While half of the suppliers in a recent survey said they would look to replace STO rates with dynamic rates in the future, most operators say they will divert business away from suppliers that do so.
Although many members of the trade accept that dynamic rates, or best available rates (BAR), will eventually replace fixed STO rates, accommodation suppliers that pioneer the move are bound to get burned.
At present, many suppliers split their inventory, offering rooms to operators at STO rates or dynamic rates. However, six percent of the suppliers surveyed said they offered dynamic rates only. In the hotel space, dynamic rates are more prevalent than in the safari lodge space, where smaller more boutique properties have less inventory.
While 50% of the suppliers surveyed by Tourism Update said they would look to replace STO rates with dynamic rates in the future, 79% of tour operators and wholesalers surveyed said they would shift business away from suppliers that did so.
Earlier this year, luxury accommodation provider More caused a stir, announcing it would introduce ‘dynamic’ pricing, including at its safari lodges. The pricing system introduced by the group is not fully dynamic but instead a quarterly review of rates. Still More Founder and CEO, Robert More, told the trade at this year’s Satsa conference that the move was met with resistance.
Speaking of the flak the group received, he quipped: “The one thing I can recommend to anyone out there is, don’t go first.” According to him, the reaction from operators was that they were not ready for a more dynamic pricing model.
Suppliers that are looking to go fully dynamic with their pricing cite the volatility of the market. Many are also looking to leverage demand. One hotelier looking to replace STO rates with dynamic rates, said dynamic rates encouraged buyers to travel when the property needed it by offering them the best rate. “It is a win-win scenario.” Richard Lyon, GM at One&Only Cape Town also suggested he would look to go fully dynamic because of the “ability to flex pricing based on demand”.
Rory Montgomery, Executive Director at Hospitality Technology International, argued that dynamic rates could benefit suppliers and operators. “Fixed rates ultimately result in a loss position for suppliers when business is good, and the reverse for the trade when demand is extremely low and the supplier needs to adjust BAR rates down.”
Not everyone agrees that a completely dynamic pricing model is inevitable. Nicky Coenen, GM of The Last Word Hospitality, said the group currently offered both dynamic and STO rates because it had an online and trade channel, adding that it would continue to offer STO rates because it felt the traditional channel should be protected and looked after. Tony Romer-Lee, Managing Partner at PMR Hospitality Partners, said he would keep STP rates and was comfortable with the parallel system.
Resistance to dynamic pricing comes from operators who say quoting and booking dynamic rates is problematic. While the majority of operators, 60%, said they could book dynamic rates with the current systems, quoting on dynamic rates was challenging for operators.
Dieter Holle, Chief Information Officer at Tourvest Destination Management, pointed out that the challenge for operators was that they were unable to follow the traditional route of making provisional bookings because in a dynamic rate system, the availability and price might have changed before the booking was confirmed. Many operators surveyed complained about the expense and time taken to check dynamic rates with properties because they lacked systems that gave them live access to these rates.
Holle also said it was not so much a matter of whether dynamic rates could be booked on the current systems, but whether the trade could do so efficiently. He said the real battleground was where tour operators were competing with highly evolved bed banks, emphasising the need for efficient response times when quoting and booking. Tour operators need to ensure that the response times on their systems are fast. “Being able to access nearly all of Cape Town’s dynamic rates and availability is pretty useless, when querying numerous systems for such results takes twenty or even thirty seconds,” said Holle.
To this point, Clyde Mukaiwa, Database, Procurement and ICT at Private Safaris Namibia, pointed out that operators were losing business to channels that used dynamic rates, like online travel agencies.
Time to talk solutions
Both Lindsay de Heer, MD of Travelogic, and Montgomery suggest dynamic rates can be booked through the trade using some of the current systems.
Montgomery said this had been made possible on HTI platforms, thanks to the company entering into tech partnerships and integrating to various platforms that could facilitate the distribution of real-time rates and availability to the trade on behalf of its hospitality clients. He said integration had allowed HTI to distribute real-time rates and availability via its programming interface to various tour operators in and around Africa as well as international players. “Over the years, the tech landscape has changed drastically but more recently there has certainly been a greater shift towards dynamic rates,” said Montgomery. “It is something we have offered for many years and we are optimising this for greater demand and for more and more channels.”
De Heer explained that while some technologies allowed operators to quote on dynamic rates, the margin for error on a quote using dynamic rates was increased dramatically compared with the traditional STO rates. She said on the Equilogic system, which operators use to invoice and book their clients, operators could input their STO rates once and automate invoices, but when they used dynamic rates, there was a lot more manual processing, increasing the margin for error.
The trade needed to develop the tools to properly implement a dynamic rates system together, said De Heer. “We can work with integrators to develop structures that allow for access to dynamic pricing,” she said, adding that the shift would also have to come from the operators who needed to decide whether they were willing to work with the terms associated with the dynamic rates.
Paul de Waal, Founder of Wetu, also highlighted the needs for integration. He pointed out that, for dynamic rates to be distributed to the trade, consolidation of existing technologies with new technologies was required. Like many operators, he emphasised the need to protect the trade. “The trade is a very important part of the industry. They are out there marketing our destination all around the world and they must not be disadvantaged by this technology.”
Both De Heer and De Waal empathised with the need for consultation. “I think it is important that the trade is consulted by suppliers,” said De Waal, adding that operators needed to accept that things were changing and had to work with suppliers to manage the change. De Heer said both operators and suppliers should engage with technology providers so that they could come up with feasible solutions. “Operators cannot expect technology providers to come up with viable solutions without their input.”
