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 pricing for
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 100 report, 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."
Source: Management.travel