CWT
SOLUTIONS
GROUP
Dynamic pricing interest grows,
but CWT Solutions Group research
shows negotiated rates prevail
Dynamic pricing, or a percentage discount off of a hotel’s Best Available Rate (BAR), has been
strongly advocated by hotel suppliers over the past years; but corporate travel buyers have not
been convinced, continuing to opt instead for flat negotiated rates. However, with buyers recently
indicating that their appetites for dynamic pricing may be evolving*, CWT Solutions Group recently
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.
The potential for more corporate hotel
agreements to shift from negotiated to dynamic
pricing is worth examining because it would
represent a change in how corporations have
typically managed the hotel category for
decades. Time, communication to travelers,
overall management strategy of the hotel
category, and financial results would all be
impacted.
on 6,404 hotels and compared to the Average
Negotiated Rates of 134 clients.
Methodology
When examining the average discount off BAR
achieved by corporate negotiated rates, various
options could be examined to determine
CWT Solutions Group utilized 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.
In order to perform the analysis, CWT Solutions
Group set a minimum prerequisite for the
analysis: all duplicates records were removed
(same hotel audited for different clients on the
same date) and only hotels with a minimum of
5 unique BARs tracked have been used in the
analysis. The resulting pool of data used for the
analysis was: 68,954 unique BAR registered
* Business Travel News’ “Vision: 2020” survey, which found that
61% of surveyed travel buyers think dynamic pricing will be more
relevant in the future than it is today.
This analysis was performed using the period
of January to April 2014. Since the BAR for
the rest of the year is not captured in this
analysis, the results will shift by market variance,
seasonality and hotel yield management.
Understanding the options
PRICING
STRATEGY
RATE TYPE
CONTRACT
TYPE
CONTRACT
LENGTH
RANK OF
DISCOUNT
Negotiated
rates
Fixed
Per hotel
1 year
Highest
Dynamic
(per hotel)
Flexible
(typically
percentage
off BAR)
Per hotel
1-3 years
Mid
Chain
discount
Flexible
(typically
percentage
off BAR)
One
agreement
for chain
1-5 years
Lowest
circumstances in which a dynamic pricing
agreement would be more beneficial than a
negotiated rate. If the discount achieved by
negotiated rates is less than a typical dynamic
agreement, then the dynamic agreement
would be more beneficial. In order to make
this comparison, we first need to establish a
“typical” dynamic agreement, which can be
difficult as different hotel companies have
different approaches to dynamic pricing. First,
we must note the difference between a “chainwide” discount agreement, where all hotels in a
particular portfolio offer the customer the same
percentage off BAR globally. These agreements
typically carry a lower discount, around 10%. In
addition, many hoteliers offer dynamic pricing
that varies at the hotel property level. This
pricing model is similar to traditional negotiated
hotel programs. Hotels have the ability to
opt in to the program and to offer a unique
percentage discount, typically based on a client’s
volume with that property or in that market.
These discounts have a greater variance,
anywhere from 10%-30%.
CWT
SOLUTIONS
GROUP
Letting the data speak
The average discount achieved by corporate
negotiated rates compared to captured BAR is
22.7% globally. It might be tempting to make
a quick assumption that a dynamic agreement
of more than 22.7% across all properties in the
managed program would be an obvious choice;
however, our findings show that dynamic rates
vary significantly by market, hotel category, and
client buying power, so they aren’t necessarily
optimal over negotiated rates even when the
discount percentage appears to be higher.
The hotel landscape continues to vary widely
market by market, which means a market-bymarket approach will continue to be required to
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.
45%
90%
40%
80%
35%
70%
30%
60%
25%
50%
20%
40%
15%
30%
10%
20%
5%
10%
0%
0%
Occupancy
Average BAR vs negotiated
AVERAGE DISCOUNT OFF BAR GIVEN BY NEGOTIATED RATES BY CITY
-5%
I
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LO ORK
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DO FEN PAU
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KU
RI
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KF
PA
AN
R
F
Occupancy April YTD
Average BAR vs negotiated “discount”
Linear (Occupancy April YTD)
Sources: CWT BAR Database; occupancy provided by Smith Travel Research
COPYRIGHT © 2014 CWT
PAGE 2
CWT
SOLUTIONS
GROUP
AVERAGE NEGOTIATED DISCOUNT BY CATEGORY
45%
40%
35%
39%
30%
25%
27%
20%
25%
15%
17%
High-end category hotels tend to offer
negotiated rates with a stronger discount
off BAR compared to economic hotels.
10%
5%
0%
DELUXE
HOTELS
5★ & upscale 4★
FIRST
HOTELS
4★
STANDARD
HOTELS
3★
ECONOMIC
HOTELS
2★
ensure the best possible pricing is secured. For
example, the chart on the previous page reveals
significant variance across 23 key destinations
frequently visited by CWT Solutions Group
clients. Not surprisingly, the cities with higher
YTD occupancy levels are experiencing lower
rate discounts achieved through negotiations
compared to countries with lower occupancy
levels. This is logical, as supply and demand
dictates that in these “seller’s markets,” hoteliers
don’t need to offer deep discounts to attract
business.
In high occupancy markets (e.g., New York,
Sao Paulo, Paris La Defense, London) we
begin to see how a dynamic agreement could
be more beneficial to a corporate customer.
In these markets where hotels don’t need to
offer significant discounts to attract business,
a 10%-15% dynamic pricing agreement may
very well be more beneficial than flat corporate
negotiated rates. That said, if hoteliers are not
willing to offer deep discounts on corporate
negotiated rates, it is unlikely that they would
offer significant dynamic agreements – in
either case, the laws of supply and demand
give hoteliers the upper hand in pricing. At this
COPYRIGHT © 2014 CWT
In the graph each bar represents
a hotel’s average negotiated
discount in relation to BAR.
point of the analysis, it is important to note, that
January and February can be defined in some
markets as the lowest of the year, bringing the
BAR lower than the rest of the year (e.g, New
York). With this in mind, we can assume that
the gap between the BAR and the negotiated
rate will be higher the rest of the year. Thus
bringing higher value to the flat negotiated rate.
We also examined the average negotiated
discount by classification. As expected, the
variance here is also significant. Generally
speaking, negotiated rates at economic hotels
tend to represent a smaller discount off
BAR than negotiated rates at Deluxe hotels.
Dynamic agreements could potentially be more
beneficial in economic hotels than negotiated
rates. However, since the average discount
for these economic hotels is 17%, a typical
dynamic agreement at 15% is not a blanket
solution. Again, market variances should be
taken into account.
Volume of room nights is often the centerpiece
of negotiations with hoteliers, it was therefore
essential to examine the impact that a client’s
room night volume at a particular hotel has on
PAGE 3
CWT
SOLUTIONS
GROUP
the “discount” achieved by their negotiated rate
as compared to the hotel’s Best Available Rate.
The findings are as expected, the laws of supply
and demand hold true as it relates to pricing.
The higher the volume, the higher the discount
the hotel is offering. Please refer to the results
in the table below:
AVERAGE DISCOUNT OFF BAR
ACHIEVED BY NEGOTIATED RATES
21.3%23.0%25.5%29.5%
1-100 nights 101-250 nights 251-500 nights
501+ nights
Even with small volumes, hotels should
offer a minimum of 21.3% off BAR in
order for a dynamic agreement to be
more competitive than a negotiated rate.
Annual room night volume
The final piece of our analysis examines the
average negotiated discount at Top City level,
and takes into consideration the breakfast
inclusion/exclusion in the negotiated rates. The
range shows the discount of the bid as it was
negotiated versus the BAR, and the discount of
bid without the value of breakfast (when it
was included) versus the BAR. When the gap
is less than 5% it is due to the small inclusion
of breakfast in the negotiated rate in that
particular city.
Amenities can bring significant savings in key destinations. In this graph the analysis is
demonstrating the additional savings brought by negotiating rates with breakfast included.
INCREASE OF DISCOUNT OFF BAR RATE DUE TO BREAKFAST INCLUSION
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
I
I
Y
A
A
R
N
N
O
IS
IN
YA
SE
RE
LO ORK
TO
EN JING NEY
NE
UR
BA
ON CIT ANT GHA
AI
VE
AR
JA
EIR PAR ERL
DO FEN PAU
I
LO RDE
M
Y
ST
D
UR
ON UMP
AJ
L
E
N
A
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N
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UM COU NG
Y
L
U
B
R
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E
A
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GU
PE
FU
KU
RI
RI
NK
PA
A
FR
Sources: CWT BAR Database
COPYRIGHT © 2014 CWT
PAGE 4
Recommendations
In this analysis, we have determined
the average rate savings achieved by a
negotiated program (when compared to
the BAR) is 22.7%, but there is significant
variability depending on the market, supplier,
region, etc. However, this should not be
the only consideration when weighing
negotiation strategy. Some additional
considerations are:
● Traveler Behavior/Travel policy –
The classification mix of a hotel
program as well as the traveler behavior
should be carefully considered before
looking into dynamic pricing, as it appears
that economic hotels would be optimal
for dynamic discounts, while Standard,
First and Deluxe hotels should remain in
negotiated rates. Advance booking of
travelers should be considered as well,
since a short booking window will be
subject to yield management tactics
from suppliers.
● Amenity savings – Amenities are not
typically included in dynamic/chain-wide
models. Breakfast and internet alone can
represent another 20% savings (value of
amenities as a % of rate); parking, food
and beverage, meeting and events should
also be considered as negotiation points.
● Time cost savings – Dynamic
agreements at specific hotels still need
to go through a regular negotiation
process, but hotels are usually willing
to offer dynamic rates for more than
1 year, representing long-term time
savings. The same applies to chain-wide
contracts, with greater time savings due
to negotiating in bulk.
Travel buyers should continue to place
most focus on corporate negotiated rates,
as the greatest benefit is currently still here;
however, consider dynamic agreements
COPYRIGHT © 2014 CWT
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. Organizations whose hotel spend
is not large enough for a chain-wide or
dynamic agreement should consider using
another supplemental program option, such
as discounted rates available via the travel
management company, since these typically
provide greater savings than BAR. Introducing
city caps will help ensure that the travel
budget remains under control.
CWT
SOLUTIONS
GROUP
Though research shows that static,
negotiated rates continue to offer the
greatest benefit to corporate clients in most
situations, CWT Solutions Group recognizes
that dynamic pricing strategies will continue
to become increasingly relevant in coming
years. In order to effectively consult with
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.
HIGH
RECOMMEND:
Take advantage of
strong buying power
and buyers’ market.
Pursue negotiated rates.
RECOMMEND:
Pursue negotiated rates.
Sellers’ market means
high BAR rates.
RECOMMEND:
Consider hotel-specific
dynamic agreements.
Buyers’ market exists,
even with low buying
power. Pursue 2+ year
agreements.
RECOMMEND:
Consolidate as much
as possible to improve
buying power. Utilize
strong chain relationships.
Dynamic agreements
will be more beneficial.
Client room
nights per hotel
LOW
HIGH
Hotel city occupancy
PAGE 5