With corporate travel buyers reporting little acceptance of dynamic pricing for hotel programs, hoteliers are trying new tactics to make the controversial pricing model more palatable. Some analysts, however, said the time for a dynamic pricing groundswell has passed.
The Association of Corporate Travel Executives at its Global Education Conference in Miami this month previewed a white paper it will release this summer confirming buyers' eschewing of the pricing model that allows for floating rather than fixed negotiated rates. Preliminary results—based on more than 200 responses, although ACTE now is working to increase that sample strength through further in-depth interviews—show that more than 75 percent of buyers indicated they have not entered into a dynamic pricing agreement, according to Leslie Anne Palamar, principal of BTE Tourism Training and Consulting, who conducted the study along with Victoria Edwards, vice president of strategic development for Buckhiester Management U.S.A. Of that minority that has dynamic pricing agreements in place, it represents only a small portion of their hotel program, she said. Buyers' attitudes toward dynamic pricing the study ranged from lukewarm to hostile.
"This is definitely a hotel-driven, buyer-resisted pricing model," Palamar said. "The buyers are firmly convinced that without their buy-in and by refusing to negotiate these agreements, they have the ability to influence and to stop dynamic pricing."
Even those numbers are high compared with what some others in the industry are seeing. Maria Chevalier, vice president of global business intelligence for BCD Travel's Advito consulting division, said she saw dynamic pricing come through on only about 2 percent of her clients' hotels. Priscilla Campbell, practice leader of hotel advisory services for American Express Business Travel, concurred that only a small percentage of Amex clients had accepted such agreements this year.
"The buyers spoke," Chevalier said. "The value proposition back to the corporations just wasn't there. The hoteliers offered it as an option, but they didn't force it."
Travel management companies reported that they had been approached more for dynamic pricing agreements this year compared with years past, but also reported that acceptance of the model in programs was miniscule, Palamar said. In addition, TMCs indicated they would shift business away from hotels with dynamically priced rates, leaving them only as a secondary vendor, she said.
Hotels, however, remain optimistic about the future of dynamic pricing. In fact, 88 percent of those surveyed by ACTE said they had dynamic pricing agreements in place.
"That's a bit of a disconnect," Palamar said. "Given the number of buyers who said they don't have dynamic pricing agreements in place, you have to wonder who the heck these hotels have dynamic pricing agreements with?"
The contradictory numbers could stem from varied definitions of dynamic pricing agreements, she said. Both Hilton Hotels Corp. and Global Hyatt Corp. reported that dynamic pricing was making up more of its corporate negotiated rates than in the past, but not in the way some corporate travel buyers expected.
"There are a lot of different models being tested in the industry, so I'd say there are more dynamic pricing environments than what the customer understands," said Denise Lodridge-Kover, vice president of business travel sales and strategic partnerships accounts for Hilton. "Any time you have a chainwide discount agreement, it's typically in a dynamic pricing environment."
"Dynamic pricing is a goal for many hotel companies," Bjorn Hanson, principal with PricewaterhouseCoopers' hospitality and leisure group, said. "To the extent that buyers have not warmly received it to date, hotels are including some dynamic pricing provisions in their current proposals in hopes there will be some initial successes."
For example, a buyer might do business in 20 locations with a certain chain, but only three of those locations might have a significant volume, Palamar said. The chain could negotiate a hybrid agreement, with typical static pricing for the top three cities and demand-based floating rates for secondary and tertiary cities, she said.
"The discount deviation is minimal," Palamar said. "This is the point of entry for many buyers and a way for hotels to have control of their negotiations relative to demand. There is little risk, buyer resistance or pushback."
Both Hilton and Hyatt reported having such agreements in place. "It's testing the waters on the customer side and on the supplier side," said Tom O'Toole, Hyatt's senior vice president of strategy and systems.
Amex's Campbell said the handful of clients using dynamic pricing were doing so with a hybrid agreement, which she called a beta arrangement for dynamic pricing. The results so far are mixed.
"In some of the tertiary cities, they actually did pretty well and achieved a greater amount of savings," Campbell said. "In key cities, it was the exact opposite of that."
Mary Bastrentaz, senior director of travel and meeting services for Accenture, last year implemented a dynamic pricing pilot program with Hilton. In the first months, she reported no significant swings in rates and that it simplified the rate-loading process
(BTN, July 31, 2006).Although the white paper's preliminary results indicated that hoteliers had not done a good job of articulating potential benefits of dynamic pricing, Lodridge-Kover disagreed, saying in addition to the rate-loading aspect that it also would ease the arduous request-for-proposals process. Amex's Campbell, however, said the newness of the agreements in the initial year made the process as labor-intensive as traditional sourcing even though the concept made it seem as if processes would be streamlined.
Top buyer concerns remain the complexity of the concept as well as the difficulty it presents for budgeting and auditing. "You're grappling not only with what was the best available rate on that day, but more importantly, what was the best available rate at the point the traveler made the reservation," BTE's Palamar said.
Hoteliers might adjust their strategy for upcoming negotiations to ensure greater acceptance of dynamic pricing, she said. With high demand particularly in such key cities as New York and Chicago, hoteliers could, for example, begin tying last-room availability into dynamic pricing agreements.
"Buyers may see, going forward, where hotels are reserving their most valuable LRA policy for dynamic pricing agreements," Palamar said. "If you enter into a static pricing agreement, there is the possibility that the LRA policy may not be attractive."
Hotels also might be willing to open up more room types within a dynamic pricing agreement than they would in a static agreement, she said. In addition, hotels could consider a sort of rate cap for dynamic pricing. If a hotel had 10 different levels of best available rates, for example, the hotel could agree to limit dynamic pricing with the second through seventh levels.
Despite this, Advito's Chevalier didn't expect much of an uptick in dynamic pricing when negotiations start this year. Buyers remain unconvinced, and there's no reason hotels would have any more success pushing it where it isn't wanted, she said.
"In 2008, it's not going to be as challenging of a year," Chevalier said. "Demand will still be high, but there's a degree of leveling out, so I don't think you'll see a significant increase."
It will remain an area of focus for hotels as they try to get a better handle on revenue management, Buckhiester's Edwards said. It boils down to dynamic pricing being more of an evolution than a revolution in the industry, which hoteliers said is what they expected.
"We never said that we wanted to convert all of our corporate negotiated accounts to dynamic pricing," Hilton's Lodridge-Kover said. "This is our second year of truly testing it, and there will be more success stories and proven cases that, after a certain period of time, can be shared this coming year."