Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Hotels Price Empty Rooms Last Minute
Transcript
- Lucas: Let's talk about the hotel industry's pricing engine. It is not just a front desk clerk adjusting numbers based on how full the lobby looks. Modern hotels use sophisticated revenue management systems that update prices multiple times a day. Luna: So it is less about intuition and more about data? Like, what exactly are those algorithms looking at to decide if my room goes up or down? Lucas: Exactly. They look at historical booking patterns, current occupancy levels, local event calendars, and even competitor rates from nearby properties. For major chains like Marriott International and Hilton Holdings, these systems are integrated into their central reservation platforms. Luna: That sounds intense. Do they actually raise prices when they see a big convention coming to town? Lucas: They absolutely do. If a city is hosting a massive tech conference, the system flags increased demand well in advance. Prices start creeping up weeks before the event, peaking right around check-in dates. It is classic yield management applied to perishable inventory. Luna: Right, because an empty room tonight can never be sold again. The value drops to zero after midnight. Lucas: Precisely. That perishability is the core driver. A seat on a flight or a night in a hotel loses all value once the service date passes. So the goal is to sell every single unit at the highest possible price point without losing volume. Luna: It feels almost predatory sometimes. I book a room two weeks out and it costs half of what it did yesterday. Lucas: That is the flip side of dynamic pricing. If you book too early, you might miss out on last-minute discounts when the hotel realizes they have unsold rooms. But if you wait too long, you risk paying a premium during peak demand. It is a game of timing against the algorithm. Luna: Do smaller independent hotels use the same tech, or is this mostly for the big brands? Lucas: The barrier to entry has dropped significantly. There are cloud-based revenue management tools available to boutique hotels and small chains now. They don't need the custom infrastructure that Marriott uses, but they can access similar market data feeds. Luna: So everyone is playing the same game now. How does a small owner compete with a giant corporation's pricing power? Lucas: By leveraging direct bookings and loyalty perks. Big chains try to lock you into their ecosystem so you bypass third-party sites. If you book directly through Hilton or Marriott, you often get better rates or added benefits like free breakfast. Luna: I definitely notice that. I always check the brand website first before looking at aggregators. Lucas: Smart move. Aggregators take a commission, which forces hotels to inflate base rates slightly to cover that cost. Booking direct keeps the margin structure cleaner for the property. Luna: What about corporate travel? Do companies have different rules or negotiated rates? Lucas: Yes, corporate negotiated rates are usually fixed for a period, often a year. These rates are typically lower than public dynamic prices but higher than the absolute floor. Companies pay a premium for price certainty and flexibility. Luna: So businesses trade potential savings for predictability. That makes sense for budgeting purposes. Lucas: It does. And those negotiated rates often include cancellation policies that are much more forgiving than standard public bookings. In volatile economic times, that flexibility is worth its weight in gold. Luna: I am curious about the psychological aspect though. Does knowing the price is changing make people feel anxious or empowered? Lucas: Mostly anxious. When you see a price ticking up on your screen, it triggers loss aversion. You feel compelled to book immediately rather than risk the price going higher tomorrow. It creates urgency that drives conversion. Luna: That is clever manipulation. Using fear of missing out to close the sale faster. Lucas: It is effective, but it also breeds distrust. Travelers are becoming savvier about when to book. Many now use price tracking tools to monitor fluctuations over days or weeks before committing. Luna: Tools that beat the house. I love that. Are there any regulations limiting how high prices can go? Lucas: Generally no. As long as the hotel discloses the total price including taxes and fees, they can charge what the market bears. Some cities have considered caps during emergencies, but those are rare exceptions. Luna: Makes me think about airline tickets. Same logic, just different interface. Lucas: Very similar. Both industries treat their inventory as highly perishable assets. The difference is that hotels have more granular control over room types and amenities, allowing for more nuanced pricing tiers. Luna: Like upgrading from a standard view to a suite. That must drive significant margin improvements. Lucas: Absolutely. Upselling at the point of sale or even pre-arrival is a huge revenue stream. Hotels use email campaigns to offer upgrades at discounted rates to fill specific inventory segments. Luna: So it is not just about the room rate. It is about maximizing the total spend per guest. Lucas: Correct. Ancillary revenue from dining, spa services, and parking adds up quickly. The room rate is just the entry ticket to a broader spending ecosystem. Luna: It seems like a incredibly efficient system if you are the one setting the prices. Hard to argue with that kind of optimization. Lucas: It is efficient, but it requires constant calibration. Economic shifts, fuel costs, and labor shortages all impact the underlying cost structure. Revenue managers have to adjust constantly. Luna: No wonder they pay those professionals so well. They are essentially trading desks for hospitality. Lucas: That is a perfect analogy. High frequency trading meets front desk operations. The stakes are lower per transaction, but the volume is massive. Luna: I never thought of it that way. Next time I book a room, I will keep that trading floor image in mind. Lucas: You should. It changes how you view the final number on the screen. It is not random. It is calculated. Luna: Before we wrap up this segment on hospitality economics, I want to mention something important about how this show exists. Lucas: Right. We run completely listener funded. No ads, no sponsors. Just a community of smart listeners who chip in monthly via buy me a coffee dot com slash fexingo. Luna: It literally covers our production costs and lets us keep digging into these topics. If this conversation helped you understand your next trip better, consider supporting us there. Lucas: Thanks for keeping the signal clean. Now, back to the data. What happens when a hotel underperforms its forecast? Luna: Do they panic and slash prices, or do they hold steady hoping demand returns? Lucas: They usually trigger aggressive discounting channels. Flash sales, opaque booking sites where the hotel name is hidden until purchase, and targeted email blasts to lapsed customers. Luna: So the price you see on the main site stays high, but if you know where to look, you can find a deal. Lucas: Exactly. The system protects the brand value on the primary channel while clearing inventory through secondary avenues. It is a delicate balance between revenue and reputation. Luna: I bet the marketing teams hate that. It feels like cannibalizing your own direct sales. Lucas: They do. But the alternative is empty rooms. Better to sell at a discount than not sell at all. The math is unforgiving. Luna: And the consumer wins if they play the game correctly. Knowledge is leverage. Lucas: Always. The question is whether you have the patience to wait for the right moment, or if convenience costs you extra. Luna: Convenience always has a price tag. I guess I will keep watching those trends then. Lucas: Do it. And remember, the algorithm is watching you too. Your search history shapes what you see next.