The long-running TV game show  The Price is Right makes it look easy. The bidder with closest guess under the actual price of an item is the winner. For corporate hotel buyers, the “Pricing is Right” is far more complicated, especially as the industry emerges from several out-of-the-norm years, with all parties seeking the best combination of dynamic, static and other rates even as hotel companies continue to enjoy a post-pandemic “revenge leisure travel” boom – that might finally be easing.

Traditionally, corporate buyers have leaned toward static rates to ensure predictability, while hotels have long espoused dynamic rates to provide them with more flexibility. Leaders from both sides of the table, as well as analysts, agree that the current environment may be a “feeling out” period when volumes have not returned to normal and recent data does not support any particular negotiating position. With hotels still doing well, there are strong tailwinds pushing dynamic pricing – with modifications – while static pricing remains the preferred choice for buyers in the cases where it is viable because of heavy volume.

The appeal of dynamic pricing is clear in that it can be easier to deal with, according to Neil Hammond, a partner at Goldspring Consulting. For one thing, a dynamic pricing contract can simply get rolled over for the succeeding year while a static rate must be negotiated every year or contract period.

Another benefit of dynamic pricing, says Christiane Cabot Bini, executive director, corporate travel sales for Hilton, is that it provides an “always on” discount that is consistently applied to the best available rate, so even if that fluctuates, the travel manager knows that the company and their travelers will see the best rate for a preferred property, every time they search.

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Dynamic pricing, says Cabot Bini, also involves a much more efficient RFP process for the travel manager. Static pricing, on the other hand, can come with more limitations – seasonality, room type and other factors – that can translate to a longer RFP process and rates that may not be available when a traveler really needs them.
That assessment of the RFP process is one widely held by both suppliers and travel buyers across the industry. According to Lukasz Dabrowski, senior vice president-global supplier relations for HRS, the hotel booking and analytics platform, while high volume can mean appealing static rates, negotiating them “is a painful process that nobody loves and take can up to nine months at the end of which neither party is happy with the results.”

Both Sides Now
Because of those negotiating challenges, both buyers and providers are seeking alternatives – like dual loading (combinations of static and dynamic rates) and continuous sourcing where buyers are equipped with the option of renegotiating if for, example, there is an unexpected project requiring a significant increase in the number of employees at a hotel. On top of that, nuanced changes to dynamic pricing models can make them more appealing to buyers.

Another issue some observers have with static pricing – at least in the current environment – is that the data for historical room nights and reliable estimates of room nights for the next year is currently less available and less representative because 2023 has been a year of transition and recovery, says Bjorn Hanson, adjunct professor, New York University's Jonathan M. Tich Center of Hospitality. There has also been enough personnel turnover on the "buy side," he says, that having the experience to return to “the nature and tone” of negotiations from 2018 and 2019 is not easy to do.

In the absence of data, and with uncertainty about the levels of room night demand and ambiguity about future room rates, says Hanson, dynamic pricing “has often become the default approach.” And, although there is an effort to return to more traditional negotiations and negotiated rates, that return is very limited, he adds.

Enterprise buyers are more interested than ever in streamlining the burdensome seasonal RFP approach, says Meredith Smith, principal, consulting services with Festive Road. So “dynamic pricing and chain-wide discounts seem to be attractive to most on both sides right now.”

The criteria for deciding which type of rate to use is pretty much based around “known demand,” Smith explains. Of course, while more is known than, say, a year ago, she notes that “many companies are still unsure what new levels of demand look like and what the locations are (especially if their workplace strategy is still evolving).”

Dynamic rates have become more “topical” these days, according to David Mollov, executive vice president for hotel solutions for Tripbam, because in a world where corporate buyers have less volume to promise (either because they haven’t returned to pre-COVID levels or company travel patterns have become harder to predict), hotel companies are able to hold back on offering flat rates and offer the more elastic, dynamic discounts instead.

Static Pricing Redux?
All of this is not to say that dynamic pricing is steamrolling the hospitality landscape. Anu Kuchibhotla, head of hotel, Amex GBT Consulting, says her company’s analysts did see an increase in the number of properties with dynamic pricing in 2023 hotel RFPs as corporates sought to protect program compliance and avoid leakage. However, she adds, fast forward the clock to 2024 and customers are pushing more for fixed prices. This could result in changes to client preferred programs. For example, hotels offering static rates will be more preferred, especially so in key destinations, but only if these fixed rates do not come with high increases as they did last year, she cautions.

For 2023, says Kuchibhotla, some hotel companies supported dual rate loading (offering a combination of dynamic and static rates) with a fixed rate percentage off BAR, which afforded corporations a certain level of rate protection. It will be interesting, she says, to see if hotels continue to offer dual rate loading in 2024.

The pros and cons are many in the dynamic vs. static debates. On the one hand, says Richard Johnson, global head, CWT Solutions Group, dynamic pricing can save buyers the time and effort required to run an RFP, especially in markets where they don’t have significant volumes anyway. Some buyers also opt for dynamic rates as this enables them to include a greater breadth of properties in their program and provide travelers with more choice, which could potentially help address challenges with off-channel bookings.

On the flip side, says Johnson, dynamic discounts cannot be audited and so travelers may have issues accessing the discounted rate at the time of the booking. Another problem, particularly in markets where rates tend to be volatile, is that prices can often exceed a company’s rate cap. This can result in dissatisfied and non-compliant travelers. Dynamic rates also present potential downsides for travel managers if they lose visibility and control over their spend forecasting and potential savings.

In addition, says Johnson, many hotels are still pushing for buyers to move from static Last Room Available (LRA) rates to non-LRA (NLRA) rates or dynamic discounts. They are also increasing the thresholds below which they are asking buyers to accept dynamic rates – in some instances for properties where a client has less than 500 room nights or even 1000 room nights per year. This is especially true in popular destination markets that are seeing high demand and where public rates have experienced double-digit growth.

Because of circumstances like that, static rates remain appealing to many buyers – when they can leverage their volume to gain them. Greeley Koch, managing director at 490 Consulting, says negotiations are likely to become more challenging, with both parties attempting to secure positions that may conflict with the objectives of the other party. Considering the high hotel rates in certain areas, says Koch, companies will consistently seek static rates to protect against further rate increases.

The Dynamic Pitch
As demand markets evolve and business patterns become more established, says Wendy Ferrill, vice president, worldwide sales for BWH Hotels (which operates Best Western and many other brands) the company sees dynamic rates remaining more prevalent in today’s marketplace.

Generally, the location and volume of a buyer’s overall spend play the largest role in determining the mix of static and dynamic rates, Ferrill says. Additionally, the availability of product in a particular location is important, she says. When there is limited product in a known demand destination, buyers are more interested in upfront agreements to ensure that there is enough inventory for their needs.

As the industry moves further away from the impact of the pandemic, says Garine Ferejian-Mayo, chief commercial officer for Sonesta, travel buyers are able to see trends in their travel management ecosystems. During the pandemic, she says, although static rates were still helpful in key markets, the lack of staffing from the supplier and vendor side ignited a harder look at using dynamic pricing models, with much success for travel managers and their preferred suppliers. “Moving forward, we see the lasting trend of hybrid work and are continuing to see a more layered approach from travel managers in their rate strategies,” she says.

Many travel managers, says Ferejian-Mayo, are seeing cost and time savings for their teams if they move to a dynamic model – freeing them to focus on proactive engagements to drive education internally on all the benefits their travelers can take advantage of, or why their compliance to travel policies is critically important to their company and its success.

The emergence of more blended rate offerings (static / dynamic) is giving travel managers more flexibility to ensure “win-win-win outcomes for their company, their travelers, and their preferred hotel suppliers,” says Ferrejian-Maho.
Cabot Bini says she has seen many buyers working to adapt their travel programs to better match their current footprint and the new travel patterns that are emerging. That could mean adding or removing hotels to accommodate emerging needs, office locations and headcount, or exploring whether different hotel types, like extended stay concepts, are more conducive to the realities of today’s business travel needs.

With these shifts and new hotel offerings in mind, says Cabot Bini, savvy travel managers are conducting a comprehensive audit of their business travel programs and policies. Taking the time to analyze a company’s employee footprint, historical data, and anticipated seasonality and destinations for planned travel, she says, will help managers better understand what, where and when their critical needs are and will help inform whether a static, dynamic, or hybrid pricing model is best.

Dynamic vs static? It’s far from a black and white situation – making all parties wish it was as clear and simple as a TV game show.