for the travel industry. Revenue management professionals and complex machine learning systems set the pricing of airline fares and hotel rates based on supply and market demand and have evolved considerably since their use in the travel industry in the early 1980s. Deregulation by governments has seen this area flourish as a discipline.

Additional factors are often included in dynamic pricing algorithms that track broader market conditions such as competitor pricing, legislative restrictions (such as those born out of COVID-19, and even forecast weather conditions. Dynamic pricing is the reason that at any given time, two people purchasing the same product might effectively end up paying different amounts.

Counterintuitively, the lowest prices can often be found much closer to departure than commonly thought where advance purchase rates are perceived to be cheaper.

Airline revenue management systems are now able to file updated prices hourly which can mean travelers often pay far above the average market price for their tickets.

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Dynamic Pricing

Helping corporate buyers keep hotel costs in line with market conditions.

At a time when there may be nowhere “down” to go in negotiating corporate hotel rates, a once-dismissed buzzword has been quietly making the rounds: dynamic pricing.

Major hoteliers pitched dynamic pricing models to corporate travel managers  in a big way five years ago-in the midst of a boom and a solid sellers’ market. Fixed-pricing for corporate hotel rates was passé, some then said, touting yield-management techniques similar to airlines with variable, floating rates.

Back then, the idea landed with a thud, as travel management  resisted open-ended contracts and rates headed skywards.

The scene looks oh-so-different in a buyer’s market. Many people have seen retail prices for hotel rooms fall steadily lower than contracted rates. Not only does this entice travellers to book outside the travel program , companies can lose tracking data on those “buy-around” room nights, wrecking purchasing power.

Pricing strategy evolves Given the new realities, one buyer who welcomed the introduction of dynamic hotel pricing options in her travel management toolkit last year is Yvonne Kerns, who oversees the global travel category in corporate services of one of Canada’s Big Five banks in Toronto. An active member of the Association of Corporate Travel Executives, earning its Ambassador Award in 2009, Kerns has honed her knowledge as a corporate buyer managing a complex program that spends about $10 million a year with some 200 hotels.

“We still negotiate flat rates for [hotels in] all our major cities, which sets the ceiling. But we can now layer dynamic pricing on top of that,” she says, which means she always gets a discount off a benchmark, such as her travel management company’s consortia rate, with data tracked back to her program.

Her strategy is to set fixed, or capped, rates in preferred properties, and look for chain-wide agreements for uncapped dynamic pricing in lower-volume markets.

Sellers adapt to conditions To a buyer, a floating rate makes sense when things are headed south. But, nobody is quite as willing to toss out negotiated rates that hedge against future price increases.

“Clients still always prefer the fixed pricing, mainly due to the way they budget,” says Andrea Stavroulakis, executive director, global sales, business travel , with Fairmont Raffles Hotels International. At the same time, she says, it’s been important this year for hotels to address corporate concerns about price integrity.

In fall 2009, the Fairmont brands began extending global customers a negotiated discount off the best available rate at non-preferred hotels, in its version of dynamic pricing. For preferred hotels, a dynamic element can ensure the best available, unrestricted rate is automatically matched, retaining all the negotiated value-added.

“A few [buyers] have asked for it, and in other cases we have just presented it. It’s not a standard question in the RFPs , but I think there’s great value to be had there,” says Stavroulakis.

Similarly, Starwood Hotels & Resorts is also extending dynamic pricing options.

“I don’t have any floating rate structures in place, it’s all negotiated rates, but we do have a chain-wide discount on non-preferred hotels on a floating rate,” says Catherine McAuley, associate director, Global Sales, Starwood Hotels & Resorts Worldwide Inc. Upgrades in the reservation system now make it possible to automatically swap a corporate rate with a lower available rate that meets the same conditions.

“It’s been an interesting couple of years, for sure,” says McAuley. “The Canadian market has gotten so tight on rates, we have all really had to work to the strength of our relationships.”

by Julie Charles

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• Dynamic pricing is a staple of the travel industry, so why not rail?
• Our thinking

Related topics

Rail customers simply want to receive value for money for the fares they pay, so why is rail pricing so difficult to get right.

It’s true that the coronavirus pandemic has, in all likelihood, changed rail travel in the UK for good. S tatistics from the Office of Rail and Road show that prior to the pandemic (between January and March 2019), passengers made 443 million rail journeys, and ordinary ticket fares contributed £8.6 billion in revenue. In the same period this year rail journeys dropped by 37.9% to 275 million – reducing revenue from ordinary tickets to £5.3 billion.

It’s more important than ever to encourage people back on the trains, but pricing is a problem the industry has grappled with for decades. Research from Transport Focus in March 2020 found that value for money was the second most important improvement passengers wanted to see, following closely behind punctuality. Capita’s recent research found 57% of passengers find train tickets difficult to understand.

More pay-as-you-go and dynamic demand-led pricing

British passengers are currently faced with 55 million types of rail fare , and it can often be cheaper to book single tickets than one return. We clearly need to make this fairer and simpler for all and transforming to dynamic pricing is the answer.

Dynamic pricing makes costs highly flexible, based on demand and is used across many industries. Amazon is a leader , repricing millions of items every few minutes. Uber utilises surge pricing to balance supply and demand. Ticketmaster adjusts ticket prices according to the popularity of the artist or venue. Dynamic pricing is also a mainstay of the travel industry, from air tickets to hotel rooms.

The government’s Williams-Shapps Plan for Rail recognises that; “Fewer than half of journeys offer value for money”. However, it stops short of mentioning dynamic pricing by name. However, in May this year, the Centre for Policy Studies said; “We need ticketing to be far simpler, far more flexible on prices – including the abolition of the peak/off-peak divide – and far more digital.”

Rail Partners , which brings together independent owning groups, and train and freight companies, has said they would welcome more pay-as-you-go and dynamic demand-led pricing to spread demand more evenly across the day and week.

Blurred business and leisure travel

Now that hybrid and full-time home working has reduced passenger numbers at peak times, there’s an opportunity to rethink the concept of on and off-peak. Our research found that 51% of passengers would travel at different times if peak/off-peak restrictions were removed, which would spread out passenger numbers and make travel more comfortable and appealing.

Dynamic pricing could also personalise fares to business and leisure passengers. We know that leisure passengers are more likely to book their travel months in advance, while business passengers book last minute. As with air travel, dynamic pricing would enable the industry to launch tickets at a low price which then increases closer to departure.

No net-zero without rail

The Williams-Shapps Plan for Rail champions cleaner, greener railways, stating that; “Britain’s railways can and will spearhead the nation’s ambition to become a world leader in clean, green transport.”

So, it’s crazy to think that rail pricing is actively discouraging people away from the train and towards their car.  Dynamic pricing could overcome this by using data algorithms to reduce prices for trains with more capacity. Isn’t it far better, for the environment and the industry, to fill a train with passengers on a reduced fare, than put people off from buying and sending an empty train into the station?

This article was first published with t echUK as part of its Innovation in Rail week

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• Transportation & Logistics
• Thinking Beyond

Thinking Beyond , Travel

Why is dynamic pricing in travel no longer just an option.

Dynamic pricing in the travel industry was born to calculate at any time the price that can optimize a physical resource, such as the occupancy of a seat on an aeroplane, the place of checked baggage or a hotel room, depending on the approach of the date on which the event will occur.

Therefore, this approach to the pricing is born in those ambles to you in which it was not possible to contingent the resources like if they were of the supplies and, therefore, in those markets in which not to sell a product it means of it to see cancelled the value without but of it the costs.

The concept of dynamic price is tied almost automatically to two basic concepts of the economy: that of the elasticity of demand   (about this topic read our article )to the price and the theme of the optimized management of the resources.

To apply a dynamic price that holds account of the variations demand depending on the variations of the price of a product or service means, therefore, to characterize pricing in a position to being adapted to the characteristics of the consumers, able to change in the function of its evolutions and the time and that it concurs to the company to find the point of maximization of the own profits.

Instead, the management of the resources through the dynamic pricing concurs to stimulate the question when turns out less accentuated , to favour the purchases with wide advance , to reduce wastes and therefore to o ptimize the total results in function of the residual availability.

As is well known, dynamic pricing was theorized and used for the first time in the airline industry in the 1980s, and even today this pricing strategy is confirmed as a powerful weapon capable of maximizing occupancy and turnover in the travel world.

Dynamic pricing as a solution to three major problems in travel industry

At the base of this strategy, the correctness and reliability of the demand forecast are of fundamental importance. Only under these conditions can dynamic pricing resolve the three main risks faced by operators in the sector:

• Risk of dilution : accepting the request at a discounted price anticipating that subsequently there will be no possibility of selling at a higher price. This risks losing revenue if demand forecasts have been pessimistic. More generally, selling to a client at a lower price than the client would have been willing to pay.
• Spill risk: refusing demand, having reached available capacity too early, therefore not capturing that part of the demand that occurs close to the date and which, by its nature, expresses a very high value, as it is less sensitive to price.
• Risk of spoilage: leaving goods or services unsold, anticipating that new demand will arise closer to the date. The decision is thus made to refuse an earlier purchase at lower prices while waiting for a higher value demand. If the forecast is wrong, the risk is that occupancy will not be maximized.

Performing precise analysis of this type, however, in today’s environment often comes up against a vast complexity of variables that leads toward an increasing involvement of artificial intelligence in pricing .

Artificial intelligence to respond to complexity

AI and machine learning make it possible to automate complex formulas for dynamic pricing, allowing a large number of variables to be taken into account simultaneously. In fact, through artificial intelligence, it is possible to support revenue strategy choices based on a solid database. In this way, price becomes a fundamental lever through which to attract, stimulate and maximize potential demand.

Among the first players to have developed artificial intelligence algorithms in online sales are Airbnb and Amazon . Airbnb has created a sophisticated dynamic pricing algorithm in the tourism sector for hosts using the platform . In this case, the main variables that impact the final price suggested are the annual and weekly seasonality and the presence of events and holidays , in addition to these there are about 70 other variables for which an impact on demand has been analyzed. In this way, it was possible to maximize bookings for the dates available for each destination offered.

Amazon , on the other hand, was among the first players to use AI algorithms in the retail industry, dynamizing price according to consumer characteristics, demand trends and the number of items in stock.

What these well-known case histories highlight is the direction in which pricing strategies are heading, also for the travel sector. This is a new approach, strongly data-driven , that allows you to provide the price that optimizes the demand function , which takes into account the willingness-to-pay of consumers, price sensitivity and all those factors that impact daily purchase choices.

Having reached this extraordinary level of innovation, the alternatives to strategies to be applied are reduced. You can continue to sell at a fixed price, completely ignoring the characteristics, needs and opportunities of demand, or you can choose to be guided by the evidence that advanced data analysis offers us . Only in this way is it possible to embark on a path of growth and development in terms of maximizing commercial goals.

To learn more about the impact of dynamic pricing on the results of a travel company, read our case study with a tour operator .

Eleonora Savina

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clock This article was published more than  3 years ago

Could dynamic pricing be influencing how much you pay for your plane ticket?

Russell Pedley was confused. He booked two economy-class tickets on the same flight. One cost $110 more than the other — and the airline added a $50 fee when he inquired about the difference.

What caused the difference? One was booked through the United Airlines mobile app; the other through its website.

“Is it common for an airline’s app to show a better or at least a different price than their own website?” wonders Pedley, a retired publishing executive who lives in Chicago.

Most travelers assume that an airline will sell an economy-class ticket for the same price, no matter how you buy it. But airlines don’t just have different ticket prices. They’ve started to set fares dynamically, showing different customers different fares based on what they know about them and on market demand.

Joy Lu, an assistant professor of marketing at Carnegie Mellon University, says airlines are using sophisticated technology to determine how much a customer is willing to pay for a ticket. “To a traveler, that may seem like price discrimination,” she says.

It does to Pedley, who says he booked a flight for his wife through the mobile app. Then he used his desktop computer to log in to his United.com frequent-flier account, which identified him as a silver-level frequent flier. His wife’s ticket cost $560; his cost $670. He decided to contact the airline.

“I ended up calling the 800 number for Silver Elite status customers and then was charged a $50 fee for booking by phone. “If I have premier status why would I be charged a customer service fee?”

After finishing his reservation, Pedley complained to United in writing. The airline apologized and removed the $50 booking fee.

But the question remains: Are airlines showing different fares to passengers? United says it doesn’t change prices based on your platform. “If you’re looking at the United app and United.com at the same time, rates will always be consistent,” United spokesman Jonathan Guerin says. He says United may have had a limited number of lower fares available, which would have caused Pedley to see a higher price when he booked the second ticket.

Airlines have always had variable prices for seats. They range from super-discounted coach-class tickets to sky-high unrestricted first-class fares. But dynamic pricing takes the process a step further. It prices the tickets according to what the airline knows about you, including your ability to pay more — or less — for the ticket.

“As technology and data capabilities continue to allow more improved and targeted offerings, the ability to splash fares to elite members of the frequent-flier programs or others is going to become more prevalent and a trend we should see more of in the near future,” says Chris Sabby, a director at CWT Solutions Group, a corporate travel agency.

PROS, one of the companies developing dynamic-pricing technology for the travel industry, says this kind of pricing enables airlines to be more competitive. It might also save you money on some flights.

“It allows an airline to incorporate real-time market conditions, competitive perspectives, and customer attributes,” says Aditi Mehta, solutions strategy director for PROS. “For example, the price may increase in response to a surge in demand — or decrease in a market that has become more competitive.”

Consumer advocates are not persuaded. “Personalized airline ticket pricing is unethical,” says Edward Hasbrouck, an advocate who specializes in travel issues. “If an airline figures out from your Facebook that your mother is dying on the other side of the country, should it be allowed to charge you $10,000 for a ticket to see her before she dies?”

Terrence Cimino, a travel agent from Omaha, also says personalized airfares make him uncomfortable. “I shudder at the thought that airlines now have the ability to offer different fares to different people based on any criteria they might choose,” he says. “I don’t trust any airline to do anything that is remotely consumer-friendly.”

Customers don’t see many benefits to dynamic pricing, at least not yet. Gail Clark, a former chief executive who lives in Savannah, Ga., suspects that airlines use a form of dynamic pricing when she shops for airfares. “I check the fare, but don’t buy,” she says. “The next day, the ticket price is higher. I don’t buy, and the next day it’s even higher, so I buy.”

She asks, “Am I being paranoid?”

Maybe. Cheap fares sell out quickly, so waiting a day or two might result in higher fares without dynamic pricing. But if she uses a cellphone to find a fare one day and a laptop computer a few minutes later — and gets two dramatically different results — then that’s not paranoia. It’s probably dynamic pricing.

There are two strategies that can help you avoid dynamic pricing.

First, learn to use your browser’s “incognito” mode. It creates a private browser session that can foil the dynamic-pricing technology (just make sure you don’t log in to your frequent-flier account).

“The information stored in your browser helps the airline determine your demographic, geographical location, income and spending habits, to name a few,” says Philip Weiss, a digital nomad who specializes in technology. “So with this data, they can target customers with higher fares by assuming they are wealthy — or vice versa.”

Also, consider using a VPN (virtual private network), a more private way to connect to the Internet. That privacy can give you an edge when you’re shopping for airfares.

“If I select a U.S. IP [Internet protocol] address, the airline website shows me a higher fare,” he says. “If I select a U.K. IP address, then the website shows a lower fare.”

But advocates like Hasbrouck say the best solution is for airlines to stop personalized pricing before it spreads. Technically, ticket rules already forbid the practice, he says. But these rules, called tariff requirements, aren’t enforced by the government.

“In an age when more information than ever that could be used to personalize prices is available to travel companies, tariff requirements are more essential than ever,” Hasbrouck says.

Elliott is a consumer advocate, journalist and co-founder of the advocacy group Travelers United. Email him at [email protected] .

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The urge to surge: How dynamic pricing is taking over

As tourist attractions and restaurants follow hotels and airlines in using surge pricing, experts predict it could eventually cover all major purchases.

Visitors ride the Nemesis rollercoaster at Alton Towers, owned by Merlin Entertainments, which is introducing surge pricing at times of high demand. Getty Images

Few things are more annoying than sitting next to someone on a plane who is boasting about how much less they paid for their seat than you did.

Don't feel too bad – you've probably just experienced surge pricing. Your fellow passenger booked and paid for their ticket when demand was much lower than when you did, and the airline simply adjusted the price accordingly .

It's a common practice among airlines and hotels , and we are all familiar with the concept of “peak” and “off-peak” tickets, be they seasonal or even relating to times of the day.

Surge pricing, or dynamic pricing, is expected to become commonplace everywhere from cinemas and theme parks to supermarkets and restaurants.

It is arguably as old as economics itself – prices are flexible and are set according to the current demand in the market. As demand for a product surges, so too does the price.

The UK's largest theme park operator, Merlin Entertainments, announced this week that visitors to the likes of Legoland and Madam Tussauds will be subject to surge pricing. They will pay higher prices on public holidays and lower prices on weekdays.

Merlin Entertainments' revenue jumped 8 per cent to £2.1 billion ($2.6 billion) last year, and one in four visitors to London went to one of its attractions.

The company had a particularly rough time during the pandemic because of its reliance on international visitors, and using surge pricing is a savvy business way to improve its profitability.

So, if demand is not as high as predicted on a warm summer's day, prices can drop immediately. Likewise, if demand surges on a wet day in November, prices will adjust appropriately, providing true flexibility to the company's pricing model.

Merlin Entertainment said in a statement that such a pricing structure “makes sure that the peak period experience is optimised by avoiding overcrowding”.

The company also argued that surge pricing affords visitors to its attractions greater choice over when they come and how much they pay.

“This approach clearly works because our guest satisfaction is at an all-time high,” a spokesperson for Merlin said.

“Surge pricing is just a form of price discrimination, which is endemic in our economy,” Professor Nick de Roos of Liverpool University told The National .

“In its pure form, it refers to the practice of selling two units of the same good at different prices. This could be to the same customer (for example, a quantity discount or buy two get one free) or to two different customers.

“Hotels and airlines are classic examples. Usually, the pricing practices of hotels and airlines are referred to as price discrimination, but the term 'surge pricing' seems to have become more common recently.”

Online search and travel company Skyscanner sees air fares like any other commodity – prices will be higher when demand is higher.

One hack the company recommends is booking on a Tuesday, because most airlines will launch their discounted seats on Monday night. Travellers can save 15-25 per cent on ticket prices by doing this.

“Air fare pricing is complex, and there are many factors that determine the cost, from the itinerary to the flexibility of the ticket and the cabin class,” Hugh Aitken, vice president for strategic flights and industry partnerships at Skyscanner, told The National .

“However, the key determining factor for the price paid is largely due to demand.”

Anyone who has taken an Uber is familiar with surge pricing. Demand for rides tends to increase during rush hour or when it is raining and people do not fancy getting wet waiting for a bus. When demand increases, so do the ride prices.

“Some riders will choose to pay, while some will choose to wait a few minutes to see if the rates go back down,” Uber says on its website.

It's the same principle that Scott O'Neil, the chief executive of Merlin Entertainments, was referring to when he said surge pricing will keep queuing times at attractions in check during periods of high demand. This is how the strategy helps “protect the guest experience”.

Flexible prices that react to demand make perfect business sense. They allows companies to minimise unused capacity and maximise unit profit.

But as technological advances allow dynamic pricing to expand across different sectors, some are wondering where its limitations might lie.

Limitations and downsides

Is there a point where surge pricing doesn't work?

Some argue that it occurs when the consumer feels ripped off and the transaction itself is not perceived as fair.

In 1986, three American behavioural scientists, Daniel Kahneman (who died this week), Richard Thaler and Jack Knetsch, stated in the American Economic Review that customers often found surge prices frustrating and annoying.

In their paper Fairness as a Constraint on Profit Seeking , the three academics, two of whom would go on to win Nobel Prizes, offered a group of participants the scenario of a hardware store that sold snow shovels for $15. But the morning after a snowstorm the store put up the price of the shovels to $20.

Most of the participants, 82 per cent, said it was “unfair for the hardware store to take advantage of the short-run increase in demand associated with the blizzard”.

However, the degree of acceptance of surge pricing very much depends on the product, the time and the place.

For example, when the US fast food restaurant chain Wendy's announced last month that it was considering introducing surge pricing, meaning its hamburgers would be priced at different levels at different times of the day, there was a severe backlash and social media was littered with calls for a boycott.

Wendy's rival, Burger King, tried to entice customers away with a reactive “no urge to surge” promotion.

However, as sure as a burger comes with fries, you can be guaranteed that many of those outraged consumers booked Uber rides or airline tickets that same day without a flicker of concern.

“That a company uses surge pricing itself may not be judged as unfair, depending on expectations,” Eric Dolansky, associate professor of marketing at Brock University in Canada, told The National .

“Norms play a huge role here: we expect fluctuating prices from airlines, gas stations and Uber, so we don't look at it as unfair. If Wendy's starts doing it, we bristle because food is not a sector in which we usually see this.”

Incentives and choices

Likewise, companies may try to placate customer outrage with seemingly valid reasons for using surge pricing.

Ticketmaster's dynamic pricing system came in for harsh criticism in 2022, after some tickets for shows by singer Harry Styles doubled in price. While fan groups complained of being ripped off, the company insisted surge pricing kept ticket touts out of the system.

“Like sports teams, artist representatives and promoters recognise the benefit of pricing tickets closer to market value,” Ticketmaster said in a statement to the BBC at the time.

And while consumers may baulk at some surge pricing, Prof de Roos believes there's a limit to how much power they have.

“If price discrimination or surge pricing is well designed, an individual consumer will not have an incentive to shop elsewhere,” he told The National , “and we would expect that pricing practices would become increasingly well designed, with better data and information-processing tools.

“However, if consumers are able to co-ordinate their behaviour, then this could have an impact.”

But there are also tales of co-ordinated behaviour exploiting loopholes in the surge pricing system to the detriment of consumers.

Last year, Australian magazine Drive claimed there was evidence that groups of Uber drivers had colluded to log off the app in certain areas at certain times, thereby reducing the number of available rides and creating a false spike in demand.

“And when the prices start to surge, they all log back on – usually once it’s past double or triple the normal fare, and off they go, they clean up,” one anonymous driver told the magazine.

Nonetheless, much of the consumer opposition to surge pricing, such as it is, usually comes down to transparency and a perceived lack of information.

Economic theory stipulates that price discovery (the ultimate price that a seller and buyer settle on before a transaction is made) is enhanced in markets where there is transparency. In other words, the buyer and seller have a high degree of market information.

The trouble is, in most retail transactions the consumer has far less information than the seller.

For example, a supermarket will have a much clearer picture of the demand for chipotle chilli pepper than its customers.

With the advent of technology such as electronic shelf tags and stock control AI, if demand spikes the supermarket can increase the price of the pepper in less time than it takes to sneeze.

Indeed, the change could be so quick and so subtle that the customer probably will not even notice.

“Surge pricing will likely become more sophisticated,” Prof de Roos said, “or at least, the automation of surge pricing will likely be more sophisticated.

“What is new is the combination of sophistication and automation, with the potential for widespread deployment.

“Consumers should expect surge pricing to play an important role going forward.”

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Wendy’s Isn’t the First: Dynamic Pricing Is Everywhere

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

When word got around that the burger chain Wendy’s would start surging prices in 2025, the backlash was swift. What followed was a swarm of media coverage, outraged customers, late-night TV jokes and a bevy of spicy memes.

It seemed the fast food chain’s alleged dastardly plans were dead on arrival. That is, they might have been if surging prices for your Frosty and fries was what Wendy’s was really planning to do. Wendy’s quickly clarified that it wasn’t surge pricing, after all; it was actually using “dynamic pricing.” That distinction is key, but it’s still business-school speak that’s not clear to most people.

“I think they didn’t think through how people would interpret that phrase,” says Robert Shumsky, a professor of operations management at Dartmouth University’s Tuck School of Business.

Here’s the difference: Surge pricing uses real-time supply and demand data to raise — and only raise — prices. If you’ve ever tried to get a rideshare during rush hour, you’ve experienced how surge pricing hikes up the cost of your fare. Dynamic pricing, on the other hand, uses real-time supply and demand data to fluctuate prices up or down.

Rather than raising prices in response to high customer demand, as the public assumed, Wendy’s says it plans to use artificial intelligence algorithms to lower prices during slow times, according to a statement from Wendy’s to NerdWallet on Feb. 27.

All of this is to say that what Wendy’s is doing isn’t all that new. Consumers are already paying for goods and services set by dynamic pricing in lots of industries — including food and hospitality.

However, technology is making it much easier to alter prices in real-time using an algorithm. And the availability of that resource has its appeal to businesses that hadn’t previously been able to price based on real-time factors.

On the surface, the most puzzling piece of the reaction to Wendy’s is that its competitors — McDonald’s and Burger King — already do dynamic pricing. They, along with Starbucks, offer promotions during slow parts of the day and offer perks (and even lower prices) for ordering via apps.

The lesson of Wendy’s is that just because businesses can do that, it doesn’t mean customers will like it — especially if they’re more aware that it’s happening.

“I think the big question now is whether there's a change in consumer acceptance, over time,” says Shumsky. “When it's rolled out in an industry, either it's going to be rejected or it's kind of become the norm, right? It became the norm in some industries, but as you saw from the reaction to Wendy's, sometimes that doesn't work very well.”

Dynamic pricing is all around you

Anyone who has ever booked an airline ticket or a hotel room has already paid an amount set by dynamic pricing. These industries were, and still are, the dominant space for the model.

But those prices are primarily set based on seasonal factors. For example, more people travel in the summer months, so airline tickets are more expensive in the summer. Gas prices go up on holiday weekends when more people will be on the road. Electricity is more expensive when it’s hot out because more people are using air conditioning. Ski lift operators can lower prices when conditions are subpar.

Other influences on pricing include patterns of consumer behavior — the longer you wait to book a flight, the more you’ll pay. Hotel bookings and Airbnbs tend to cost more on weekends. Amusement parks like Disney World and Disneyland set prices based on historical data, such as how long lines take at the Jungle Cruise during peak months.

But the algorithms used in dynamic pricing are more sophisticated than they once were, and AI can analyze more data than ever before. Data can be collected about the weather at any moment rather than what’s typical during a season. Algorithms can factor in the volume of customers in real time as opposed to relying on long-standing consumer patterns.

E-commerce has also been doing this for quite some time. Amazon, for example, automates pricing based on real-time data about consumer behavior, supply, demand and competitor offerings. All of that data analysis churn enables rapid price changes.

One visible example of dynamic pricing you’ve probably encountered is ordering food through delivery apps. Restaurants can change the prices listed on apps like DoorDash or Seamless at any time. That goes for grocery delivery, too. You’ll typically find higher prices on a third-party delivery service than you would inside a restaurant or store. That’s largely due to the fees that these apps charge restaurants, but there are other supply-and-demand factors at play, as well.

How technology enables even more dynamic pricing

More advanced algorithms means dynamic pricing can be deployed easily and efficiently. In turn, businesses that use AI-enabled dynamic pricing may have more certainty over what they should charge at any given time. But on the flip side, it also means consumers may have less accurate expectations about what they’ll be charged.

Restaurants, for example, have always had happy hours and other common, mostly minor, price fluctuations, says Zach Brown, assistant professor of economics at the University of Michigan. Unexpected price changes are relatively new for restaurants, and consumers might be annoyed and confused to find the cost of an item higher than expected. Brown uses the example of a restaurant that implements dynamic pricing for a $10 item and sometimes charges $8 and other times charges $12 depending on demand.

“ I will say that these things typically benefit sophisticated consumers. Maybe they’re checking the price online and they’re saying, ‘OK, let’s go now because prices are lower.’ ”

Digital menus have made price changes even easier. Think of QR-coded menus that were widely adopted for sanitary reasons during the pandemic — many restaurants are keeping those around because it’s a lot easier to change up a menu online than it is to print a new one. Those digital menu boards that Wendy’s plans to introduce next year are what make its dynamic pricing implementation possible.

“I think the issue historically has been that technology was just not available,” says Brown. “You can program software to do it for you so you don’t even need a manager thinking about what prices to set.”

Changing prices digitally rather than manually has made a splash among big chain retailers, as well. Grocery stores like Kroger, as well as the shopping behemoth Walmart, have instituted electronic shelf labels that enable more rapid price shifts.

“At grocery stores they had to, by hand, go around and stick tags on things,” says Shumsky. “Now they can electronically change them, and that makes price changes easier to roll out in real time. There’s also certainly better algorithms behind the scenes to monitor demand and supply and to adjust prices in real time.”

Prices end up being lower for some people and higher for others, says Brown. “You end up with kind of winners and losers,” he says. “I will say that these things typically benefit sophisticated consumers. Maybe they’re checking the price online and they're saying, ‘OK, let's go now because prices are lower.’”

All of that data gathering and analysis done by AI doesn’t end at setting prices. The technology can also directly influence shopping habits and encourage cross-selling, says Shumsky. Again, it’s typical for e-commerce brands to use algorithms to offer targeted advertisements and sales to consumers — one scroll through Instagram will show you how that’s deployed. But brick-and-mortar retail is trying to catch up, and the same AI tech that’s used for dynamic pricing can help guide customers toward products and deals, too.

For example, in “Store Mode” on the Kroger shopping app, customers can get personalized recommendations and be navigated toward items they’re looking for. Meanwhile, Wendy’s says AI technology can also nudge customers toward products based on factors like the weather; as the company offered in a statement, “a suggestion of a cool Frosty on a warm summer day.”

AI-driven algorithms are only getting better at optimizing what they spit out and, frankly, that could be concerning, says Brown. “I do think we need more transparency about what these algorithms are doing,” he says. “Some pricing algorithms are probably innocuous and could even benefit consumers in some cases. Some are probably not.”

How do AI-driven algorithms work in dynamic pricing?

Ashwin Kamlani, co-founder and CEO of Juicer, an AI-driven dynamic pricing company, says that AI makes it easier to take mass quantities of data and run analysis on them, but much of what it spits out is experimental. “We are trying to see how to make the forecast and analysis of results more efficient and smarter,” he says.

For example, AI can find patterns using historical data in a very gradual and specific way, says Kamlani. “You need to be able to look for patterns that are repeatable. So how often do we see consistency in a way a certain product is ordered over time to an extent that we can predict, with a certain degree of confidence, that on Thursday between 5 p.m. and 10 p.m., this restaurant will sell this many chicken wings on DoorDash at that location.”

“ From a consumer point of view, having predictable prices has huge advantages: You want to know how much you’re going to spend on something. And if they’re fluctuating, it can be really, really frustrating. ”

AI can be applied to analyze more than just the chicken wings sales on their own. It can take machine learning to see what external factors might have influenced those sales. Kamlani says, “Our solution said that this Thursday based on the fact that there’s a game on and the weather is going to be x, y or z, and this is what happened in the past and this is what we predicted, how accurate was our forecast? And if we’re off, let’s figure out why we were off and try to fix that so our prediction can get more and more accurate.”

Competitive analysis is expected to make an even bigger difference in determining what prices to set at what time and where.

What’s the future of dynamic pricing?

There’s a fundamental barrier that businesses have to get past, says Shumsky: consumer expectation.

“From a consumer point of view, having predictable prices has huge advantages: You want to know how much you're going to spend on something,” says Shumsky. “And if they're fluctuating, it can be really, really frustrating.”

Experts say that anyone selling goods is likely to use dynamic pricing without much fallout — it’s what buyers have come to expect. “For everything that’s going to be purchased online, I think dynamic pricing is a real possibility in the future,” says Brown.

Even if dynamic pricing can be deployed more easily and in more business-related industries than ever before, that doesn’t mean it will. If consumers aren’t used to rapid price shifts, they may reject it.

Ticketmaster , the event ticketing goliath and notorious deployer of dynamic pricing, landed itself in hot water with the Department of Justice for its surge pricing fiascos in recent years, when prices for Taylor Swift and Bruce Springsteen spiked to thousands of dollars per premium ticket. Artists like Swift and Springsteen, along with Harry Styles, Paul McCartney, Coldplay and others have the option to turn off dynamic pricing for their concerts, but they have often chosen not to do so.

When the movie theater chain AMC tried to roll out its own version of Ticketmaster’s dynamic pricing model last year, consumers quickly — and loudly — rebuffed it.

All that said, consumer disdain isn’t necessarily so effective if actual demand remains. Surge pricing for rideshare services like Uber and Lyft have long drawn the ire of users during peak times even though, as Shumsky points out, higher fares increase the cut of the fare for drivers, which often brings more drivers out to increase the supply of drivers, which eventually declines prices. But let’s face it, nobody likes price surging.

Last summer, Lyft CEO David Risher reportedly said during an investing call that the company planned to kill off its policy of surging prices because “riders hate it with a fiery passion,” but in the fall, Risher walked back his comments.

Despite Wendy’s insistence that it never said “surge pricing” and it’s not going to be doing surge pricing, the damage was done. Price-sensitive consumers, already bearing the weight of inflationary cost rises over the past two years, were not pleased.

Now the burger chain is offering what appears to be a mea culpa in the form of $1 burgers through April 10 (it’s ostensibly for March Madness, but the sale looks a lot like a public relations scramble). However, despite the backlash to its dynamic pricing plans, Wendy’s doesn’t say it plans to reverse course: Come 2025, you can expect price fluctuations to roll out on digital screens at certain Wendy’s locations.

Other fast food chains may follow, but Brown says he’s interested to see how common dynamic pricing becomes in the restaurant industry more generally.

“I do think there are some people that are annoyed by prices that are constantly changing; they want some certainty,” Brown says. “I think there are some people that want to go to a restaurant where they're handed a printed menu. I think it will be awhile before we see an upscale restaurant adopting dynamic pricing — there’s just something a little unsavory about it. But who knows, maybe in five or 10 years the norms will change.”

Customers at high-end restaurants are used to paying market price for certain fish, lobster and oysters. But they might balk at doing the same for a roast chicken, for example.

Shumsky says much of the services sector is less likely to adopt dynamic pricing models. “Many services require relationships and trust between providers and consumers, so if you're changing your prices you're violating an implicit contract,” says Shumsky, adding that your massage therapist or physical therapist likely cares more about keeping a client relationship than a few extra bucks. He says health care is also unlikely to adopt dynamic pricing.

“There are certain norms that we’re not going to violate here,” says Shumsky. “It hasn’t reached its limit, but I don’t think you’re going to see it everywhere.”

How consumers can take advantage of dynamic pricing

Dynamic pricing can be downright annoying for the consumer, but it also creates an opportunity to milk the benefits. That is, if you’re willing to put the time and attention into it.

Loyalty programs — often accessed via apps — like those offered by grocery stores, airlines , hotels and fast food chains are a convenient way to keep track of price fluctuations. And, as mentioned before, those programs usually offer perks like points toward free items and small discounts for using the app to make purchases.

You can also likely predict slower periods in any given day or week when companies might offer savings. By the same token, you can reasonably anticipate when there’s going to be higher demand and avoid making purchases during those times.

After all, dynamic pricing relies on timing in order to work. If you, the consumer, can strike at the right time, you too could reap the rewards.

(Photo illustration images via Getty Images, clockwise from left: McDonald’s photo by Joe Raedle/Getty Images; Amazon by Spencer Platt/Getty Images; Wendy’s by Justin Sullivan/Getty Images)

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Legoland implements dynamic ticket pricing ahead of summer

The theme park is adopting the strategy ahead of the busy vacation season.

With spring break in the rearview, families may be setting their sights on summer vacation plans, and some theme parks are rolling out new demand-based pricing structures for the upcoming peak season.

Dynamic pricing, adjusting prices based on increased demand and busier times, is not a new concept for sales during high traffic seasons. This summer, some Legoland locations are adopting the strategy.

A spokesperson for Merlin Entertainments, the theme park's parent company, told ABC News in a statement that the company "regularly review[s] our pricing structure and admission prices" in order to "deliver the best value and experience for our guests."

The CEO for Merlin Entertainments, which also owns Madame Tussauds, the Sea Life aquariums and other international resorts and attractions, told CNBC in an interview earlier this week that prices would go up, for example, on weekends during the summer and trend cheaper on a rainy weekday.

"At least for our business, surge pricing is not the name, it's dynamic pricing," Scott O'Neil said, adding that "it actually protects the guest experience."

O'Neil added that dynamic pricing can help parks address overcrowding and thus lengthy wait times for attractions. "You don't want to go to Legoland Florida, or Legoland New York, or Legoland California, or Madame Tussauds right down the street here and wait hours in line," he said.

According to the Merlin Entertainments spokesperson, the pricing "is in line with the marketplace and we reduce them in off peak periods."

"This approach clearly works because our guest satisfaction is at an all-time high," they continued. "This change brings us in line with competitors and the broader holiday industry that have similar pricing structures, which benefit guests who choose to book off-peak."

Discounted prices are available on Merlin multi-attraction tickets.

Competitors such as Disneyland have similar ticket pricing structures, with the happiest place on earth offering a tiered system.

Disney has utilized dynamic pricing since 2018 to charge more on tickets at parks on busier days and less on days with less attendance.

Disney parks have historically increased prices on weekend and holiday tickets to encourage flexibility and attendance on days with lower demand.

Disney is the parent company of ABC News and "Good Morning America."

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Surge pricing is coming to theme parks

• Theme parks are the latest industry to implement a form of surge pricing.
• Merlin Entertainments, which owns Legoland and Madame Tussauds, plans to start "dynamic pricing" at its top attractions.
• Wendy's drew backlash  and quickly walked back its announcement about exploring dynamic pricing.

If you're planning a visit to Legoland, you might want to first consider if it's going to be a busy weekend — it could end up costing you.

Visitors to certain Legoland locations will soon start experiencing surge pricing — or "dynamic pricing," as the CEO of the company that owns the parks calls it — based on fluctuating demand.

Legoland owner Merlin Entertainments plans to implement the system for its top 20 global attractions before the end of the year, a spokesperson confirmed to Business Insider. Merlin, which also owns Madame Tussauds and the Sea Life aquariums, will extend dynamic pricing to its other Legoland locations in the US next year, the Financial Times reported.

The new system would charge visitors more during peak times, such as sunny summer weekends that draw higher attendance, than it would for rainy weekdays in the offseason, Merlin CEO Scott O'Neil told CNBC in an interview Monday.

"At least for our business, surge pricing is not the name, it's dynamic pricing," O'Neil said. "And that actually, ironically, does two things: It actually protects the guest experience.

O'Neil said in the interview that dynamic pricing will help the parks, which have a limited capacity, deal with fluctuating demand in a way that cuts down on overcrowding and long wait times.

"You don't want to go to Legoland Florida or Legoland New York or Legoland California or Madame Tussauds right down the street here and wait hours in line," he said.

"You take the prices up, it keeps the numbers down to a reasonable number," he said. On days without as much foot traffic, the park could then lower the price of admission and attract those looking for a bargain.

O'Neil declined to provide specifics on the pricing swings under the model, but suggested that guests attending on off-peak days could potentially see a 10% discount, or even "a bit more."

A company spokesperson told BI that they didn't have specifics to share yet on whether there would be a price limit for any price hikes under the new model.

"For those of us who are a little more budget-conscious, a little more value-based, what an opportunity to have more people be able to experience it on the shoulder times," he said, referring to discounted prices.

Price fluctuations are not new for Merlin properties, which already reduce entry fees during off-peak periods. But the dynamic pricing model is a step further, incorporating more data to better drive demand and adjust things more quickly, the company told BI.

"This change brings us in line with competitors and the broader holiday industry that have similar pricing structures, which benefit guests who choose to book off-peak," a Merlin spokesperson told BI.

When pressed by CNBC on how families who are only able to visit during peak times, such as spring break or summer vacation, would deal with potentially higher prices, O'Neil said that the flexible entry fees were "more important than anything."

Surge pricing has gotten more popular in recent years, thanks in part to the popularity of ride-share apps like Uber. While industries like hotels and airlines have used it for decades, other businesses like restaurants and movie theaters are increasingly following suit.

Earlier this year, Wendy's faced swift backlash after announcing that it would experiment with dynamic pricing with its menus, though the fast food company later walked this back and clarified that it did not plan to raise prices in response to high demand (the company said it would, however, lower prices to drum up interest during slower periods).

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Legoland and Alton Towers owner plans to charge more at peak times

Merlin Entertainments says surge pricing will help offset decline in visitors since Covid pandemic

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The owner of Legoland, Alton Towers and Madame Tussauds is planning to introduce budget airline-style surge pricing, so families will pay more on peak summer weekends than rainy weekdays, as visitor numbers have fallen since the pandemic.

Scott O’Neil, the chief executive of Merlin Entertainments , which owns 141 attractions in 23 countries, said the group was aiming to introduce a dynamic pricing model – widely known as surge pricing – at its top 20 global attractions by the end of this year, and big US attractions next year.

“If [an attraction] is in the UK, it’s August peak holiday season, sunny and a Saturday, you would expect to pay more than if it was a rainy Tuesday in March,” O’Neil told the Financial Times.

The system will use machine learning to flex prices in response to supply and demand – in a similar way to that already deployed by cut-price airlines, cab-hailing services such as Uber and some hotels.

Technology has made the technique increasingly popular with companies, but less so with their customers. The US burger chain Wendy’s was forced to rush out a statement promising it “would not raise prices when our customers are visiting us most,” – and only drop prices at less popular times – after announcing it would begin to trial surge pricing last month.

Merlin said in a statement that the new system “brings us in line with competitors and the broader holiday industry that have similar pricing structures, which benefit guests who choose to book off-peak”. It said the changes would “enable greater flexibility for guests booking online to choose discounted prices for select dates and times.”

“To ensure we continue to deliver the best value and experience for our guests, we regularly review our pricing structure and admission prices in line with the marketplace and we reduce them in off peak periods. This also makes sure that the peak period experience is optimised by avoiding overcrowding. This approach clearly works because our guest satisfaction is at an all-time high.”

The scheme emerged as Merlin, which was taken private in 2019, revealed sales had risen 8% last year to a record £2.1bn, led by the return of international tourists to big cities including London where the group operates the London Eye and the London Dungeon as well as Madame Tussauds.

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However, visitor numbers to the company’s attractions had yet to return to pre-pandemic levels. About 62 million people visited its 141 attractions across 23 countries last year, 13% up on the previous year but still well below the 67 million visitors recorded in 2019.

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Southwest red-eye flights still in pipeline, don't bank on overnight travel this year

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The Washington Post first reported information about red-eye flights with Southwest, which is something the airline has previously stated publicly is part of its business plan, but is still a few years out.

During a recent travel conference that spurred interest in the news, Southwest Chief Commercial Officer Ryan Green said that when it does come to fruition, overnight routes will likely only account for a low number of flights in the carrier's schedule, around 50 per day.

A representative for the Dallas-based airline confirmed to ABC News that overnight flying has long been in the Southwest pipeline, but is not yet near an announcement for bookable travel.

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