Pricer’s Points: Is dynamic pricing good for restaurants and hotels? | Linchi Kwok

According to the theories in classical economics, an equilibrium price of a product will be reached in a free market when supplies meet demands. When supplies remain stable, an increase in demands will result in a higher selling price for the product.

Restaurants and hotels offer service products that are perishable in nature (e.g., restaurant seats and hotel rooms), where supplies cannot be easily adjusted according to the fluctuating demands, so managers often manipulate price as a means to maximize revenue. When managers deviate a product’s selling price from its “regular” price as they respond to fluctuating demands, we may say that these managers adopt a dynamic pricing strategy.

In the lodging industry, however, the effects of dynamic pricing might not be as straightforward as those in the restaurant industry.

According to a Cornell Hospitality Report, hotels with a price-cut strategy for higher occupancy (shifting to a lower price category) experienced a greater loss in RevPAR (revenue per available room) than those shifting to a higher price category. Meanwhile, the authors also suggested hotels should maintain a relatively stable price positioning strategy (not shifting upward or down).

Likewise, another empirical study reported in International Journal of Hospitality Management suggested that dynamic price movements might only be able to enhance a hotel’s RevPAR performance in the short term. Dynamic pricing, depending on the types of price movements, would have negative impacts on a hotel’s RevPAR performance in the long term.

It seems the dynamic pricing strategy adopted by Bob Bob Ricard is different from the ones used by hotels, however. Plus, running a restaurant is different from operating a hotel. It will be interesting to see whether dynamic pricing works well for restaurants in the long term and whether other restaurants will follow Bob Bob Ricard’s footprint in dynamic pricing.

Read complete article here:

Is dynamic pricing good for restaurants and hotels?.


Post a Comment

WP-SpamFree by Pole Position Marketing