Dynamic pricing, a new asset for the tourism and leisure industry?

Last week, Disneyland Paris announced the introduction of dynamic ticket pricing.

Well established in France, particularly in sectors such as hotels, airlines, car rental and sometimes retail, this practice is widely recognised for its economic efficiency.

Understanding yield management

Yield management is a strategy that consists of varying prices in real time according to demand, available supply and other contextual variables. This pricing policy is based on conditional adaptation of prices, which can change according to sales or occupancy levels, margin or sales targets, and external data such as the weather or the sports results calendar.

This concept is also known as ‘revenue management’, ‘real-time pricing’ or ‘flexible pricing’.

As far as tools are concerned, statistical techniques (such as predictive modelling) and artificial intelligence (in this case machine learning and deep learning) offer fine-grained projections of the impact of price changes on demand, by integrating structured data (sales history, market prices) as well as more complex insights (images, text, behaviour).

The benefits of dynamic pricing

Well-designed dynamic pricing offers a number of advantages.

1. Optimisation of revenue through better price/demand matching
   By increasing prices in the most favourable periods or maximising occupancy through attractive rates in off-peak periods.
2. Increase occupancy/fill rate
   Bookings are stimulated by low advance sale prices, optimising the trade-off between volume and unit price.
3. Better management of peaks and troughs in activity
   Smoothing out demand over different periods allows flows to be regulated by prices and human resources to be adapted.
4. Stimulation of early bookings
   Increased visibility of future occupancy and secure sales lead to better operational planning.
5. Greater responsiveness to the competition
   Finally, being able to adjust quickly to market prices is a guarantee of protecting market share and maximising opportunities.

AccorHotels began rolling out dynamic pricing in 2020 based on booking history, local events and occupancy rates, with a predictive AI system to ensure revenue and profit optimisation.

Companies must clearly display their prices and associated conditions.

The modulation of SNCF ticket prices according to the occupancy rate and the reservation period, framed by ceilings to guarantee a minimum of accessibility (7 different fare levels explained on the SNCF Connect website) has led to new purchasing habits (appointments created around the release of Prem’s tickets) and an overhaul of loyalty offers.

What impact will this have on consumers?

The challenge for companies is to build a realistic and credible model to avoid displaying prices that may be adapted to supply and demand, but which do not take into account the overall impact.

While yield management is an effective tool for maximising revenue for companies, the mechanism does not always receive good press from consumers, who sometimes complain about a lack of clarity and a feeling of unfairness, particularly when prices rise considerably as a key date approaches.

The surge in prices in anticipation of the Paris 2024 Olympic Games ultimately did users and tourism professionals alike a disservice, as the price of overnight stays during the competition kept traditional tourists away from the capital (7.8% drop in hotel occupancy in the Île-de-France region in the third quarter of 2024 compared with the 2023 summer season – INSEE).

Two essential keys to dynamic pricing:

1. Transparency
   Clearly communicating the reasons for price adjustments to customers is fundamental to mitigating negative reactions and preserving the company’s reputation.
2. A mobilised customer service
   Like any change, it needs to be accompanied. Responding quickly to customer concerns through the company’s usual channels (social networks, contact form) or by developing dedicated media (newsletter, FAQ) builds trust and preserves the company’s credibility.

Coming back to Disneyland Paris, the park already had variable pricing depending on the period (high/low season) and the day of the week, with variations of up to 50%, encouraging families to plan ahead. Demand is now an additional variable, and the company is communicating on this development.

Questions about dynamic pricing

• What is yield management? How does it work?
• What are the benefits? Can we talk about a competitive advantage?
• What model(s) can be used to optimise pricing policy?
• What are the short- and long-term issues and challenges facing companies wishing to switch to dynamic pricing?
• What are the key success factors for adoption? What impact(s) will dynamic pricing have on consumers?
• What data sets, contextual variables and open data streams should be defined as relevant
• What level(s) of complexity are required for successful and effective implementation?

These are just some of the questions that Nicolas Dupuis, PhD in economics and a specialist in retail and mass distribution, and Jean-Baptiste Vilain, PhD in economics and a specialist in econometrics, both partners in the data intelligence firm Veltys, can answer.