If you’ve ever managed a hotel and noticed how rates soar during peak times, then you’re familiar with a version of surge pricing. It’s a strategy often used by the most successful hoteliers to maximise revenue when demand is high. But what is surge pricing exactly, and how does it apply to hotels? In this guide, we’ll explain surge pricing, provide real-world examples, and help you decide if it’s right for your property.
Understanding Surge Pricing in the Hotel Industry
Surge pricing is a pricing strategy where rates increase in response to heightened demand. In the hospitality industry, it means charging more during periods of high occupancy and demand, like holidays, events, or weekends. Think of it as a way to optimise profits when the opportunity arises, ensuring you’re not leaving money on the table.
To put it in practical terms: let’s say your hotel is located in a popular winter destination. Every year, from December to February, tourists flock in for ski season. During this period, hotel surge pricing lets you raise rates because demand is naturally higher. Travellers are more willing to pay a premium, so by increasing rates, you’re able to boost revenue and make the most of this high-demand period.
How Does Surge Pricing Work for Hotels?
So, how does surge pricing work in practice? The beauty of this approach lies in its flexibility. When the demand for rooms rises suddenly, your prices do too. And when things are quieter, your rates can return to normal levels. Hotels might set surge pricing automatically using software, or manually if they prefer a hands-on approach.
Example: Imagine there’s an annual music festival near your hotel that draws thousands of visitors. Typically, your room rate might be £100 per night, but during the festival weekend, that rate could rise to £200 or more, depending on demand. Because people attending the festival are more focused on securing a place to stay than on cost, they’re generally more willing to pay a higher rate.
For hoteliers, the goal of surge pricing is twofold: increase revenue and maximise occupancy during those limited high-demand windows. By raising prices only when demand is up, you’re able to optimise revenue without drastically altering your base rates during quieter times.
The Benefits of Surge Pricing for Hotel Revenue
Surge pricing can be a goldmine for hoteliers, especially in peak locations or seasonal destinations. But let’s dig into why this approach works so well.
- Boosts Revenue in Peak Times: When guests are willing to pay more – say, during the Christmas holidays or local festivals – surge pricing allows you to capture this additional revenue.
- Encourages Early Bookings: As prices rise with demand, guests are motivated to book sooner to lock in lower rates. For instance, if guests see that rooms are going fast and prices are rising, they’re more likely to book early to avoid a last-minute price hike.
- Aligns with Demand Shifts: Instead of using fixed seasonal rates, surge pricing allows you to adjust on the fly, capitalising on unexpected demand spikes. An example? Say a sports event is announced at short notice in your area. With surge pricing, you can quickly respond by raising rates to accommodate the higher demand.
When to Implement Surge Pricing in Your Hotel
When is the best time to use surge pricing for hotels? It varies by location and the type of guests you typically attract. However, here are some ideal scenarios:
- Local Festivals or Events: If your town hosts an annual event, consider raising rates during this time. For instance, if you manage a hotel near Edinburgh during the Fringe Festival, your rooms may command higher rates because of increased demand.
- Holidays and Long Weekends: Public holidays like Christmas, Easter, or even extended bank holiday weekends often see a surge in travel. A hotel in Cornwall, for example, might increase rates during Easter when families are likely to take a short getaway.
- High Season: Every location has a peak tourist season. If you’re in a beach town, this might be summer; if you’re in a snowy mountain area, it’s likely winter. Surge pricing helps you to make the most of these seasonal influxes.
- School Holidays: Families plan trips around school breaks, so these are excellent times to implement higher rates. Hoteliers near family attractions or theme parks can benefit especially from a rate increase during half-term or summer holidays.
Surge Pricing vs. Dynamic Pricing: What’s the Difference?
Although often used interchangeably, surge pricing and dynamic pricing serve distinct purposes. Dynamic pricing is a continuous, demand-sensitive adjustment, where prices fluctuate daily based on current booking trends, market conditions, and competitor rates. Surge pricing, however, is more temporary and event-driven, applied during specific high-demand periods.
Consider surge pricing the big moves during exceptional demand, while dynamic pricing is more subtle, adjusting based on day-to-day shifts. By using both together, hoteliers can handle both the regular fluctuations and big spikes, keeping prices competitive yet profitable.
Real-World Examples of Surge Pricing for Hotels
To bring the concept home, here are some more concrete examples:
- Holiday Season at a Coastal Resort: During summer, a coastal resort in Brighton might apply surge pricing on weekends, particularly those near public holidays. By adjusting rates each weekend in response to demand, the hotel captures higher rates from beach-goers.
- Last-Minute Bookings Before a Major Event: Let’s say a city hotel in London finds itself fully booked a week before the London Marathon. As demand increases, surge pricing can allow the hotel to raise prices for the remaining rooms, ensuring higher revenue from last-minute bookings.
- Unexpected Weather Events: Sometimes, demand spikes due to weather changes. A ski lodge, for instance, could see a surge in bookings after heavy snowfall is forecasted. This is an excellent time to use surge pricing to reflect the sudden demand increase.
Common Challenges of Surge Pricing for Hoteliers
While effective, surge pricing can present some challenges. Here are a few to keep in mind:
- Guest Perceptions: Not all guests react positively to price increases. Some might feel they’re being “priced out” during high-demand times, especially if they’re returning customers who remember paying less before. It helps to be transparent – mention on your booking site that rates adjust with demand, so guests aren’t caught off guard.
- Rate Parity: Maintaining consistency across booking channels is key. If you increase your direct booking rates, it’s essential to update rates on third-party booking platforms too, or you may end up with conflicting prices across sites. This is where a good hotel management system can streamline adjustments and avoid confusion.
- Overuse: Relying on surge pricing too frequently can drive regular customers away. If every weekend is priced like a holiday, you might risk losing repeat guests who feel the rates are becoming inaccessible.
Tools and Software for Surge Pricing in Hotels
Using a hotel management system can simplify surge pricing tremendously. With the right software, you can automate price changes based on real-time data, saving you the headache of constant manual adjustments. Many property management tools, like Preno, feature built-in dynamic and surge pricing options that let you easily adjust rates across booking channels.
This automated approach is especially helpful during busy times when you might not have the capacity to keep track of rate adjustments manually. Tools like Preno’s channel manager ensure that rate changes sync across all platforms, so you don’t have to worry about disparities.
How to Communicate Price Changes
If you’re implementing surge pricing, open communication can go a long way. Guests are far more likely to accept a price increase if they understand why it’s happening. You could mention peak season pricing or special event rates on your website or booking pages. This kind of transparency helps avoid guest dissatisfaction and builds trust.
Another option is to offer loyalty benefits to regular guests who book directly. Even during peak times, this can provide a consistent guest experience while still taking advantage of high demand for other bookings.
Is Surge Pricing Right for Your Hotel?
Ultimately, not every hotel needs surge pricing, but if you’re in an area that experiences predictable demand spikes, it can be a strategic asset. Take the time to assess your booking patterns and look for periods that regularly sell out or receive a rush of bookings. Even a small increase during these times can add significant value over a season.
Start with small adjustments, track your results, and refine your approach as you go. Surge pricing is all about responding to demand, so finding a balance that maximises revenue without impacting guest loyalty is key. With a little testing and the right tools, surge pricing can help you navigate high-demand periods more profitably and keep your hotel running smoothly year-round.
Want to learn more about Dynamic Pricing and how you can use it for your hotel? Continue reading:
