The Rise of Price Optimization and the Unintended Consequences of Open Pricing

In Part 1 of this series, we explored the origins of revenue management and the foundational strategies that shaped the industry. As technology evolved, so too did the way hotels approached pricing. With the rise of Online Travel Agencies (OTAs) in the late 1990s and early 2000s, pricing transparency changed the game. Guests could now easily compare rates across multiple hotels, leading revenue managers to place greater focus on dynamically adjusting prices.

The Price Optimization Revolution

In the early days, dynamic pricing was limited by rigid rate structures. Many hotels operated with fixed Best Available Rate (BAR) tiers, meaning that adjusting prices required shifting to the next available tier. Additionally, transient rate plan discounts moved in lockstep with BAR, preventing flexibility based on forecasted demand.

Recognizing the need for more precision, Revenue Analytics partnered with IHG to develop an advanced BAR price optimization capability. This system adjusted rates based on three key factors: demand vs. capacity, competitive pricing, and price elasticity. Unlike traditional tiered pricing, this approach allowed BAR rates to be set at any point, leading to more dynamic and automated pricing decisions. The impact was clear: IHG measured a 2.7% RevPAR uplift after integrating this optimization into their RMS, earning industry recognition for innovation.

Over the years, Revenue Analytics collaborated with enterprise brands like Marriott, Starwood, and Hyatt to incorporate price optimization into their RMS solutions. Meanwhile, other vendors entered the market, focusing solely on price optimization without integrating inventory controls. By 2019, price optimization had become the centerpiece of most RMS platforms, though not all systems addressed the full scope of revenue management.

The Pitfalls of Open Pricing

As price optimization technology advanced, some revenue management strategies began emphasizing rate flexibility without incorporating critical inventory controls – a strategy known as Open Pricing. While dynamically adjusting BAR and discount rates based on demand is a proven best practice, ensuring that inventory is allocated strategically remains just as important.

The first capability of being able to dynamically flex both BAR and discount rates and/or room type differentials is an essential function of any modern RMS. Moving from one BAR level to another, rather than setting BAR at any price point, is suboptimal. However, the ability to adjust BAR rates at any price point has been a standard feature of most RMSs for the past decade. Additionally, reducing the level of discount for transient rate plans on compressed nights is a time-honored revenue management practice. An RMS that can automatically adjust discounts—such as shifting the AAA discount from a standard 15% to 5% on high-demand nights—provides hoteliers with a more powerful pricing strategy.

Revenue Analytics’ N2Pricing™ RMS includes a core module called Dynamic Differentials, which allows users to apply smart rules to flex rate plan and room type differentials up or down based on forecasted demand or other conditions. This enables hotels to automatically execute the optimal rate strategy under any circumstances, ensuring both pricing flexibility and revenue maximization.

An overemphasis on Open Pricing’s principle of always keeping inventory open, regardless of demand conditions, can lead to unintended revenue leakage. When all rate plans remain open at all times, hotels risk filling high-demand nights too soon with shorter, lower-value stays, ultimately leaving shoulder nights under-booked. By contrast, revenue management strategies that integrate both pricing flexibility and inventory controls ensure that hotels capture the most profitable mix of guests across the full booking window.

In Part 3, we’ll explore why integrating Optimized Inventory Controls alongside price optimization delivers superior revenue, profitability, and guest experience outcomes.

For a deeper dive, download our white paper: The Hidden Cost of Open Pricing.