InterContinental Hotels Group last summer invited corporate clients in Asia-Pacific to adopt a dynamic pricing model and now claims that more than 1,000 accounts in the region have signed on. Since taking the strategy worldwide this spring, however, IHG outside Asia-Pacific has yet to sign dynamic pricing contracts. Despite resistance, IHG continued to promote the model last month at the National Business Travel Association convention.
"We haven't gotten anyone to sign off, although we are right on the brink of that," said senior vice president of worldwide sales Stephen Powell. "We have been in these conversations since April. The feedback that I am getting is that [travel managers] really appreciate this presentation. It shows that [IHG] thought a lot about their business."
Powell said gaining adoption may take a few attempts, but as "with any sales and marketing program, there are always going to be people that are very interested that want to be on the cutting edge, and then at the whole other end of the scale, there are rejectors."
Dynamic pricing entails a discounted percentage off of the best available rate for the day. IHG offers clients an in-depth analysis as to what their rates would have been if they had a dynamic model in place, according to Powell. By evaluating a specific client's volume with a proposed percentage off BAR, IHG's sales team can quantify what a client's hotel spend could be on a monthly and annual basis.
The presentation, according to Powell, "in many cases" shows an account "tremendous value." Within each presentation, IHG projects what rates could look like in 2011, thereby enabling clients to better budget for next year.
"Our company is pretty good at forecasting the outlook on the retail rates because obviously our budgets are dependent on it," said Powell. "Then we apply the dynamic scheme to that [BAR]--again based upon what that account would get as a discount because of volume to us--and then we can say, 'If you delivered in 2011 like you did in 2010, here is what you would be paying us.' "
Although IHG currently has hybrid models in place where accounts have fixed pricing in key markets and dynamic ones in secondary or tertiary markets, the goal is to avoid rate caps and keep contracts purely dynamic, Powell explained. "The reason why we don't [want to go with caps] is you haven't done anything to the system. If you were to negotiate caps, you are taking the old system and then with dynamic pricing you are adding another system. Cost avoidance would not be there, and, in fact, cost increase would be there."
IHG also will "remind" clients that the process is similar to that of airline budgeting within a managed travel program. "We don't want to be combative with our clients," said Powell. "When the travel manager says, 'I can’t budget,' somehow they do it in the air part of the business. It's just perception. They have always done it over there [on the air side], but they haven't had to do it [on the hotel side], so they don't do it. That's one point that we bring up, and it's just something to think about."
The Science Behind 'Strategic' Pricing
Powell said this strategy is "more scientific" because rates are "more finite," as opposed to static pricing that is based on "assumptions" of what rates would look like 12 months down the road. "Under the old scheme--what we think your rate is going to be--my client says, 'Well, no I think [the rate] should be lower,' and I say, 'It should be higher,' and then we finally end up at something; I am not sure how scientific that is."
Powell also found that in order for travel buyers to listen, IHG rephrased the contentious 'dynamic pricing' to 'strategic pricing.'
"We found that the term 'dynamic pricing' has been around for so long that the minute you say that, you have some customers that just shut off and don't listen to you," said Powell. "We have been talking about [dynamic pricing] for five years, but it's only been this year that we have actually gone to our customers, done lots of research, focus groups, listened to their needs and really put together a program that very much defines the value proposition to the customer."
While Powell said IHG is "going to be relatively successful" promoting the model, the company is "not trying to turn the industry on its ear in one year.
"The initial feedback actually is good," he added. "This is something that is rational, that is transparent and something that addresses customer needs specifically. So just listening to that, we are happy to share the information and make that conversation happen so we can provide solutions to our customers."
Eliminating a traditional request for proposal process--typically expensive for both hotel companies and buyers--may be the top selling point, Powell explained. "People are looking for a change, and they are looking for ways to get out of this cumbersome RFP process. No sooner do you get it completed, you have to open it back up and do it all over again. We processed 60,000 of those last year. When we all got technology, we didn't renovate the process, we just applied technology to an old process. The utilization of [dynamic pricing] opens you up to more than one-year contracts; it has a lot of cost-avoidance opportunities, which is appealing to our clients. It does resolve a lot of those issues."
Powell in July 2009 told The Beatthat dynamic pricing works best for "the larger account that would be utilizing a number of properties across all our regions and delivers consistently across the week and across the year. Such accounts realize the value in the price fluctuations."