Managed Biz Shifting To Dynamic Pricing
2/14/2007 2:11:39 PM
By Glenn Haussman For many in the hospitality business, effectively managing group business is a linchpin strategy. And companies looking to give their employees a fairly priced room on the road, structure deals with hotel companies for a single discounted rate applicable in all markets (with few exceptions) in return for a guaranteed number of nights. This system worked great for years. But then technology and internet came along and upended the entire process. Now, the hospitality industry (both hotels and airlines) is changing the way rates are negotiated. It’s not yet known if margins will be positively affected in the long term, but it’s irrelevant anyway since this change is inexorable.The change is a shift from static to dynamic pricing. Where static pricing generally sets a single rate across all markets, dynamic pricing is a more flexible model where pricing fluctuates based on individual market demand at a particular time as well as each market’s typical rates.
According to Dorothy Dowling, SVP Marketing with Best Western, group business –while not as large as its leisure business – is a large revenue stream for the company’s member properties. Last year alone, Best Western saw 30 percent growth for managed corporate growth.
Dowling said her company has been benefiting as corporations continue to reign in expenses and shift room nights from upper tiers to the mid market.
“Corporate business is a very important segment for us on Monday through Thursday nights, accounting for 40 percent of system revenue stream,” said Dowling. She added that these agreements also help boost leisure business as guests coming through this portal will use corporate rate for vacation stays as well.
Bill Connors, Executive Director and COO, National Business Travel Association – an organization that promotes the value of business travel management – said business travel represents the second or third most controllable expense in a corporation. And now that business has soared to pre 9/11 levels, Connors said, companies are planning to spend more on business travel. He said 68 percent of his organizations members, which includes 65 percent of Fortune 500 companies, expect to take more business trips in 2007 and spend more on hotels, flights and car rentals.
Because the lodging industry is currently experiencing strong demand, Connors said corporations are looking to minimize what they spend per day on business travel.
“Companies are increasing online bookings so travelers can see corporate rates right on their desktops. They are also reducing the number of preferred suppliers to leverage volume for better rates,” he said.
The shift to a dynamic pricing model is gaining popularity because the Internet has made pricing largely transparent. An employee can surf the web to see if their corporate rate is higher or lower than the best available rate, or BAR. Dynamic pricing allows a company to then negotiate a discount off BAR rather than pay a set dollar amount for each room.
“Certain parties maybe felt they weren’t getting BAR, so there is more rate integrity. There is nothing worse from a partner perspective than if their end user arrives at a better price then what they contacted for,” said Dowling. She believes that within the next 12 to 24 month this will be model of choice when negotiating managed business.
As technology enables Best Western to more effectively track the company’s managed business, Dowling said they are now trying to target small companies that purchase just 10 to 12 nights a year. She believes this is a relatively untapped and significantly deep market.
Though it does not offer discounts for volume business, low-fare air carrier Southwest Airlines has hit on a business model the company feels gives it an advantage over the legacy airlines.
Dubbed SWABIZ, the program serves as an in-house travel agency for corporations to assist their travel managers with a one stop shop to manage air travel. The program allows financial tracking, transferring of funds between customers from the same company, change and cancel flights at no additional fee as well as other features. Reports can also be printed from the interface too.
“This is a wonderful program because it was created by the business traveler,” said Loretta Hohmann, Marketing Manager with Southwest Airlines. She noted the program has seen a 44 percent increase in enrollment since 2005.