The outlook for dynamic corporate hotel pricing is … well, dynamic. The perennial discussions around dynamic vs. static pricing are ongoing, but the landscape shifts with the economy, changing technologies and corporate goals. Right now, could be another period when a swing is underway, as the hotel market softens and AI tools come into play.
It does appear that dynamic rates continue to gain ground overall – and have been doing so for years. For one thing, according to Pauline Robin, vice president procurement consulting and supplier solutions Americas at HRS Group, the corporate hospitality booking and payment platform, “Hotels are pushing dynamic rates more than ever because they are still catching up from pandemic losses and dealing with higher costs.”
Hilton, says Christiane Cabot Bini, vice president, global business travel sales, continues to see dynamic pricing growing in popularity. That approach, she says, is an “always on” discount that is consistently applied to the best available rate, so the travel manager knows for certain that the company and its travelers will consistently get the best rate for a preferred property.
There are certain situations, say with per diem rates or perhaps with a specific high-volume property, says Cabot Bini, where a static rate could make sense. “However, given the cost and time associated with static rate negotiations, many customers are making static rates a smaller portion of their programs overall,” she says.
A trusted and reliable travel management company will have the knowledge and ability to know when the dynamic rate is the best rate, notes Ashley Gutermuth, head of FCM Consulting Americas. Dynamic rates are often best, she says, in a market where the client has little leverage to negotiate LRA (last room availability) rates and when the dynamic rate is competitive with other available rates.
Richard Johnson, vice president, CWT Solutions Group, agrees that in markets with fewer room nights, dynamic pricing can serve as a useful tool to complement static rates and chainwide discounts. “The most effective approach involves a hybrid model, leveraging both dynamic pricing strategies and traditional negotiated rates to optimize a hotel program,” Johnson says.
A well-run program consists of multiple rate types – not just static or dynamic, says Nina Marcello, client portfolio lead, Amex GBT Consulting. In many cities, a corporation will be well-supported by third-party content through its TMC or a chain discount, she says, which typically is a lesser percentage off BAR (best available rate) than a dynamic rate, but a savings nevertheless.
The general consensus among TMCs and buyer-side parties, then, is that a combination of dynamic and static rates, combined with consortia and chainwide discounts, is the most optimum approach. That makes booking programs more complicated but, according to some, the advent of AI and other technologies should eventually smooth the rough edges of those complications.
The BAR Is High – or Is It Low?
While the very definition of dynamic pricing may vary, it is often considered a specific discount off BAR (which itself is subject to definition muddle). Robin has issues with the whole concept of BAR, saying that buyers can’t control that rate, while fixed rates are easy to audit.
Robin believes BAR is a misnomer, because that rate can change multiple times a day depending on season, group business and other factors. The mega-chains, she says, have invested heavily to ensure their rates reflect all those factors, and buyers on their own can’t compete with those chain investments. They need help, she says, from TMCs and companies like hers.
“Buyers can’t always be certain on their own that a dynamic rate is more competitive than a static one,” agrees Michelle Kocina, senior consultant, CWT Solutions Group. “However, by partnering with a sourcing consultant, buyers can leverage benchmark data and insights to make informed decisions.”
One longtime observer, Bjorn Hanson, adjunct professor at the Jonathan M. Tisch Center of Hospitality at New York University, is also skeptical about BAR. In most contracts, he says, BAR is a defined term that refers to rates for the public for single reservations that are unbundled and non-commissionable. There is often a provision that allows the brand or hotel to offer any rates or discounts to any guest, and those rates or discounts do not affect BAR. Some might say, concludes Hanson, “that BAR has nothing to do with what is really the best available rate.”
Understanding that static negotiated rates are often a deep discount off BAR, says Marcello of Amex GBT Consulting, “hoteliers need to offer greater percentages off BAR when pushing dynamic discounts. Otherwise, corporate customers will be resistant to accepting dynamic discounts as a viable option for their program.” Hotels, she adds, often do not give enough to make this rate type favorable to a travel buyer.
Buyers should definitely push back on discounts off BAR if dynamic rates don’t align with their program, particularly in their top-volume markets, says Angie Techmanski, senior consultant, CWT Solutions Group. If the discount offered isn’t significantly better than the buyer’s chainwide rate, she says, it may not be beneficial.
To ensure that the dynamic rate model buyers are getting is the best for their corporate hotel program, says Beth Harrison, senior manager, CWT Solutions Group, they should rely on regular data-driven monitoring and optimization. This can be achieved through quarterly or monthly optimization reports, which utilize benchmark and BAR data. This is where leveraging the advice of a sourcing expert is also crucial, says Harrison, as these experts can provide the necessary insights and continuous monitoring to help buyers make informed decisions.
Commenting on the BAR issue from the hotel side, Cabot Bini of Hilton says: “We view ourselves and want our customers to view us as trusted advisors. When we are discussing and establishing an agreement with a customer, everyone should be clear on the expectations for the pricing, as well as the program’s performance and how we will monitor and measure success, together.”
Of course, the dynamic discount has to be deep, says Wendy Ferrill, vice president, worldwide sales for BWH Hotel Group, but it would ultimately require testing on the part of the buyer, i.e., the use of a rate audit tool. Many buyers use booking tools, so the negotiated rate, if there is one, might be lower based on BAR.
“Our customers know that regardless of BAR fluctuation,” says Ferrill, “they will ultimately get the lowest rate between either the negotiated rate or the chainwide/dynamic discount, as we guarantee that.”
Ultimately, says Brian Macaluso, vice president, global sales for Sonesta International, “we partner with our clients in how they want to do business.” He added: “The power of the dynamic rate helps travel planners in several situations (location, consistent availability, less labor-intensive to manage). The best way to validate rates is to shop and verify.”
The Chainwide Conundrum
Chainwide discounts also have their place in negotiations, according to all parties, adding more pieces to the puzzle. Brandwide discounts can be a useful addition to negotiated rates at specific high-volume properties, providing flexibility within a hotel program, says Kocina. Ideally, the hotel chain should have the capability to load both static and chainwide rates. This allows the dynamic chainwide discount to apply if the published rate falls below the negotiated static rate.
With giant players like Amazon spending hundreds of millions with a brand every year, says Zach Demuth, global head of hotels research for real estate consultancy JLL, there is an incentive for brands to offer brandwide discounts. The problem here, he says, is that the mega-brands are franchisors, and their franchisees are not required to follow their advice on pricing.
Alexis Sisko, managing consultant for Advito, the consultancy arm of BCD Travel, says her recommendation is that buyers leverage agency consortia programs and other discounted hotel content and implement market rate targets in their online booking tool to drive hotel program savings instead of accepting low-value dynamic discounts simply for the sake of having a discount in place.
Not everyone is a fan of chainwide discounts. While it is tempting to say yes to them, says Robin, they might cannibalize a hotel program. These discounts can mislead travelers, she says, and the travel manager will lose volume for preferred hotels. All these chainwide deals, says Robin, “are destroying relationships.”
Hoteliers have a different point of view. Chainwide agreements, says Cabot Bini, have tremendous value for corporate programs, as they ensure that travelers get a consistent rate or discount off BAR outside of preferred properties. In fact, she says, “we see a growing number of customers valuing our chainwide programs as a valuable supplement to their preferred programs.”
Buyers have to have enough volume outside of hotels with negotiated rates for chainwide discounts to make sense, says Ferrill. Additionally, the hotel chain and buyer have to agree that if their negotiated rate drops to or below a negotiated rate, a contracted “brandwide discount” percentage off BAR will apply.
Some see AI and technology creating more transparency in the marketplace. According to Robin, data is becoming “unlocked,” and there is a refinement of traditional tools with the continuing advancement of the science of travel management. The art of it is still there, she says, but it is becoming more scientific with more data becoming available.
Similarly, Demuth says AI has helped because it creates more certainty around rates. BAR should be objective, says Demuth, and with AI, it is becoming more so. “As much as we like to say revenue management is an art,” states Demuth, “more and more, it’s a science.”
The good news, says Demuth, is that looking ahead, travel managers should be getting more bargaining power with the softening in leisure demand. As a result, he says, “upcoming negotiations should be interesting.”
