Consumer-style disruption hits corporate hotel landscape

How yield management upends hotels’ corporate relationships

Hotels are becoming more sophisticated in their use of yield management techniques as they look for ways to boost revenues. This is resulting in a profound change in their relationships with corporate clients.

As business travel consultancy Advito explores in its 2018 Industry Forecast, the result is that business travelers increasingly can’t find and book rooms at their preferred rate, even when their company’s contract specifies last-room availability on a standard room. Here’s why: By regularly changing booking system designations for a “standard room,” hotels are able to manipulate their inventory and availability.

To meet the levels agreed with corporate clients, hotels offer high availability during off-peak periods but restrict it when demand is high. Across the year, this may average out at the contracted level, but it means travelers often find standard rooms are not available at the preferred rate when they really need them. This means the average rate paid is above the preferred rate for many companies.

How yield management upends hotels’ corporate relationships

“The disruptive tactics we saw on the consumer side of the hotel business years ago are now emerging on the corporate side,” said Steve Peterman, who recently joined Advito as vice president and principal of its hotel practice. Peterman came to Advito with extensive industry experience, including as director of hotels for Egencia, the corporate travel arm of Expedia, best known for consumer travel.

“As hotels rely on technology-enabled, demand-driven pricing techniques, corporate travel buyers need to use equivalent strategies to ensure they are getting the rates they expect when their travelers need them,” Peterman said. “Negotiated rates should sit alongside chainwide deals, best-price-on-day purchasing, dynamic pricing, audits and other strategies to maximize cost savings and program effectiveness.”

Steve Peterman, Advito

Advito analysis found clients’ preferred rates were unavailable in Europe more than a third of the time. In other regions, preferred rates were unavailable at least a fifth of the time.

A search of global hotel rates by Advito found the best-available rate (BAR) to be lower than preferred rates more than 30% of the time. And in some regions, like Europe, the Middle East and Southwest Pacific, preferred rates were higher than the best-available rate more than 40% of the time.

Counter hotel tactics with dynamic sourcing and more

Dynamic hotel pricing goes a long way toward solving the problem, as research in a recent Association of Corporate Travel Executives-BCD Travel white paper shows. Seventy percent of travel managers surveyed for the paper said using a dynamic approach helped them secure more than half their rooms at their negotiated rate during the last sourcing cycle. What’s more, travel managers using dynamic sourcing are a third less likely to say they lack data on their negotiated-rate attachment levels.

“Many companies don’t realize how often hotel suppliers block preferred rate availability. Consultancies like Advito can help them track it—and even counter it,” Peterman said. Among the strategies:

  • Use audits to present hotels with hard evidence of blocked preferred rates and encourage them to reverse some of their yield-management practices.
  • Tighten the wording of corporate hotel contracts to restrict the scope of yield-management tactics.
  • Implement a rate-assurance program, which automatically re-books a room if a better rate becomes available.

“Negotiated corporate rates can no longer be the only component of a hotel buying strategy,” Peterman said. “As hotels adopt aggressive yield management strategies, buyers must reappraise their hotel sourcing strategy to deal with this new reality.”

To learn more, read New Approaches to Hotel Sourcing, an Association of Corporate Travel Executives-BCD Travel white paper. Want to get ahead of fast-moving hotel trends? Check out Advito’s 2018 Industry Forecast.

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