Dynamic pricing gets mixed reviews. Many buyers say the low rates on hotel websites and online travel agencies are rarely what they seem – and when booked direct they tend to lay waste to travel policy, undermining negotiated rates and presenting traveller tracking problems. But, if carefully managed, can dynamic pricing pay dividends? Catherine Chetwynd talks to those in the know
Margaret Birse, director of global travel services at international service company Serco
“We reluctantly agreed to dynamic pricing from a couple of hotel suppliers last year, but we are now looking to move back to more negotiated rates,” says Serco global travel director Margaret Birse.
“Because our requirements are project-driven, we tend to have a lot of room nights in 20, 30 or even 40 destinations and have a large spend there, so dynamic pricing does not work particularly well for us. This is accentuated by the fact that, typically, we are in high-demand areas, so we get a discount off higher average rates and don’t go for last room availability to get the lowest possible rate.
“One supplier has already come to us and asked to enter into a hybrid model – with dynamic pricing across most properties but negotiated rates on the top 10-15 destinations – because they saw high volumes in these areas but were not getting their share. And some hotel suppliers have seen the effect of dynamic pricing, and they say: ‘Thanks for trying it, but it is not working particularly well for your business.’
She adds: “We are very good at providing data – we do not have a problem with that. If we do not support a property, it is because the best rate of the day was not the best available.”
Dynamic pricing sounds good with, say, 25 per cent off the best available rate but, if best available is rack rate, that is likely to be higher than any company’s negotiated tariff.
“We cap the rate in our travel policy and, if the preferred rate is out of cap and non-preferred is within it, that is not a good situation,” Birse says. “It works well for a business that does not support one area at a high level of occupancy but it does not suit companies like us, who, due to business requirements, tend to book late and need locations near the office, or have three-to-five year projects. The caps are in place to protect us.”
Birse was surprised to see a massive switch in the programme over the past 12-to-18 months in Serco’s hotel use, from 60-70 per cent chain properties to 60-70 per cent independents. “I moved here 11 years ago and did a lot of work to establish the hotel programme and this is a backward move. It takes up more of my time, it is more difficult to communicate to our users and is a bit of a nightmare – I think dynamic pricing has something to do with that, plus our decision to go to caps for hotels throughout the UK and internationally. If the preferred hotel is not within cap then the booker is permitted to choose something non-preferred provided that is within cap.
“Independents are a lot more agile – there are not so many conversations to be had and they are hungrier. They will come straight to us and say: ‘What is your cap? We will do it.’ There are times when we are not comfortable with the decision we are making if they are lowering rates to a point that is not sustainable – but we don’t want smaller businesses to feel we won’t work with them,” she says.
Hoteliers keep a close eye on corporate business and can see when numbers start dropping. Depending on the location, volume is often a lesser deciding factor than market share. “If they want 1,000 room nights to give a certain rate, and then towards the end of a project the numbers drop off and we can only give them 900 nights, some hotels are willing to keep the rate because they want as much of our business as they can get. Some say they need to see the room nights to achieve that rate – most of those are in London.”
The other complication is the days of the week. Serco travellers are on the move on Monday, Tuesday and Wednesday but not on Thursday, Friday or Sunday, when hotels tend to have lower prices. These lower tariffs are not consistently offered on Tuesdays and Wednesdays, when occupancies are generally high.
“When our travellers tell us they see lower rates, we tell them they may be available this week and next week for three nights but not for the next ten weeks, when you will be getting rack rate,” says Birse. “We give access to as much content as we can, so that they can see everything that is available and make a decision. Travellers are mandated to use our self-booking tool for domestic travel and, if they want to book outside cap, they have to do so through the team.”
Finally, the thorny issue of commission raises its ugly head. One hotel booking agency, which based its fees largely on commission, is now out of the mix and Birse thinks this has led to much keener pricing from some properties.
Similarly with airlines, the transparency the industry worked so hard to institute may, in some cases, once more be ceding to smoke and mirrors. Serco and its travel management company (TMC) have a transparent relationship that is based on a management fee and paying no commission.
THE CONSULTANT'S VIEW
Tom Stone, director of travel sourcing and outsourcing management company Sirius
“Smart travel managers with a developed travel programme are embracing dynamic pricing. It gives a hotel the opportunity to dump distressed inventory and sell it at price point better than having an unsold room. For the corporate, with the help of a TMC, dynamic pricing gives the opportunity to make savings on the programme that cannot be made through a clunky type of programme.
“A negotiated rate in London, with last room availability, is set in stone for 365 days and that does not take account of times of the year when that rate can be improved on. It gets a little more grey when it includes properties outside the hotel programme. The trick is in managing it.
“That is why using dynamic pricing does not mean giving carte blanche to the traveller to do what they want. If you have a cap of £150, a proactive TMC recognises there are offers available and looks at third-party websites and offers that to the traveller – but that has to be done as part of the managed programme. The challenge is for the travel management team and the TMC to present the best option to the traveller and booker.
“A really good agent can offer a fare on Monday and if an airline dumps something on the Tuesday, the TMC will find it. And if a client wants someone booked on an 8.30am flight to Frankfurt , a good agent will check whether leaving 15 minutes earlier might cost less. They could add lots of value there. It is also about managing travellers’ expectations. If two travellers check into a hotel and one pays a higher rate, the other will immediately conclude his travel agent or manager is not very good – but there could be a myriad of reasons why. I would rather have dynamic pricing than not have it.”
THE TMC'S VIEW
Simon McLean, managing director of Click Travel
“The way to handle dynamic pricing is to get an online booking tool that allows you to see all services on the web. Dynamic pricing forms a huge part of all our clients’ programmes and they don’t lose data because we bring the content into Travel Cloud, so that when they book, the information is included within the management information. Then clients build travel policy around it.
“Rather than taking the traditional approach of allowing spend of up to £80 in any hotel, clients are combining policy with dynamic pricing and telling travellers they are allowed the lowest hotel rate
or anything within 10-to-15 per cent of that. That way, their rates reflect the current state of the market they are looking to stay in, but with a cap. Much as travel managers try to change the behaviour of travellers, corporates are always booking late because it is the way businesses operate.
“Corporate rates are not dead, they are just used in a different way. A company could be putting enough business into Premier Inn to negotiate a rate, or they may gear policy around contracted rates because they want to maintain policy or the relationship.
“Travel Cloud is a content aggregator, connecting to lots of providers to get the best rates. Each company has a portal and their policy is built into that. Its flexibility allows us to configure it to customers’ every requirement.”