While airlines have used a dynamic pricing model for years, hotels were slower to follow suit – mainly because the industry’s technology still had to catch up.

Fast forward to today and many hotel chains are keen to promote the advantages of dynamic pricing (to corporate clients running preferred hotel lists) over individually negotiated corporate rates.

The dynamic pricing model gives corporates an agreed percentage discount on the hotel’s best available rate (BAR) rather than a fixed contracted rate. The agreed discount is then applied to the BAR for all room types all year round.

As a model it works well for hotels, being easier to track (compared to applying a complex range of specially negotiated rates) while allowing them to generate more revenue during times of peak demand.

While it is clearly in the interest of hotels to promote dynamic pricing, the advantage to bookers is not so clear cut – because it’s harder to predict your costs when you have to multiply an estimated number of room nights by a constantly varying rate. And where do travel management companies (TMC’s) like Inntel fit into the picture? Traditionally a key part of the TMC’s role has been to nail down special rates to make the budgeting process easier.

Do TMCs still have a part to play in a dynamic pricing situation?

Inntel’s position is that our clients will benefit from the dynamic pricing model with some hotels, and in some cases. As it is never going to be the best solution 100% of the time, our role will move from being chief negotiators to chief analysts – using the booking data we hold on dates, volumes and prices to identify whether it would be in our client’s favour to switch to a dynamic discount model.

What do the hotels say?

We asked Dan Miller, Key Account Director at glh Hotels, to answers some of the burning questions that our clients are asking about dynamic pricing and how it could affect their preferred supplier policies in the future:

I’m a buyer – what are the benefits of dynamic pricing for me?

The first and perhaps most important benefit is that you will have a guaranteed availability of discounted rates.

Having access to a dynamic rate that is discounted against the Best Available Rate (BAR) means travellers will not have to revert to BAR when the contracted rate is closed out, and will still be able to demonstrate a saving when using the preferred property.

Additionally, there are periods during which some programmes can actually make further savings versus a static corporate rate. When demand is low, this will likely be reflected by reductions in the dynamic rate.

How can I budget for the year ahead with your dynamic pricing model?

I would encourage engagement with your travel management company and the existing hotel suppliers to review where BAR rates sit within a chosen
property across the lifecycle of the last RFP. Add in the forecasted market rate uplift and assess the results.
If you compare how the results differ from a static programme you can use this process to assist in the negotiation of the level of discount from BAR that is requested.

How can I select a hotel as “preferred” when the dynamic pricing model means I don’t know in advance the rates my travellers will be paying?

Dynamic rates won’t be the right solution for every property on your programme. A relationship with a hotel or chain built over a period of time should never be ignored.

A hybrid model where a both a static rate and discounted dynamic rate are made available could strengthen further the status of being “preferred”, allowing companies to continue to benefit from virtually guaranteed availability at a discounted rate even when the agreed static rate becomes unavailable.

Is it still possible to set the highest “top rate” I would ever pay in the dynamic pricing model?

Yes this is possible through a dynamic “ceiling” rate whereby room availability would close when the rate triggers the cap you have put in place.

Looking to the future, how am I supposed to compare the costs of venues that use dynamic pricing?

Historical data (as recent history as possible) is usually the best barometer. As with my comments on budgeting, I would encourage engagement with your TMC and hotel suppliers to develop an understanding for all parties of where rates sit within the market place.

It should be stressed at this point that whilst some technology exists within the market to assist this process already, I do believe currently that the dynamic pricing conversation is a longer term discussion and that these extremely relevant questions around budgets and comparisons will take some time to fully answer.