Jean Francois Mourier
Despite concerted efforts by some hotel companies to push dynamic pricing models on corporate clients, only a minority of buyers have agreed to such pricing structures, many of whom only for a portion of their hotel programs. At the same time, many hotel companies are getting better at controlling rates through automated revenue management systems. Given such advancements, hotels may take a firmer stance in favor of dynamic pricing in lieu of fixed corporate rates, according to Jean Francois Mourier, CEO and co-founder of hotel revenue management software provider RevPAR Guru. In a recent interview with Business Travel Newssenior editor Michael B. Baker, Mourier and company co-founder Bruno Perez suggested that fixed rates someday could become an endangered species. "Based on what we've seen, the evolution of pricing, it will be only dynamic in the future," Perez said. "Well, I wouldn't say only, but 90 percent. Dynamic pricing will become inevitable. Some major corporations that have a lot of leverage will maintain some fixed pricing with some of the hotel chains, because they have a lot of pull, but in general, flexibility is inevitable and dynamic pricing will prevail." Additional comments from Mourier, including his views on the sometimes shaky relationships between hotels and online travel agencies, are excerpted here.
As hotels get more sophisticated with revenue management, how will this affect corporate pricing?
Channel management has been evolving, and it's going to become more embedded with other products, such as revenue management software systems. You have to look at so much data and analyze so many things, and then you have to plug in the prices. By the time you finish doing all the calculations, the variables have changed. You have cancellations, no-shows and all kinds of different things. What we're seeing is that corporate prices are becoming more and more fluctuating--they're basically a percentage off of the best available rate (BAR). We have quite a few [hotel] clients in Europe and also in the United States that now refuse business with fixed rates. Everything is dynamic. You go to a pump station, and [the price for gasoline] fluctuates all the time. The price of food, the price of everything. The commodity of a room is also fluctuating, depending on supply and demand. Airlines have been doing it for years, but hotels are really taking a long time to jump on this dynamic pricing. For the hotel to have 20,000 rates all over the place, it's a mess. You never know where it's coming from. You still want the corporate business, but at the same time, the hotels want simplicity. Between the low of a season and a high of a season, you can charge for the room $799 when in the summer you charge $99. You want to be able to fluctuate the rates as much as possible and at the same time have one BAR rate.
We've typically seen travel buyers resist dynamic pricing, at least for primary cities, largely because of the difficulties it presents in budgeting. How do hotels address this argument?
What you'll be doing is checking their pricing on the web instead of calling the hotels. Once you have a budget, you look at the different prices, historical prices, and you try to forecast where the price will be on average. You have more than one option and more than one hotel to choose from. You might, instead of a Ritz, have to go to a Marriott or Holiday Inn. That's how you'll keep in budget. You can agree that it will never go beyond a certain rate. That's going to help a lot in the budgeting. Nowadays, you can publish your prices across the whole world through the Internet and change your prices instantly. The ones who don't do it will suffer tremendously. They won't be competitive if the price is not right, and if the price is too low, they're leaving a lot of money on the table. If your prices are too low, you'll also go into overselling, and you'll make a lot of people upset. It's striking the right balance. If hotels do not do dynamic pricing, they'll be in trouble. All the hotels now embrace revenue management, and the corporate world will have to move along with that variable.
What does the dynamic pricing model mean for rate loading?
You would negotiate a [discount] off BAR, and the corporate clients would have the address for the website of the hotel. The customers would put in the rate and then have a code that would be specified to that corporate business. Of course, channel management is updating the website of the hotel and Expedia and all the channels. Now, the corporate can go directly to the hotel website, put in the promo code and put in the according discounts. That's the mechanics of what we see on the corporate side. The other thing, Expedia offers corporate prices, and the hotels can load corporate prices on their website. Expedia, last time I talked to them, had 3,000 to 4,000 corporate clients, which is considerable. We don't see it on Orbitz as much. It's something that is going in that direction for sure.
Keeping control of bookings through online travel agencies also is a big component of revenue management. What does the future of the hotel-OTA relationship look like?
There was a Cornell study about the "billboard effect." In a nutshell, they had a lot of hotels which didn't have [distribution through] any OTAs; the only thing they had was their own website to sell their hotel. For the ones that went on OTAs, their own website increased in sales by 30 percent. That's a pretty big difference. The more you're present on the different OTAs, the more people are going to book on your website. It's advertising. A lot of people, to get personalized service, go to the website of the hotel and book the hotel. Even though you pay no margin on your own website, and on Expedia the hotels pay 25 percent, if you don't have Expedia, you lose 30 percent of sales on your website. It's a catch-22.
Will hotels be able to lower those margins?
When we saw Choice taking a hard line [in 2009, leading to a temporary absence from Expedia], that was a big gamble and a very hard push, and Expedia went down in the region of 13 percent. That's a very big change from what they had before. When you look at Booking.com, it has a margin of about 13 percent. I don't know why Expedia wants to charge 25 or 30 percent just to have a lot of profits. What we'll see is a push toward lower margins. That's going to be the revolution. Expedia is trying to push back, but eventually they'll have to give in. Twenty-five percent is robbery. The article originally was published in Business Travel News.