Hotel Update: Defining Dynamic Pricing

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Hotel UpdateDefining Dynamic Pricing E-Folio
Bills for Hotels
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• Moderator
• Peggy Lee, Network Appliance, Inc.
• Panelists
• Jill Cady, InterContinental Hotels Group
• Jon Elliott, eCLIPSE Advisors
• John Hackett, Omni Hotels
• Craig Keenan, IBM

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Agenda

• Dynamic Pricing
• Definitions
• Trends
• Pros vs Cons
• Recommendations
• QA
• E-Hotel Folio
• Definitions
• Trends
• Technical Requirements
• Recommendations
• QA

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Dynamic Pricing
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dynamic pricing (di-namik pris)

• The practice by which goods or services are
  priced at the value of these goods associated
  with a future demand and supply considerations. A
  good or service whos price fluctuates according
  to demand for that product.

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What is Dynamic Pricing

• Historic Perspective Fixed Pricing
• Hotels have offered corporations a fixed or
  static discounted rates in exchange for volume
  delivery
• Why Change?
• General hotel pricing is now more fluid and
  visible via the many channels
• Hotels often change their market or benchmark
  rate on a weekly or daily basis based on economic
  conditions
• Future Trend Dynamic Pricing
• Hotel operators want to ensure that preferred
  rates extended to volume producing corporations
  maintain their integrity
• Dynamic pricing is leveraged by negotiating a
  percentage discount for a corporate account
• The percentage discount could be negotiated
  individually with each hotel
• The discount percentage is driven from a hotels
  best available or unrestricted rate
• The negotiated percentage calculates a preferred
  rate for the traveler at the specific hotel at
  the time of booking
• The preferred rate would be a dynamic rate as it
  would change throughout the year as the hotel
  adjusts its market rate

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Timeline

• 2002 2005 hotels move away from rack rates
  driven by internet models
• 2004 2005 RFPs Consortia/BTA preferred rates
  move to flexible/dynamic pricing for multiple
  hotel chains
• Spring 2005 Several hotel chains in development
  to offer
• Summer 2005 BTN article, ACTE and NBTA
  conference discussions on dynamic pricing
• Fall 2005 RFPs for 2006 hotel offering Dynamic
  Pricing as option

• Note Other segments (i.e. group and meetings,
  FIT, crew contracts) have all been negotiating on
  dynamic platform many years.

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With an account that delivers 1000 RN per year,
here is how flexible pricing could result
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Dynamic Pricing Corporations

• Pros
• Preferred rate in high demand markets
• Pay less based on market conditions
• Greater availability (no LRA needed)
• Better tracking
• Increased compliance to travel program
• Potential to decrease annual RFPs

• Cons
• Budgeting
• No confirmation of cap rates
• Open room types including clubs and suites
• Rate fluctuations could have periods when paying
  more than negotiated rate
• Still in beta (unproven)

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Dynamic Pricing Hotels

• Pros
• Enables hotel to maintain rate integrity with
  local market demand
• Establishes the infrastructure to decrease annual
  RFPs -- evergreen agreements
• Percentages could enable purchase of various room
  types
• Offers preferred rate in line with daily market
  demand
• Minimizes price points needed to manage

• Cons
• Change
• Property or brand buy-in
• Explaining the potential rate variations to
  travelers
• Current technical formats do not support option
  in RFP
• Budgeting
• Systemic / Logistical setup
• Still In Beta (Unproven)
• Failure to implement properly could lead to
  devastating client distrust

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Mind the Gap

• Rogue contracts
• Ability to guarantee volume
• No reward/consequence for commitments
• Change in strategy/negotiations
• Change management for end users

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Recommendation/Key Guidelines

• Evaluate the opportunity based on fact and data
• Ask your hotel suppliers to supply a data driven
  model based on your travel history and
  demographics to assess impact
• Validate impact with your own internal metrics
• Consider
• Why is this good for me?
• What is the financial impact?
• What is the service impact?
• Is there a compelling positive reason to
  implement?
• Do the positives justify the required change
  management
• If moving forward, beta in a small market and
  carefully measure the results

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QA
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E-folio for Hotels
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E-folio definition and timeline

• DEFINITION e-folio is the electronic version of
  the hotel folio which itemizes the charges of a
  hotel stay with third level data from your
  corporate card. Providing visibility to the room
  rate and itemizing other charges including
  taxes, parking, meals, mini bar, high speed
  internet access, movies
• TIMELINE
• IBM pioneered the use of e-folio in the late
  90s
• IRS Tax Advisory Memo (TAM) in 1997 authorizing
  use of digital receipt
• IBM evaluated cost reduction potential of a
  paperless receipt strategy
• requested e-folio data from preferred US hotel
  suppliers in 1999
• integrated the e-folio data into the expense
  reimbursement system
• developed the analytical capability to evaluate
  the data
• working with our corporate card provider to
  establish the e-folio capability

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E-folio survey results

• Adoption of e-folio
• 12.5 currently receive hotel folio line item
  spending from their card providers
• 76.6 plan to obtain content in the near future
• Importance of receiving e-folio
• 47 rate the importance of getting e-folio data
  in expense management system as very critical
• 65.4 rate the importance of e-folio as either
  very critical or critical in terms of all the
  issues relating to managing travel

• Automated Expense Management Systems (EMS)
• 56 of respondents report use of an automated
  expense management system (EMS)
• 60 of respondents report their system routinely
  receives pre-populated expense claims from their
  charge card company
• Time savings and increased accuracy are reported
  as top-two benefits of EMS
• 95 of respondents report lower expense report
  processing costs through use of EMS

Source ACTE Global Conference Runzheimer
Technology Survey
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Key Benefits Corporations

• Program Optimization
• Increased visibility to hotel spend
• validation of preferred rate
• line item spend detail
• Improved negotiation leverage
• Compliance management
• Audit and manage fraud
• Expense management efficiencies
• Electronic receipt eliminates the requirement of
  paper receipts
• Regulatory reporting / Sarbanes-Oxley compliance
• Improvement efficiencies in expense reimbursement
  processing
• automation of the internal audit process
• increased fraud detection capabilities
• Traveller satisfaction
• Expense reimbursement productivity improvements
  through pre-population of expense reimbursement
  system and elimination of paper receipts

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Hotel e-folio key benefits pre-population
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Key Benefits - Hotels

• Delivers on requests from corporations to provide
  data
• Provides ability to understand full spend of
  corporation
• Insight can provide opportunity to increase
  corporations market share to the hotel

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Hotel Folio Process Map
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E-folio Demand

• Why arent more corporate clients requesting
  e-Folio capability?
• Standardization of reporting formats
• Concerns with employee privacy issues
• Receipt policy
• Global implementation
• Preference for significant of preferred
  suppliers to have e-folio capability
• Chicken and Egg theory
• What is required to make it more widely accepted?
• Make it a requirement for participation in
  corporate preferred hotel program
• Develop a communication strategy that informs
  travellers of those hotels that provide e-folio
  services
• Integration with your expense reimbursement
  systems
• Focus on global expansion
• Property management system integration
• Government regulatory acceptance of digital
  receipts

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Technical Requirements - Corporations

• What are the technical requirements to implement
  e-Folio?
• Browser with 128 bit encryption (data privacy)
• Mandated use of a corporate card
• Data Privacy
• Integration of an expense reimbursement system
• Single platform for electronic expense
  reimbursement
• Current data feed for corporate card data to
  expense reporting tools

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Technical Requirements - Hotels

• Daily extraction of PMS (property management
  system) data across the chain
• Ability to have multiple PMS systems align by
  field for data delivery
• Secure data transmission
• Processing ability for card level partitioning
  with significant quality assurance process
• Mutual agreements with credit card companies,
  issuing banks and companies to share spend data
  
• Data privacy is significant issue

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Recommendations - Corporations

• Secure executive sponsorship within your
  corporation
• Ensure your corporate card has the capability to
  supply level three data
• Integrate with your expense reimbursement system
• Develop the capability to mine the data and
  analyze it
• Incorporate into your hotel sourcing process
• Develop communication program to inform
  travellers of benefits
• Review travel policy to drive compliance
• Require travellers to itemize hotel spend in
  detail for reimbursement

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QA