Stephen Powell
As current economic conditions prompt more buyers to explore the concept of dynamic pricing, InterContinental Hotels Group last month invited corporate accounts in the Asia-Pacific region to move to the model. While IHG launched the pilot sales program in just the one region, its sales team around the world promotes dynamic pricing as a means to alleviate the burden of the traditional request for proposals process on IHG employees and client travel departments. Despite the technology and resources invested to deal with thousands of traditional RFPs each year, IHG senior vice president worldwide sales Stephen Powell said during an interview, "It seems very obvious to me that the process is not working. The process is not serving either party well." An excerpt of the discussion follows.
Are you seeing more customers interested in dynamic pricing?
Yes, we are. Economic conditions are prompting this discussion again. I'm not saying there's a rush to the door, but people are exploring it more, talking to us more, want to understand how it works and perhaps how it could be a better program than what we have in place today. Many times our retail rates have fallen below our negotiated rates. Our clients say, "We spend a lot of time negotiating with you to get to a perfect price and retail rates dip below the negotiated rate." We tell them we understand that. We're really trying to get to better customer satisfaction. Let's go to these accounts, work with our hotels and sell them dynamic pricing rather than trying to negotiate an absolute rate.
In financial filings, several hotel companies have noted deep cuts, especially in sales staff. Is it critical for hotel companies that the traditional RFP process is changed considering they no longer have the staff to respond?
That is not the situation with IHG. We have not cut corporate sales staff. But where I'm hearing that is on the customer side. What's coming to us is from the customer side and where they used to have several people managing their travel, they now have fewer. Where they used to have eight or nine people in their travel management departments, now they might only have three or four. First of all, they're looking at consolidation of portfolios. Secondly, they're looking for some way to navigate through this RFP process we have layered upon ourselves and how they can be more efficient. Of course, what I'm serving up is that dynamic pricing might be one way of doing this.
Are you expecting a change in the RFP process starting this fall?
Even this year, the RFP season just seems to continue to go on. That's part of the problem. If a major market or several markets changed their prices, our clients are coming back and saying, "Let's retender those markets." They may not retender all of their properties, but they retender particular markets. We used to start preparing in June, with lots of activity in August and a big burst of activity at the close of [the annual National Business Travel Association convention]. The process continued through the end of the year and--several years ago anyway--we used to be completed by the end of the year. But then the process went into January and February. Now it just seems to continue. Where we've had discussions about 2010, our clients are saying that it won't be a "big splash" open and close; they will tender markets as they see fit.
Some buyers contend that they'll only consider dynamic pricing if they have caps in place. Is that something you are typically agreeable to?
I've heard that request many times, obviously from the customer side. No, I'm not in agreement with that, and IHG is not in agreement. That's really not dynamic pricing. That's saying, "I want all of the benefits on the downside, but I'm not going to let you have any of the benefit on the upside." That doesn't streamline anything when you think about it. It serves the customer better because they're getting a great price that is market sensitive at that time and place. With dynamic pricing, the customer at the travel manager level doesn't have to do the laborious RFP process and can go to extended contracts. If you throw in a cap, you have to negotiate the cap, so you've just layered on another pricing plan on top of a traditional system, which just encumbers it even more. By removing those caps, the pricing is coming down to against the retail price in the market. (We call it BFR or Best Flexible Rate; some of our competitors call it Best Available Rate or BAR.) Those rates are driven by supply and demand. It's not what a hotel manager or sales manager think, but it's what is driving the pricing in a particular market: supply and demand. If any hotel gets their pricing incorrect, reservations stop coming in. You don't get the business. That's what keeps this pricing very clean. The retail rate, on which everything is benchmarked against, is driven by the supply and demand. The dynamic pricing is a percentage off of that rate, based on the volume of that particular client to a hotel. So you're always getting your value. Let's say business goes up, or there's something going on in Atlanta or New York that really drives up pricing. Yes, your price may go up over and above what you may have negotiated as an absolute in the old scheme. But, in many cases before, hotels were negotiating last room availability and non-last room availability. Hotels weren't giving you last room availability in high-demand periods unless you really paid for it. In a dynamic pricing model, you would get the availability but the price goes up. If you were getting a 15 percent discount off the BFR rate, you're still realizing a discount based upon the volume you deliver to the hotel. That's why you wouldn't put a cap on it.
Are there types of accounts for which dynamic pricing works best?
It can work from small to large, but our focus is on large accounts because of the work in the RFP process. Where it works best is 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.