Corporate hotel programs are evolving from static, annual request-for-proposal exercises to dynamic interactions in real time. This is reflected by many hotels’ increasing adoption of dynamic pricing models. But is this just another quick fix in the world of business travel, or does it have legs to stand on for the future?

Dynamic pricing gives corporate clients a percentage discount off BAR (best available rate) instead of a fixed (or seasonal) contracted rate. This means, in essence, that rates are constantly fluctuating in response to market demand and economic conditions. Bottom line: In dynamic pricing, the price of a room is always moving. But this constant change seems like a recipe for instability. How do both hotels and corporate travel managers succeed on this pathway?

By using specific mathematical algorithms that follow supply and demand, even hour to hour, dynamic pricing permits a property to up rates when the going is good (for example, when a big event or seasonal shifts are generating higher than average demand), allowing hotels to capture greater occupancy and more competitive rates. On the flip side, hotels can also quickly adjust rates downward to capture rooms when demand is low. Hoteliers can appeal to different market segments that don’t typically book their property by offering lower rates on certain days when it’s slow, and thereby minimize the potential downside of unsold rooms (such as on weekends).

The benefits of incorporating a dynamic pricing strategy extend to both hotels and travel managers, but in different ways. For travel managers who need to book a wide range of travelers in a wide range of hotels, dynamic pricing offers expanded choices. A wider array of properties allows for higher customer satisfaction, in the long run. For hotels using a revenue management system, dynamic pricing algorithms can be set to include the rates being offered by the competition. This can give hotels a leg up on its competitors.

The Bad News
If this sounds too good to be true, the question is why has adoption historically been slow? One obstacle that both hotels and travel buyers face is a lack of education and access to technology. In fact, a 2022 GBTA study found more education is needed, “particularly among travel managers from companies with a hotel spend of less than $5 million annually and low volume need.”

According to Pauline Robin, senior director of CWT’s RoomIt Solutions, “Static rates are easy to audit, and most TMCs offer the auditing service. Dynamic rates, on the other hand, are a lot harder to monitor. The only way to do so is to capture search data and compare the client negotiated dynamic rate to the BAR (public rate) at the same hotel when the search is performed. Not all companies have the technology to perform such detailed analysis, with many comparing the dynamic rate booked to a BAR value extracted once a day – meaning at a different point in time,” Robin says.

“As rates go up, costs to the corporation will go up as well. There are also market conditions that cause exceptionally high rates,” cautions Steve Reynolds, founder and CEO of Tripbam. “Both can be managed with a rate cap by market that adjusts with seasonality but some OBTs don’t support rate caps well. If a company is not using rate caps, they could be better off staying with a static program. Some follow a dual rate approach (have both a static rate and a dynamic discount) but it’s only available to the largest customers and we’ve found some hotels implementing them incorrectly in their PMS.”

Navigating the complexity of discounts can be tricky for both hotels and travel managers. For hotels, another challenge comes from traveler perceptions. If travelers see a higher price for a room they’ve always paid a lower rate on, questions of rate integrity may arise. Will this lead customers to pursue other brands they’re loyal to? (We know the lure of loyalty programs can often be a deal breaker for business travelers.)

The Crux of the Matter
For corporate travel managers, the heart of the issue revolves around best value. In other words, if your dynamic rate is a percent off BAR, and BAR is a moving target, how do you know you’re getting your best rate?

According to Reynolds, “Companies should hire a third-party auditing service which captures the BAR at time of booking, applies the contracted discount and compares to the rate booked. If the resulting rate is lower than booked, estimated lost savings is provided to the company for each hotel and notifies the hotel of the issue. In addition, a daily rate re-shopping solution will automatically lower the rate in the future if the BAR rate drops closer to check-in.”
Although travel managers will be reliant on these kinds of systems, there are other advantages including:
• Avoiding the annual RFP process and signing longer term (evergreen) discounts
• Using rate caps to manage markets with exceptionally high rate increases
• Simplifying deals and removing seasonal adjustments, blackout dates, and room type restrictions
• Providing consistency - the percent discount applies to every room, on every day of the year.

In this way, Reynolds believes that it’s a win for both hotels and corporate travel programs. “Each get a much easier and less expensive negotiating process. Both can avoid lengthy and expensive negotiations in the future. Companies get savings on every booking due to greater coverage – every room on every day. Hotels have less rate loading issues and less complex agreements.”

One Size Does Not Fit All
Nevertheless, dynamic pricing strategy cannot be adopted as a cookie-cutter approach. The question of “How do you know you’re getting your best rate?” depends entirely on your specific situation.

“It depends on the strategy adopted by a corporation,” cautions Anu Kuchibhotla, hotel practice line lead at Amex GBT. “If dynamic rates are implemented where the corporation cannot command volume pricing at the time of sourcing, then it works for them from channel compliance and duty of care standpoints, if not from a pure cost savings perspective. If the travel manager then tracks a higher percentage of bookings at dynamic pricing, it opens the door for them to have fixed rate discussions. In a buyer’s market dynamic is better as hotels will lower price to capture volume. The opposite applies in a seller’s market, where a fixed rate is the ceiling, thereby protecting the corporation from rising rates,” Kuchibhotla adds.

“Our recommendation to clients is to keep negotiating static rates, which will allow them to protect their costs when public rates are high, as was the case during most of 2022,” CWT’s Robin advises. “When public rates are low, travelers should take advantage of their TMC’s negotiated rates that are dynamic, following market trends. Dynamic rates will benefit corporate buyers when rates are particularly low, as was the case during the pandemic. Otherwise, moving away from static rates allows hotels to increase their rates over time, following the volatility of BAR, driven these days by increased operational costs, and inflation.”

Being on top of changing market trends is a daunting chore, if not a full-time job. Tracking your discounts is enough of a task, and for some travel managers, there isn’t enough budget to hire a dedicated revenue manager to monitor dynamic pricing strategy; much less an entire team of them.

“Percentage discounts off a moving BAR target makes it practically impossible to allocate and plan/track from a budget perspective,” warns Lukasz Dabrowski, senior vice president of global supplier relations for HRS. “That’s one of several reasons why we seek static rates for corporate clients in their highest-volume destinations. This is particularly relevant in 2023, as hybrid workforces and changing travel dynamics have put lodging expenses under increasing scrutiny from the C suite. Dynamic pricing,” he advises, “seems to work better for smaller destinations, having either a) reduced projectable room night volume or b) completely variable volume.”

As the World Turns
We know that dynamic pricing isn’t a panacea, but for some of the bigger chains, it seems to work well. In March 2022, Marriott retired its award categories in favor of dynamic pricing. Hilton is a strong proponent of dynamic pricing as well. “Dynamic pricing is an ‘always on’ that is consistently applied to BAR,” explains Christiane Cabot Bini, Hilton’s executive director of corporate travel sales. “So even if BAR fluctuates, the travel manager knows – without a doubt – they are getting a discount every single time their corporate rate is booked. Dynamic rates are LRA, and many times aren’t limited to standard room type as can be the case with static rates, so there’s added benefit,” she continues.

“Dynamic rates work for both the hotel and the customer,” Cabot Bini says. “No travel manager wants the dreaded call from an executive claiming they found a better rate online. That’s unfortunately the tactical reality of static pricing and why Hilton Worldwide Sales started looking at pricing models that created a more win-win scenario over a decade ago. If dynamic pricing didn’t work for our customers, we wouldn’t have a majority now using it in their programs, many with 100 percent dynamically priced programs. Dynamically priced programs offer a much more strategic approach to corporate travel management – not to mention a more efficient and effective RFP process – which enables the focus on big picture stuff like program coverage, traveler experience and engagement.”

Maybe we can just chalk it up to evolution, but it’s likely we’ll see more of dynamic pricing in the future. However, procurement scenarios should not be portrayed in terms of winning and losing. “It’s rarely a ‘one or the other’ approach across the entire lodging budget,” HRS’ Dabrowski says. “In the ideal scenario, with full transparency and deeper insight that comprehensively includes transient, meetings and extended stay segments, both the hotelier and the corporate program lay the groundwork for longer-term, recurring value from both perspectives.”