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 News senior editor Michael B. Baker, Mourier and company co-founder
Bruno Perez suggested that fixed rates someday could become an endangered
species. They also spoke about future developments in the sometimes shaky
relationships between hotels and online travel agencies.
As hotels get more sophisticated with revenue
management, how will this affect corporate pricing?
Mourier: 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?
Mourier: 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.
Perez: It's
a slow process. The U.S. and Europe are kind of advanced, but in other
countries—in Asia and India—people are even slower. It's taking time, but
eventually, in the next several years, this will change.
Are you predicting dynamic pricing will be the
dominant model for corporate rates?
Perez:
Based on what we've seen, the evolution of pricing, it will be only dynamic in
the future. 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.
What does this model mean for rate loading?
Mourier: 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?
Perez: A
few years back, Choice Hotels pulled out of Expedia. They did for a short time,
and the hotels were screaming and a lot were losing money, and it didn't last
too long. For the hotel industry, it's going to be much harder to push to do
that. They're too fragmented to have the leverage. It doesn't mean the hotels
don't want to do it, but they don't have the leverage.
Mourier: Hotels
cannot live without Expedia. 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?
Mourier: When
we saw Choice taking a hard line, 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.