New Types of Hotel Rates Ahead

Let's face it, it's just a matter of time before hotels start offering non-refundable rates to corporations. And you thought the hotel RFP process was already a pain in the butt. Just wait until buyers have to try comparing a 10-day advance booking for a 20% discount at one property to a 25% discount for a 14-day advance booking at the hotel across the street. Will this really happen in the corporate space? Oh yes. Maybe not soon, but eventually. [more]

Why? On the supplier side, blame revenue management. It simply works too well for hotels to ignore. The key to revenue management is being able to offer a wide range of rates, each with their own fences around them. Rates that change dynamically, depending on forecasted supply and demand and competitor pricing. Rates that can be bundled, depending on who's shopping.

Sounds like airline lingo, right? Exactly the point. Hotels are learning to offer differentiated rates beyond season, room type and guaranteed availability. Non-refundability has been making its way into the sites for some time now. It's been a part of the merchant model scene for a long time.

On the buyer side, the driver is procurement's relentless quest for savings. Especially in a market with rising prices. Travel managers may gag at the thought of trying to manage one more type of rate.

Tough. Procurement will ask the basic question "Why not--especially if it saves us money at hotels we already stay at?" As they should. It will be up to traditional travel managers to explain why non-refundability would cost too much. Or, (actually, better) they'll have to (and a few will want to) find ways to integrate non-refundable rates into their preferred program.

Sure, it will complicate the annual RFP process--but if its saves the buyers enough money, then it's the right thing to do.

Another change is coming--the demise of fixed rates. This will happen. Buyers have forever thrown up the defense that their travelers need fixed rates to manage their travel budgets. I've never bought that line. Airfares move around like a neurotic elevator, courtesy of revenue management. Hotels will be no different. In any case, aren't hotels effectively giving buyers dynamically-priced rates by opening and closing their fixed-rate inventory on a daily basis?

I'd go so far as to suggest that fixed-rate pricing may in fact be more expensive than year-round dynamic pricing, if only for one reason. Fixed rates carry more risk for the hotel than they do for the buyer, so the hotel is likely to price that risk into the fixed rate--a little insurance premium that the buyer never sees but always pays.

One thing is certain: the hotel RFP process will not get any easier anytime soon.

Scott Gillespie is the author of Gillespie's Guide to Travel + Procurement. These thoughts are excerpted with permission from his blog.