Advito senior director and global hotel practice lead Laura Kusto submitted the following guest column that advocates for equitable dynamic pricing as the antidote for annual hotel requests-for-proposals tedium.
It's no secret that Covid-19 has created uncertainty for the corporate travel industry. But amid all of that uncertainty, there have been notable steps taken to improve some aspects of the industry. Fresh ideas are being put forth, travel managers are eager to test new theories, and cleanliness standards are getting a major overhaul.
What largely has gone unaddressed, however, is the most painful problem within the hotel category—the annual transient hotel RFP. For years, and some may argue decades, this ritual we partake in every year has been the primary source of complaints from buyers and suppliers alike.
A few years back, I attended a session at a Global Business Travel Association convention that focused on this topic. The session utilized the structure of the popular game show "Family Feud" to add a little entertainment value. The basic premise of the show is that questions are asked across a general population of people (typically 100 people total), the results are tallied, and teams compete on the show to guess the top answers.
The first question for this hotel-themed Family Feud was: "We surveyed 100 buyers and the top five answers are on the board—What is your biggest pain point with the annual hotel RFP?" The top answer, getting nearly 50 percent of the total, was "It takes too much time." The second question was, "We surveyed 100 suppliers and the top five answers are on the board—What is your biggest pain point with the annual hotel RFP?" And the top answer, getting nearly 50 percent of the total again, was "It takes too much time."
Buyers and suppliers are in agreement that the annual hotel RFP takes up too much of everyone's time. But what are we doing to fix this?
The obvious answer to saving time in the annual RFP is to adopt a rate construct that does not need to be renegotiated each year. Airline pricing works that way. And we do have such a construct for hotel—dynamic pricing. The big problem is that there is not widespread adoption of hotel dynamic pricing within corporate travel.
Which brings us to the present day. Covid-19 has kept travel volumes low, but buyers and suppliers still want to do something with hotel programs, many of which expire Dec. 31, 2020. Eventually, travel will return to pre-Covid-19 volumes, and many hotels have longstanding relationships with their clients. There has been a movement within the industry to simply roll the existing rates over into 2021—but that approach has been questioned because those rates are no longer competitive. We have seen average daily rate drops of anywhere from 20 percent to 40 percent across all global markets due to Covid-19.
When faced with this conundrum from their corporate clients, hotel chains have responded by adding an additional aspect to their rollover offers. Along with extending the non-competitive static rate, they also will provide a dynamic discount off best available rate, so it's guaranteed the customer will always get a discount.
However, the key problem with these offers is that the discount levels being offered for these top-tier static rates do not, in any way, relate to the value of the client's historical business. They are far too low in comparison to the discounts being rolled over at a client's second-tier properties, which are already dynamically priced.
For example, dynamic discounts of anywhere between 15 percent to 25 percent are negotiated for properties that receive 100 to 250 room nights from a single corporate account. The static rates negotiated are on much larger room night volumes, and the equivalent discount negotiated for that static rate is much higher—effectively 25 percent to 35 percent and sometimes as much as 50 percent off BAR.
If we look deeper into the mechanics of these Covid-19 rollover situations, when a dynamic rate is rolled over, the integrity of the discount remains intact. A 20 percent discount was negotiated for 2020, and a 20 percent discount is being rolled over into 2021.
However, the static rate rollovers are different. A $200 rate negotiated for 2020 when BAR was $280 represented a 28 percent discount. But let's say BAR dropped 30 percent and is now at $196. Rolling over a $200 rate doesn't make sense because it's higher than the $196 available to the general public. The chains realize this, so they are adding on a dynamic discount off the $196. But the discounts they are offering for these static rate rollovers are typically in the range of only 5 percent to 10 percent. Ouch.
Herein lies the problem. A client that historically brought fewer room nights to a property and utilized a dynamic discount rate construct is going to get better rollover pricing than a client that historically brought many room nights to a property and utilized a static rate construct. Clients are being penalized for being a hotel's top customers.
Covid-19 has created space for change. But that space will not be here forever, and the hotel chains are about to let a great opportunity slip right between their fingers.
We have wanted to ease the pain of the annual hotel RFP for decades, and the opportunity is sitting right in front of us. With travel volumes low, travel managers have never been more willing to try dynamic pricing. Hotels need to make it available to them at discount levels applicable to their historical volumes.
Let's roll over some pricing constructs that are actually palatable. Let's let travel managers really try this out by providing competitive discount levels off BAR on their static rates. Who knows? They might actually like it and agree to do it for their entire preferred program. And then, guess what? We can set those agreements for multi-year and evergreen. And finally—once and for all—rid our industry of its biggest pain point.