Pinning negotiations on market conditions can reap benefits or wreak havoc. What's a CTM to do?

Although a decade has passed since American corporate travel managers and their hotel partners first started tapping into dynamic pricing, in Canada there’s been more talk than action about this alternative to negotiated fixed rates.

“I think dynamic pricing is the sexy thing to talk about… But in Canada we haven’t seen demand for it,” says Scott Allison, vice-president, Canadian operations for Marriott Hotels of Canada in Toronto.

Under dynamic pricing, hotels offer corporate customers a Best Available Rate (BAR) that fluctuates with supply and demand. Travel managers are usually able to negotiate a fixed discount off the BAR. It’s called dynamic pricing because either the BAR or the discount can fluctuate in response to market conditions. Hence, BARs are usually higher when times are good, and lower when times are bad.

When major clients issued Requests for Proposal (RFPs) for 2011, neither Marriott nor Starwood Canada received requests for dynamic pricing. Corporate clients still prefer to negotiate fixed rates for a season or the entire year, especially in situations where they have high volumes, says David Ogilvie, regional vice-president of sales and marketing, Starwood Canada in Toronto.

Still, dynamic pricing has become a buzzword of late. The recent recession may be the reason, suggests Judy Williams who teaches hotel contract negotiations and is president of Vancouver-based Expert Meeting Consulting.

Conventional wisdom prior to the recession was simple: the further in advance one books, the better the negotiated rates. But when the economy took a hit, long-held negotiation tactics felt the reverberations. Williams says at least one of her clients, who had negotiated what was considered to be a great hotel rate a few years before their 2009 event, discovered that room rates had dropped by about $60 a night by the time their event took place. “Those flat rates that travel managers negotiated didn’t look so good after the market crashed,” Williams says.

Hotel chains like the idea of dynamic pricing because it allows them to yield their pricing, Ogilvie explains. If business is strong, a hotel is able to charge a higher rate under dynamic pricing compared to fixed rates.

But for travel managers, it’s exactly that reason—the unpredictability of dynamic pricing—that can create havoc with budgeting. Katarina Kelln, senior director, program management Canada, for Carlson Wagonlit Travel in Toronto, says most of her clients prefer the certainty of fixed rates. Still, there are a few who see the benefit in dipping their toes in the waters. “Where we’re seeing dynamic pricing work is with larger businesses like the banks,” Kelln says. “They may have one [hotel] chain in the program that they have dynamic pricing with.”

Dynamic versus fixed? What’s a CTM to do?
Research and ask questions. Even though Canada isn’t quite there yet, dynamic pricing is a reality among global hotel chains and international clients. Find out whether dynamic pricing offers real value for your organization.

Tips:
• Best Available Rates (BARs) are usually lower when there is a poor economy and hotel occupancy is down. By the same token, BARs usually increase when room demand goes up with a rising economy.

• Ask hotel partners to be very clear about their definition of the words “Best,” “Available,” and “Rates,” advises Judy Williams. For example, are best rates based on numbers listed on the hotel’s website?  The lowest available rate up until the time of arrival? A week before arrival? What about comparison rates offered by a discount travel service like Priceline.com?

• If you want to experience dynamic pricing, but don’t want to make a sweeping change, try it with just one hotel chain and always ask to speak to some of their other clients before committing, says Williams. Evaluate the situation after one year.

By Angela Kryhul