doc martens cherry red Dynamic Room Pricing Still a Static Concept
Hotel companies this time last year were pushing dynamic pricing on their high volume corporate accounts, spurring controversy, but wholesale enactment of the concept in which hotel rates fluctuate based on season and market demand seems to have lost its steam as the industry prepares for an economic downturn, according to the National Business Travel Association’s hotel committee.
When asked about the current status of dynamic pricing, Brian Nichols, hotel and ground transportation manager for Deloitte Services LP and former NBTA hotel committee chair, said, “I do think that use of dynamic pricing as a second tier discount has grown in most programs, and is a great use of that pricing model for hoteliers and travel managers.”
Nichols, a strong opponent of accepting dynamic pricing blindly from suppliers without using a data driven model, said the strategy eliminates yearly negotiated rates which are thought of as more advantageous for corporations and leaves corporations unable to predict hotel costs. He said hotels once had greater traction to push dynamic pricing because they stood on higher ground than corporations, but now hotel companies need large travel programs to keep afloat during unpredictable economic times.
“Any fundamental change in pricing structure will be driven by the market,” Nichols said. “Will buyers buy what sellers are selling? Dynamic pricing never really gained traction as a primary form of pricing during the time when it should have . when hotel companies were in a very strong negotiating position. Hotel companies have seemed less aggressive recently in promoting dynamic pricing. With signs on the horizon of supply growth catching up to a lesser demand growth, I doubt the leverage is there.”
“Dynamic pricing was the hot topic to talk about,” said Lois O’Shea, director of business travel sales for Loews Hotels. “It’s certainly not anymore; I don’t know if it’s dead, though.”
“It was a very different pricing model that buyers were not seeing the credibility in,” said Laurie Kazimer, current chair of the NBTA hotel committee. “Some companies tested the idea and didn’t find it to be advantageous.”
Indeed, large corporations resisted dynamic pricing negotiations, eventually forcing hotels to ease up after the possibility of losing large corporate accounts became a reality, according to travel consultants.
“There was a strong push from hotel companies to promote dynamic pricing, but there was a very strong push back by buyers because it was very hard to track in terms of savings, and the traveler would be faced with one price one month and another the next month,” said Priscilla Campbell, American Express practice leader for hotel advisory services.
Dynamic pricing worried many travel managersdue to a lack of knowledge surrounding the issue when the possibility of widespread implementation appeared imminent. As a result, NBTA included dynamic pricing in its revised request for proposals template for 2009 and released a report detailing the concept of dynamic pricing, but the fire quickly died out. business travel overview and cost forecast for 2008, 49 percent of those surveyed said there had been a decrease in the push for dynamic pricing from hotels, stating that the practice “seems to be waning.”
“In the United States, buyers are very opposed to [dynamic pricing] because it makes their travel programs very difficult to manage,” said Carol Ann Salcito, president and owner of Management Alternatives Inc. “There is a push overseas for dynamic pricing, but ultimately travel buyers are fighting it where they can. If they can move their traffic, they are doing it.”
“We are definitely seeing the pricing pressure ease up a bit” in the buyer’s favor, Kazimer said, and the resistance to accept dynamic pricing has resulted in “a decrease in the number of hotels offering it.”
Most hotel companies today are offering dynamic pricing as an alternative available to “customers when they request it,” Jill Cady, Intercontinental Hotels Group vice president of worldwide sales strategy, said in a prepared statement.
“We will continue to offer both [static rates and dynamic pricing],” said Greg Land, Wyndham Hotels Group senior vice president of global sales and distribution. “I don’t see us shifting to one or the other.
“In markets where demand is a lot higher, it is harder for the corporation to negotiate favorable terms in the more traditional pricing model. It may be because they don’t have high volume in that market, and they can have greater discounts by using a floating price,” said Kazimer.
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“Dynamic pricing is not a way for the hotel industry to increase your costs,” she said Lodrige Kover. “Are some hotels saying take it dynamically or not at all? Yes, but I don’t think anyone is pushing it down anyone’s throat. I wish I had the time because I can overcome every objection. It is increasing in its popularity, believe it or not. What if the hotel industry as a whole decides that we are going to a floating rate structure, as we did with the agency community? Please discuss this and understand it’s not something we are trying to create to ‘get over’ on our customers.” Hilton officials could not be reached this month for additional comments on the current status.
Today, most hotel companies are refocusing their energy, putting less emphasis on driving big corporations to accept dynamic pricing and more on smaller corporations, which otherwise would be offered only the lowest published rate of the day. Due to their more modest volumes, smaller corporations have less bargaining power with hotels, but with dynamic pricing, the corporation still can save by receiving a fixed percent discount from the best available rate, said Wyndham’s Land.
“Dynamic pricing works for them because it assesses their needs,” Land said. “This year, this type of contract is really going to be advantageous to corporations due to the economic situation.” Wyndham Hotels doubled the amount of dynamic pricing bookings this year mainly because the arrangement is open to all brands within its hotel portfolio, allowing for some flexibility for corporations to determine a better price by alternating between hotel tiers, Land continued.
He added that “hybrid” programs also have been devised to meet the needs of more corporations. A blend of both static and floating rates offers a bit of both worlds to corporations, Wyndham has found, with fixed negotiated rates in areas where corporations can commit to room volume and dynamic pricing for less sought out locales. “We will go out to each of our properties and give you a static negotiated rate for five or six destinations where corporations are willing to commit to room nights, and offer a dynamic price for destinations within our portfolio that are not used as frequently,” Land explained.
That hotel companies are offering a variety of options to corporate travel managers indicates preparation for a downturn, according to analysts, but hotel representatives still are optimistic.
Land said it is “hard to tell” whether an economic recession would hit the lodging industry right away.