Do you use a fixed price list? We have bad news for you
Applying fixed prices to your rooms costs a lot more than you might realize.
Ah, the good old price list: practical, convenient and easy to update.
Just give it a quick glance to know the room prices at any time and create any quote.
The perfect tool for an accommodation facility, right?
Not really, indeed...
Relying on the fixed price list means using an outdated tool that makes you lose far more revenue than it yields.
In the next few lines you will find out why.
When it made sense to use the fixed price list
In the second half of the last century, thanks to the economic boom, tourism quickly became a popular phenomenon throughout the West.
As demand and profit margins soared, people sought an easy-to-manage pricing model. The fixed price list then became the ideal solution, along with offers, packages and "special price lists" for partners and intermediaries.
With the advent of the Internet in the late 1990s, tourism demand changed and became more varied, demanding, and price-conscious. In addition, the supply of services increased, and profit margins shrank dramatically.
Is it possible to still survive in this "fluid" environment with a "rigid" business model such as the fixed price list?
According to substantially all insiders, one cannot.
Disadvantages of the fixed price list
We have already outlined the economic and cultural reasons why this pricing model is obsolete. Now let's get down to specifics and see the damage the fixed price list model continues to do to your business on a daily basis.
In a stable situation, the demand for rooms during the low, medium and high seasons is quite predictable. However, demand varies consistently due to several external factors beyond your control, including:
- varying holiday schedules
- weather situation
- events calendar
- socio-economic and political environment
- actions of competitors
In unpredictable years such as the Covid pandemic, these fluctuations in demand become even more substantial and generate major repercussions.
A fixed list price, unlike a dynamic price, cannot adapt to the situation, and if demand deviates consistently from the usual, there are only two possible scenarios.
1 - You lose revenue
If demand is higher than expected, it is more difficult to find accommodation and customers are willing to pay a higher price than usual in order to secure one. If you miss the opportunity to adjust room rates, you miss the opportunity to increase revenue for that period. You basically manage to sell your rooms, but at a much lower price than people can spend.
2 - You are left with empty rooms (and lose revenue)
If demand is lower than expected, the market is more competitive and customers are less willing than before to pay the usual price. In this case, with fixed prices, there is a real risk of watching helplessly as the number of unsold rooms increases, resulting in lost revenue.
Between lost potential revenue and lost actual revenue, if you use fixed list prices you risk burning through thousands, if not tens of thousands, of potential profit per year!
Offers and packages are not enough
Now you might counter by arguing that even if you start with fixed prices, with special offers such as "book early" or last minute deals, you can compensate for the rigidity of the list without losing the benefits.
In a way this is true, but in a much more limited and risky way than you think.
Limited because the offers, to be credible and therefore effective, must have precise conditions of adherence, including a deadline. If, as in the case of "book early", the deadline arrives and the expected sales quota has not been reached because of an unforeseen fluctuation in demand, you cannot extend it or replace it with an equivalent offer because you risk losing credibility and thus effectiveness.
The practice of last minute offers, if used systematically, also inevitably undermines the company's business credibility.
Packages then, although they can diversify the offer and increase revenue from ancillary services, become useful if demand has been underestimated, but they are usually ineffective when demand has been overestimated, and they are not all that much more discreet than a last minute deal if used as an emergency measure.
A viable alternative to the fixed price list
For all these reasons, dynamic pricing fares significantly better than fixed list prices.
As insiders, we watch every day as new facilities make the cultural leap and, after a relatively short period of adaptation, improve their performance significantly and never go back.
To apply dynamic pricing correctly, one must collect and analyze data on one's company's economic performance. This is a break with the past and provides for a more managerial approach to the business administration of an accommodation.
Smartpricing can help you in this process!
The software processes a myriad of data independently and finds the right price for your rooms at any time of the year.