By Alexis Sisko, Managing Consultant
There have been a lot of shifts in the corporate travel industry since early 2020. One of the biggest changes for our clients is the increase of dynamic rate utilization in their hotel programs.
Tracking the Shift to Dynamic Rates
While our data shows that the number of solicited RFPs to date in 2021 is half the 2020 number (down to about 24,000) the percentage of dynamic rates has increased noticeably. In 2020, accepted dynamic rates accounted for 8% of hotel programs; in 2021, that’s up to 13%. While diversifying rate types and utilizing more dynamic discounts is something we’ve been working towards for some time, it can create a challenge for travel managers. How can they ensure they’re getting value from those rates? The answer is simple – there are a few things you can do to make sure they drive even more value than if they were negotiated as static rates.
Negotiate Evergreen Dynamic Rates and Include Cap Values
One of the reasons why travel managers have been reluctant to move from static to dynamic rates in the past has been the issue of rate fluctuation. But travel managers deal with rate fluctuation all the time in their air programs. In fact, flat airfare pricing is almost obsolete, but travel managers are still able to forecast air travel spend. Despite dynamic pricing being well established for air, corporate travel’s most expensive item, there is still hesitancy around hotels. But the ability to add a cap to the dynamically negotiated hotel rates completely alleviates this concern. During the negotiation, along with negotiating the percent discount for the dynamic rate, a “cap value” is also negotiated. If the hotel’s standard rate ever rises enough that even the dynamic rate is higher than that cap value, the cap value becomes the negotiated rate instead. Given dynamic rates with cap values exist, and the fact that dynamic pricing is not at all new, it’s tough to argue against using it for hotels because of the “inability to forecast.”
Along with negotiating cap values into your dynamic rates, the value of dynamic rates increases exponentially when you negotiate them as evergreen rates. Evergreen means the rates never expire so you don’t need to spend the money and time sending and negotiating a separate RFP for the property each year. Instead, you simply monitor the performance of the dynamic rate throughout the year as part of your normal program oversight process. If the dynamic rate ever stops performing, you can renegotiate or remove it. But that point in time could be two to three years (or more) after the initial negotiation, which equates to resource savings for you.
Achieve Transparency With Dynamic Rate Auditing
Once you have evergreen dynamic rates that include cap values, the last step to realizing their full value is to hold the hotels accountable for delivering the savings. Just like static rates, this is accomplished with rate auditing. Our research shows that 83% of clients believe it’s extremely important for chain partners to be able to load both static and dynamic rates, and transparency into those rates is extremely important for 89% of clients.
The auditing process for static rates has always been pretty simple. You find the preferred rate, based on the rate description, and check that what is loaded matches the negotiated rate. But how does that work with dynamic rates, and is dynamic rate auditing even possible? It is, and Advito has been doing it for more than a year. Our process is simple:
- We capture the preferred rate the hotel has loaded, just as we do for static rates
- We capture the property’s best available rate (BAR) rate
- We apply the dynamic discount to that BAR and see if it matches the preferred rate the hotel loaded
How Hotels Can Fail Rate Audits – And How to Fix It
There is one issue that can trip up hotels on dynamic rate audits. Early in 2021, we noticed an increasing number of hotels failing dynamic rate audits. We consulted with chain partners and soon identified the issue: hotels started using different rate descriptions than the standard to price their dynamic rates. And in some cases, the rate description changed depending on the amenity included. For example, the BAR would be different from the BAR with breakfast. Or the dynamic rate was only available for certain room types.
That made it impossible to audit dynamic rates consistently. So, we sat down with our partners and further standardized the parameters that would apply to all dynamic rates:
- Each hotel partner/chain agreed to provide us with the exact rate description being used as the standard from which dynamic rates are priced
- The BAR rate/baseline rate from which the dynamic rate is priced must not vary regardless of which amenities have been included in that dynamic negotiated rate
- Dynamic rates need to be applied to all room types within the hotel with a single rate description for that rate
Confirming these points brought back the transparency and the proof was in the results. Hotels, once again, largely began passing rate audits.
The shift to dynamic rates will only continue in the coming years. As it does, travel managers who have solidified their grasp on these basic concepts will be best equipped to not only seamlessly implement and measure the value of dynamic rates, but optimize that value as well.