• Managing hotels: Dynamic pricing vs. negotiated rates

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    Getty Images

    Many travel buyers seem to be asking themselves the following question: Is dynamic pricing (considered a percentage discount off of a hotel’s Best Available Rate) really a better deal than the flat negotiated rates or discounts via our travel management company we’ve traditionally opted for?

    Recently, CWT Solutions Group performed an in-depth study to understand under what circumstances, if any, a dynamic pricing approach is more beneficial to corporate travel buyers than a corporate negotiated rate.

    What does the data say?

    CWT Solutions Group used a proprietary dataset of more than 210,000 tracked BAR rates on 15,050 hotels, collected on weekdays (Mon., Tues., Wed., Thurs.), from January to April 2014. Click here for the complete case study.

    As you may have imagined, the data doesn’t point to a one-size-fits-all answer. Significant market-to-market variations within the hotel industry require a market-by-market approach. From a global perspective it seems that negotiated rates offer more benefit in low occupancy (buyer’s) markets. In seller’s markets, dynamic pricing could be a better option.

    For example, if your company books several rooms in high occupancy hotels, pursuing negotiated rates may be the best option for you. However, if your organization doesn’t book many rooms and the hotels you use are low occupancy hotels, you may want to explore a dynamic agreement. But please note, even with small volumes, hotels should offer a minimum of 21.3% off the Best Available Rate (BAR) in order for a dynamic agreement to be more competitive than a negotiated rate.

    Amenities can also bring significant savings in key destinations. Be sure to consider the additional savings brought by negotiating rates with breakfast or WiFi included.

    So … what’s right for my travel program?

    Each individual company or organization should invest time to evaluate for themselves which of the two strategies their travel program should use, based on their unique needs and goals.

    Travel buyers should continue to place most focus on corporate negotiated rates, as the greatest benefit is currently still here; however, consider dynamic agreements as a beneficial program supplement in low volume markets or at hotels with few room nights, particularly in the economic category and in seller’s markets with low volume.

    Clear as mud? If you still aren’t sure where to start, CWT Solutions Group can be engaged. In order to effectively consult with travel buyers, CWT Solutions Group has developed new logic and methodologies to determine the right thresholds to be considered for a particular company in a particular market, in order to determine the best sourcing strategy and achieve the most savings.