A smart but basic distribution strategy for hotels that want to maximize profitability goes like this: Start as far out in the booking window as possible by building your base of guests, most likely through negotiated group and wholesale business. Then yield your transient rates as the date approaches, ideally increasing price as you get closer to the date, so you can sell your last remaining rooms at a premium.
In most cases, those early negotiated group and wholesale rates are contracted six months to a year in advance, and rooms are allotted at static rates, meaning they don’t change throughout the duration of the contract.
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But hoteliers are starting to see a shift in their ability to successfully move to a dynamic wholesale strategy. And as we know from revenue management 101, offering a dynamic rate as opposed to a static rate is better for everyone involved – it takes supply and demand into account, which better guarantees availability for guests and maximizes profitability for owners.
Accor and Hotelbeds
Here’s one example. Hotelbeds, which calls itself “the world’s leading bed bank,” is a growing hotel room wholesaler, founded in 2001. The company has partnered with more than 100,000 hotels in 185 countries, and in 2015 it sold 25.5 million room nights. Hotelbeds contracts, connects and distributes these 100,000 properties to online travel agencies, retail agencies, tour operators and airlines.
In October, Hotelbeds and AccorHotels announced a partnership that each side hopes will double sales of Accor hotel rooms through Hotelbeds’ distribution.
It’s clear the partnership wouldn’t have come to fruition without Hotelbeds’ ability to receive dynamic rates from Accor hotels. This means that while Accor will contract and allot a specific number of rooms to Hotelbeds, the France-based owner-operator will be able to yield those rates based on supply and demand.
“Hotelbeds is a long-standing B2B partner of AccorHotels that embraces its dynamic rates through outstanding connectivity,” according to a press release announcing the deal.
The ability to yield wholesale rates creates a new playing field where both parties are in a better position.
Who benefits from dynamic wholesale rates?
When hotels are stuck with static rates, it limits their scope of yielding as they either price too low or too high over a defined season. This means they either sell too many rooms at too low of a price or sell very few rooms at too high of a price. Finding the right competitive static rate is no easy feat.
Also, in order to contract with wholesalers, hotels normally agree to allocations, and those allocations are often released at the very last minute, which puts revenue managers behind the 8-ball.
Dynamic wholesale rates benefit the hotel and the guest. Because prices typically start out low — potentially lower than a static rate — and increase as the booking window closes, travelers tend to book early in order to get the best deals. This means a traveler who books in advance will get a better rate, and hotels can then build their base earlier in the booking window.
Another benefit of dynamic wholesale rates is that it decreases the possibility of an expired, out-of-parity rate floating around on the Internet. Wholesalers knocking your hotel out of rate parity should become less of an issue.
How to get it done
If you are not able to build dynamic rates into your wholesale contracts, a modern revenue management system will help you manage those rates by recommending length-of-stay requirements or closing availability altogether.
But more hotels are pushing for dynamic rates on all of their channels, and it appears partners that typically negotiated static rates are changing their tune and understanding the benefits of a dynamic rate strategy. The move does require wholesalers to accept regular rate changes from a hotel’s property management system or central reservation system rather than through an extranet, but thankfully technology advances have made this easy and less costly.
So, at the very least, begin having the conversation with your sales team to push wholesale contracts toward dynamic rate contracts. There are times — in a slow season and down market — when offering rock-bottom rates will allow you to steal share from your competition. Wholesalers will come in handy during these times. And when demand picks back up, you want and should have the ability to raise those rates.