The Flip Side of the Coin

The Flip Side of the Coin: Hotel Dynamic Pricing

February 20, 2017 11:00 am Published by
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Hotel dynamic pricing sounds super shiny. It’s as bright and flashy as a coin toss in the sunshine. But careful, what may seem like a big savings opportunity could be a trick of the light.

What is Dynamic Pricing?

Dynamic Pricing is when your hotel room-night rate is guaranteed to be a specific percentage off the best-available rate at time of booking. Instead of negotiating a specific dollar room-night rate, travelers receive a percentage off whatever the best price the hotel is selling on the day the traveler books.

We’ve all heard the pitch. It’s an eternal-sale! You’ll ALWAYS get a 40%-off Coupon! (It’s like going to Bed, Bath, and Beyond with the never-expiring 15%-off-one-item coupon. You’ll never not get the discount).

Your travelers in Rewards Programs have definitely heard this line before. It’s the #1 tactic hotels are using to lure your travelers away from your travel program and get them to book direct. And believe us on this one – this doesn’t benefit anyone. Read this blog for more about Rewards Program pricing.

Eternal Sale? This Sounds Great!

It does sound great!

But it’s not.

Remember, dynamic pricing wasn’t dreamt up as a way to save YOU money. It’s a very clever revenue management process that the hotels maintain, which means that it’s probably the hotels that see the gross benefits, even if you get a net win every now and then.

Take a look at this extremely helpful Hotel News Now article that explains how dynamic pricing works. It was written three years ago, but the premise still stands. “Dynamic pricing allows hoteliers to price-to-market in order to maximize top-line revenue potential.”

Hotels can make money by helping you save money, yes. But at the end of the day, the hotel has to make money. So their biggest strategies will likely support that goal – not your expense-cutting desires.

That being said, of course there are exceptions. (What fun would our industry be without exceptions!??) As such, you’ll need to determine: is your program the exception, or the rule? (spoiler alert: it’s probably the rule.)

You’ll need to determine: is your program the exception, or the rule? (spoiler alert: it’s probably the rule.)

 

Tell Me More about What I Need to Know.

Kelly Wagner, Director of Consulting Services at World Travel, Inc., has a measured approach to the topic. “Dynamic pricing sounds great, and we can consider it in secondary or tertiary markets. But we don’t usually recommend it for primary markets.”

Define “Best Available Rate”

This is a classic example of “what do you mean by the words you just said to me.” Dynamic pricing offers a percentage off the best-available rate. But the hotel gets to subjectively define what the rates are for any given day. This is, of course, usually a complicated process involving analysis of market segments, rate levels, and room types. Pricing depends heavily on forecasting and can also be affected by occupancy. It also depends on who you are and where you’re coming from. Most hotel “best-available” offerings have fine print that buys a lot of wiggle room. Which means the “best” rate they offer isn’t always necessarily the “best” rate. Read the fine print.

You’ve Gotta Ask Yourself One Question: Do I Feel Lucky?

Beyond the inconsistencies of what defines the “best-available,” there’s the Forrest Gump fact: You never know what you’re gonna get. Because of all the variables, and because you don’t know how the national holiday schedule lines up with local holidays and events or individual hotel occupancy at any given time, it’s extremely difficult to forecast what your room night rate is going to be when you have dynamic pricing deals. From day to day, a price can fluctuate significantly. You could stay at the same hotel on Tuesday night of two consecutive weeks and pay entirely different amounts.

Playing Weatherman: Forecasting and Budgeting

Planning a travel budget? Dynamic pricing schemas make that difficult. You’ll need a lot of leeway, particularly for your heaviest markets that rack up a significant amount of stays. It’s difficult to know what your pricing will be for any given trip, which means it’s doubly difficult to budget month over month or even year over year.

Know the Rules

Even if you understand the ins and outs of dynamic pricing, we ask you: will your travelers and their managers understand it? One of the biggest complaints we get from travelers who hit the same property over and over again is that they are confused about the pricing. Why is it $99 one night and then $145 the next? The dynamic pricing discount (best-available rate minus your percentage off) isn’t listed in the invoicing; you’ll only see the price. Explaining the fluctuation to travelers, managers, or even CFOs can be an uphill battle.

Playing Ball

I asked Kelly, “What about all the great stuff we include in our negotiations for our travelers? Free wi-fi, free breakfast, free parking. Does a client still get those things when they opt for dynamic pricing?”

Kelly paused. Because (of course) it depends. “I do feel that, for your primary markets and primary properties, you’ll benefit far more from establishing a relationship with a negotiated room-night rate. Dynamic pricing is, in essence, like taking an out-of-the-box solution. Asking for customization on top of that isn’t as easy or seamless as when you’re actually communicating with a hotel contact and sitting down with them annually to review history and pricing.”

The Takeaway: Best Practices

Here’s the thing. As a client of World Travel, Inc., you already benefit from dynamic pricing. You get the best-available rate or the best-available rate plus discount because we are a Radius Travel Member. You get them because we’re a partner with IHG. No matter how much you book in your tertiary and secondary markets, worldwide, you’ll get a discount because you’re with us. (Yes. You’re welcome.)

So in effect, you already benefit from the kind of dynamic pricing that you have the highest chance of saving money on – for hotels and markets that you don’t often frequent.

But when it comes to your big cities and your primary markets, our Consulting Services department can benefit your bottom line more than an out-of-the-box perma-sale can.

 

World Travel, Inc. negotiated rates were lower 91% of the time.

 

Undecided?

Still not sure if you believe us? Ask your World Travel, Inc. Account Manager. Our Consulting Services Department offers assistance to our accounts at no additional cost to your program. We won’t charge you extra to look at your program and help you negotiate the best rates. So if you have a complex, large program that you think might benefit from more dynamic pricing agreements, ask us to take a look!

We’ve performed case studies for clients before. Cut to the chase: for one client, looking at midweek corporate bookings during general demand levels, the World Travel, Inc. negotiated rates were lower 85% of the time. Looking at midweek corporate bookings during high-demand levels, the World Travel, Inc. negotiated rates were lower 91% of the time.

If you only have a 9%-15% likelihood of getting a lower price for your primary markets, the odds just aren’t in your favor.

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This post was written by Chesley Turner

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