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Dynamic Pricing

Helping corporate buyers keep hotel costs in line with market conditions.

At a time when there may be nowhere “down” to go in negotiating corporate hotel rates, a once-dismissed buzzword has been quietly making the rounds: dynamic pricing.

Major hoteliers pitched dynamic pricing models to corporate travel managers in a big way five years ago-in the midst of a boom and a solid sellers’ market. Fixed-pricing for corporate hotel rates was passé, some then said, touting yield-management techniques similar to airlines with variable, floating rates.

Back then, the idea landed with a thud, as travel management resisted open-ended contracts and rates headed skywards.

The scene looks oh-so-different in a buyer’s market. Many people have seen retail prices for hotel rooms fall steadily lower than contracted rates. Not only does this entice travellers to book outside the travel program, companies can lose tracking data on those “buy-around” room nights, wrecking purchasing power.

Pricing strategy evolves
Given the new realities, one buyer who welcomed the introduction of dynamic hotel pricing options in her travel management toolkit last year is Yvonne Kerns, who oversees the global travel category in corporate services of one of Canada’s Big Five banks in Toronto. An active member of the Association of Corporate Travel Executives, earning its Ambassador Award in 2009, Kerns has honed her knowledge as a corporate buyer managing a complex program that spends about $10 million a year with some 200 hotels.

“We still negotiate flat rates for [hotels in] all our major cities, which sets the ceiling. But we can now layer dynamic pricing on top of that,” she says, which means she always gets a discount off a benchmark, such as her travel management company’s consortia rate, with data tracked back to her program.

Her strategy is to set fixed, or capped, rates in preferred properties, and look for chain-wide agreements for uncapped dynamic pricing in lower-volume markets.

Sellers adapt to conditions
To a buyer, a floating rate makes sense when things are headed south. But, nobody is quite as willing to toss out negotiated rates that hedge against future price increases.

“Clients still always prefer the fixed pricing, mainly due to the way they budget,” says Andrea Stavroulakis, executive director, global sales, business travel, with Fairmont Raffles Hotels International. At the same time, she says, it’s been important this year for hotels to address corporate concerns about price integrity.

In fall 2009, the Fairmont brands began extending global customers a negotiated discount off the best available rate at non-preferred hotels, in its version of dynamic pricing. For preferred hotels, a dynamic element can ensure the best available, unrestricted rate is automatically matched, retaining all the negotiated value-added.

“A few [buyers] have asked for it, and in other cases we have just presented it. It’s not a standard question in the RFPs, but I think there’s great value to be had there,” says Stavroulakis.

Similarly, Starwood Hotels & Resorts is also extending dynamic pricing options.

“I don’t have any floating rate structures in place, it’s all negotiated rates, but we do have a chain-wide discount on non-preferred hotels on a floating rate,” says Catherine McAuley, associate director, Global Sales, Starwood Hotels & Resorts Worldwide Inc. Upgrades in the reservation system now make it possible to automatically swap a corporate rate with a lower available rate that meets the same conditions.

“It’s been an interesting couple of years, for sure,” says McAuley. “The Canadian market has gotten so tight on rates, we have all really had to work to the strength of our relationships.”

by Julie Charles

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