Dynamic Pricing Changing Vacation Planning and Profitability

Dynamic pricing has been a game changer for the vacation business, and as Hans Klis reports, some savvy companies and destinations have taken price discovery—finding out what the market will bear in real time depending on conditions-- to the next level.

The way you spend your days vacationing on the snowy peaks of Mammoth Mountain hasn’t changed in years. You can ski, take scenic gondola rides, shop and enjoy fine Californian dining. But how much you spend on your vacation has very much changed in the last few years. The $11 billion ski- and snowboard industry has slowly but steadily embraced so-called dynamic pricing.
That means that on any given day the price of ski lift tickets or lodging depends on the date of purchase or use, availability, and season. Although operator Mammoth Mountain Ski Area employs four tiers of pricing it doesn’t really know how much tickets will go for any given moment, the company’s Public Relations and Social Media Manager Lauren Burke admits to local newspaper The Sheet.
Burke acknowledges that prices can literally change with the weather, but the most important factors influencing pricing changes depend on the day of the week and if it’s a holiday.
This model allows for real-time market based adjustments of prices. Dynamic pricing utilizes algorithms that some ski resorts have developed themselves, or software from companies like Liftopia or GetSkiTickets. And datapoints in these algorithm can also include your location, past internet behavior and the type of device you use to calculate prices.
If it sounds a lot like the way you buy plane tickets, you’re right. The travel industry has been using dynamic pricing for years, but more industries have signed on.
The rise of dynamic pricing in recreational industries has thoroughly changed the travel experience, says Yapta spokesperson Jeff Pecor. The company tracks flights and hotel offerings through their FareIQ™ and RoomIQ™ applications, sends their corporate clients alerts when prices drop – even after a booking has already been made but reticketing saves money.
According to Pecor, dynamic prices push travelers to help airlines and hotels to maximize capacity over time. “You see a lot of people planning their vacation during the shoulder season - the period between the high and low season when prices tend to drop.”
Counterintuitively, the pricing model has made getting the best deal possible even harder. Or at least the feeling you got the best deal. Pecor notes, “Recent research has shown that consumers now visit more than 20 travel websites before booking a trip. The unpredictability of dynamic pricing makes it very difficult for consumers to feel like they're getting a deal on their travel and will often force them to shift vacation plans to off-peak times, when prices generally hang lower.”
According to Frank Bilstein, partner with A.T. Kearney in the Strategy & Top-Line Transformation Practice, the massive adoption of the pricing model outside of the airline industry has been heavily “driven by Amazon.” With a revenue of $107 billion in 2015, the online marketplace has shown dynamic pricing can be highly profitable. 
In a 2015 report, Boomerang Commerce found that Amazon uses its massive computational power to track, analyze and adjust prices of products to convince consumers it offers the best prices; which it does not always do as the analytic startup found in the case of a 32-inch smart television.
In a period of six months the price fluctuated wildly. "By testing the TV at various price points, Amazon would have been able to determine the optimum low price that it could use during the peak shopping period," Boomerang concluded. When Black Friday came around, Amazon slashed $250 off the cost of the television, but cleverly jacked up the prices of HDMI cables.
“The dynamic pricing model is a major driver of additional revenues in the recreational industry,” AT Kearney’s Bilstein says. And it’s not just ski-resorts. It’s hotels and theme parks including Disney’s Magic Kingdom. The pricing model is even available in the vacation and short-term rental space: people renting out their apartment on AirBnB. San Francisco based Beyond Pricing offers individuals access to an algorithm factoring in data points like neighborhood, seasonality and local demand.
And don’t forget zoos.
When the Indianapolis Zoo opened its Simon Skjodt International Orangutan Center in 2014 it projected it would draw large and potentially unmanageable crowds. “The main objective was to manage crowd capacity in order to maximize the guest experience,” says Judy Palermo, senior manager, public relations. “Dynamic pricing was clearly the best way to adjust demand, avoid overcrowding and ensure guest satisfaction.”
By incentivizing buying tickets for weekdays with lower prices, the Indianapolis Zoo achieved its goal of maximizing attendance and preventing overcrowding the venues and parking lot. According to Palermo the pricing model the Zoo uses, made by Digonex, uses more than a thousand variables “like weather and crowd history” to create the algorithm.
“The Zoo had the largest single month attendance in its history during the month of July 2014 and did it without exceeding the target capacity for visitors on any given day,” she notes with satisfaction.
The example of the Indianapolis Zoo underlines an important use of dynamic pricing. It does not just maximize revenue, but it maximizes attendance and minimizes vacancies. That’s why theaters on New York’s Broadway have been adopting the modelin the past six years
According to The New York Times, it turned Disney’s failing Lion King into the top-grossing musical in 2013. Dynamic pricing was the only sane innovation to get theatres filled, Vice President of Ticket Sales Brian Mahoney and marketing director Todd D. Rappaport of the Shubert Theatre write on the company’s blog: “We all know that there are sections of the theatre—for some nights or some shows—that rarely sell at full price. Some of these seats might sell at a discount price or for half-price. But then about the seats that are consistently unsold night after night. Why would we still expect that these seats would sell at full price, and how could we continue with that pricing strategy?”
The downside to using dynamic pricing algorithms like Digonex or Beyond Price is that ski resorts or AirBnB hosts hand over control of their revenue management.
So called personalized pricing - which is not the same as the dynamic model in that it offers different prices for different visitors who look at the same product at the same time (but on a different device) - “is still surprisingly rare”, AT Kearney’s Bilstein says.
 In 2012 The Wall Street Journal found that online travel agency Orbitz Worldwide was experimenting with showing Mac users different and sometimes more expensive offerings compared to Windows users.
Staples uses the location of user’s devices to entice them with offers to swing by a store. But the fact that people order their ski lift pass or zoo tickets via a mobile device does not yet seem to be important in the vacation industry. Not yet at least. “Buying goods via mobile devices does not increase the demand for sellable goods”, Indianapolis Zoo’s Palermo explains. “It makes the transaction process more convenient and accessible”.