Personalized Prices: The future of the hotel industry?

How intelligent pricing could inspire - and not deter - guests in the future

Personalized prices: Revolution or risk?

The idea sounds tempting: prices that adapt to the individual guest. Those who book often get better conditions. Those who prefer a certain room type will receive exactly the right recommendation. And those who are flexible can benefit from particularly attractive offers.

This has long been standard in e-commerce. But does it also work in the hotel industry?

Now it gets tricky. After all, hotels are not interchangeable products, but places with character, atmosphere and individual experiences. A hotel stay is not a mass-produced good. And this is precisely why personalized pricing must be thought of differently to airline tickets or online stores.

A recent study shows that guests often perceive price differences within a booking platform as unfair and, depending on the context, blame either the hotel or the booking platform (Ying et al., 2024). Personalization that is too obvious can therefore generate scepticism rather than loyalty.

More than just dynamic prices

Dynamic pricing, i.e. the adjustment of prices to supply and demand, is now a matter of course in the industry. But personalized prices go further:

• They not only take market data into account, but also the individual guest.
• They aim to find the perfect offer for the person in question.
• They can help to increase the perception of value - if they are used correctly.

But this is precisely where the challenge lies.

The danger of comparability

What happens if the wife suddenly sees a different price for the same trip on her tablet than her husband sees on the PC? The answer is simple: guests are trained to become bargain hunters. Anyone who notices that prices vary for the same service will try to find the best deal - and trust dwindles.

This is the fine line of personalized prices:

• Transparency vs. value perception - How much should guests know about the pricing logic?
• Individuality vs. comparability - How do you avoid guests feeling tricked?
• Experience vs. transaction - How can a hotel booking remain an emotional moment and not turn into price poker?

The solution? Incomparability.

Scientific studies, such as an impressive study conducted at Princeton University by Nicholas Buchholz and his colleagues, show that personalized prices influence consumer behavior in the long term. If customers are trained to actively compare prices, this can lead to an increased bargain mentality - with negative consequences for customer loyalty (Buchholz et al., 2024).

Why incomparability and tangible added value are crucial

The study by Buchholz and colleagues shows that personalized prices work particularly well when they are combined with tangible added value for the guest. The study example from the taxi and transport industry: customers are more likely to accept price differences if they are linked to waiting times. This means that a passenger who wants to set off immediately will pay more than someone who is prepared to wait a few minutes. This approach makes price variations understandable and reduces the feeling of arbitrariness.

Applied to the hotel industry, this means:

• Price differences should always be linked to tangible benefits, such as a better room, earlier check-in or additional amenities.
• The customer should feel like they are getting more for their money - not just paying more.
• If prices vary, the offer should also change so that guests have no reason to compare prices directly.

In short: if the price is different, then the product should be different too.

Conclusion: The future of personalized prices lies in the right measure

Personalized prices can be a game changer - if they are implemented correctly. It's not about confusing guests with varying prices, but about offering them tailor-made experiences.

There are still many unanswered questions:

• To what extent do guests accept individual pricing?
• Where is the line between intelligent personalization and intransparency?
• What role does technology play in optimizing the experience rather than just the price?

One thing is certain: those who manage to make personalized prices invisible but effective will benefit in the long term. It remains exciting to see how the hotel industry will develop in this area.

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Ying, T., Zhou, B., Ye, S., Ma, S. D., & Tan, X. (2024). Oops, the price changed! Examining tourists’ attribution patterns and blame towards pricing dynamics. Tourism Management, 103, 104890.

Buchholz, N., Doval, L., Kastl, J., Matejka, F., & Salz, T. (2024). Personalized Pricing and the Value of Time: Evidence from Auctioned Cab Rides. National Bureau of Economic Research, Working Paper.