InterContinental Hotels Group expects almost a quarter of its corporate clients to use "some form of dynamic pricing" after completing 2011 rate negotiations, according to director of business travel and worldwide sales Lara Hernandez, speaking here this week during Business Travel Media Group's Travel Management 2011 conference.
While many buyers still have reservations about dynamically priced models--in which corporate rates are discounted from the floating, best-available rates available in the market, instead of flat rates used throughout the year--IHG has been urging large-volume buyers globally to accept the model and training its sales team on the concept. About two years ago, IHG began an aggressive push for dynamic pricing in the Asia/Pacific region. Since then, more than 1,000 accounts agreed to contracts based on dynamic pricingfor at least some of their hotel program, Hernandez said.
"We're seeing global adoption of dynamic pricing," she said. "This is really a simplifying process, and it's the only way in our business that we can guarantee a buyer 100 percent of the time that they will receive a discount."
Dynamic pricing for large-volume buyers is by no means the norm. Among the companies listed in the most recent Business Travel NewsCorporate Travel 100report, only 22 percent indicated they used such a model. Buyers' attitudes, however, have softened during the past few years.
At the peak of the last seller's market about four years ago, when several major hotel companies strongly pushed dynamic pricing models, most buyers were vehemently opposed. Part of that came from an all-or-nothing approach by some hoteliers, said Maria Chevalier, global director of travel and meeting services for Hewlett-Packard. "Those [hoteliers] that approached it as an option got better traction than those who tried to force it initially," she said.
Omni Hotels & Resorts senior director of global sales Jesse Suglia said part of the problem was that hotel sales organizations had not yet adjusted to keep up with buyers, many of whom had been moving to a procurement orientation within their organizations. "It has become more data-driven, and we had to evolve to that," he said. "We had to show them not to look at it day-by-day or with seasonality."
Finding A Middle Ground
Hoteliers and buyers now are finding middle ground, including hybrid programs that use both dynamically priced rates and fixed rates.
One buyer during the conference explained how she once was wholly opposed to dynamic pricing but last year used it for hotels in low-volume cities where her organization had no negotiated rates. As a result, she got a handle on a portion of her hotel program that previously had been largely unmanaged, she said.
"In our business, we've definitely seen a shift," said IHG's Hernandez. "The majority [of accounts] are moving to hybrid models, with their second- and third-tier markets having dynamic pricing, and negotiated [fixed] rates in high-volume, volatile markets."
Rate Caps
Meanwhile, opinions diverge on using negotiated rate caps within dynamic pricing models. While HP's Chevalier said they generally are not needed when dynamic pricing is used in second- or third-tier cities--where buyers would not have negotiated rates anyway--she asserted that they are absolutely necessary in high-volume markets. "New York is a classic example," she said. "Do you want to pay the December rates here without any sort of protection? That percent off would not be enough to leverage what you need to leverage."
Hernandez said she understood the philosophy behind caps, but does not see them as a function of negotiations. Instead, organizations should set their own city caps and prevent travelers from booking rates that surpass them, she said.
"We do not have caps in our program, and we do not intend to have caps in our program," Hernandez added. "We get it, and we understand it's important, but we would say, 'Manage your travel policy.' "
Omni's Suglia said he understands that some buyers would not consider dynamic pricing without rate caps. "Whether there's a cap or not a cap, it's no different than what we've done for many years," he said. "Each negotiation is different. Ultimately, we're all looking for agreements that work for both sides."
One selling point of dynamic pricing is that it eventually could minimize the burden from the cumbersome hotel request-for-proposals process. That's more of a long-term benefit than an immediate one, according to Hernandez. "When you first do something like this, it's big," she said, "so you'll have to spend time and energy on it."