The trick to getting the right room at the right rate may seem like magic – but there’s a science to it
By Harvey Chipkin
NOTE: On June 27, Business Travel Executive hosted Hotel Sourcing Sorcery: Working a little magic to give your hotel program some extra leverage, the fourth in its “Going Deeper” webinar series. This follow-up article provides a more in-depth look at topics covered in that webinar, including insights from other industry leaders and observers. To hear the webinar in its entirety, visit businesstravelexecutive.com. – Ed.
The RFP process is dysfunctional if not broken, and while it seems that at least a version of it is here to stay, changes big and small are taking place. That is the consensus view of participants in the latest BTE “Going Deeper” webinar, and other industry leaders agree. The changes transforming corporate travel hotel programs range from a wholesale rethinking of the RFP process to modifications like dynamic pricing, year-round negotiations and multi-year contracts, fewer preferred suppliers and, importantly, a heightened focus on the traveler experience.
An example of a serious RFP overhaul was detailed during the webinar by Karen Hutchings, travel services, meetings and events leader of EY. Hutchings said that this fall EY will send a notice to hotel suppliers informing them of the company’s “city caps” – the maximum travelers can pay in that particular market. While there are other elements of EY’s hotel sourcing program, Hutchings said that single step will replace much of the long and arduous traditional RFP process.
Key to the thinking behind the new strategy, she said, was to drive engagement from the travelers by giving them more lodging choices. As a result, EY has decided to undertake a more dynamic program – not just dynamic hotel rates but a flexible system with many more lodging options.
With the shift, EY moved from having to negotiate with 4,000 hotels to narrow down a list of 2,500 preferred properties – a project taking three people six months to handle -- to having 36,000 hotels ready to do business under the city caps system. It’s worth noting that while many companies are aiming to reduce the number of preferred hotels, in EY’s case the situation is different because they are not negotiating with all these properties. “It was almost as though we created our own marketplace,” said Hutchings.
While EY also navigates chainwide discounts and separate negotiations with independent hotels, the city caps are the centerpiece of the initiative. The company even has a powerful review section where its employees can share TripAdvisor-like information about their stays.
The city caps are determined based on data from the previous year, according to Hutchings – and can be tweaked. When hotels receive the caps, they simply come back with a rate. If properties are seen as raising rates simply to meet the cap, they can be blacklisted, and in fact, 110 properties have been blacklisted for that reason.
Consensus on Change While they may not be ready to make changes as substantial as those at EY, other webinar speakers and their counterparts agree that adjustments are called for in the interests of companies, travelers and hotels.
David Marcus, vice president of HotelConnex Strategic Solutions, which works with corporations on hotel sourcing, said during the webinar that a balanced approach is the key to any program – a combination of fixed and dynamic rates, use of emerging technologies, and open bookings for the optimal outcome of low rates and positive traveler experience. What companies are looking for, said Marcus, are year-round sourcing and increased flexibility, fiscal-year sourcing, stronger analytics and a tighter focus on negotiations rather than the RFP process.
Also promising significant transformation on the sourcing front is hotel “re-shopping” – monitoring rates and rebooking when they are more attractive – which has become a powerful tool for companies, according to webinar participant Steve Reynolds, CEO of tripBAM. The ideal scenario, said Reynolds, is to reduce the number of hotels in the pool and make pricing more dynamic. He said with as few as 100 room nights a year, a company can realize substantial savings – up to 10 to 12 percent – by using a re-shopping tool like tripBAM.
More Negotiating, Fewer Hotels Using technologies like tripBam and other tools as elements in their strategies, companies are moving toward continuous negotiations rather than a once-a-year RFP. Joe Ondrus, senior vice president of FCM Travel Solutions, says the biggest focus for his agency has been the opportunity to evaluate programs once a month rather than year-by-year, with that option more viable with larger customers.
Dealing with fewer hotels and ongoing monitoring of rates is important, says Ondrus, because of constant changes in the marketplace – seasonality, mergers and acquisitions, etc. It gets back to data, Ondrus maintains, which is getting better all the time, and which enables TMC’s to drill down into travel patterns and behaviors. FCM, he says, aims to be an aggregator of data to provide viewing and transparency into specific markets to enable better decisions.
According to Cicily Robinson, director of North America hotel sourcing for HRS, the hotel booking portal, despite consolidation, lodging remains a highly fragmented industry. For that reason, it’s important to walk clients through the negotiation process, which, she says, is more and more becoming a continuous sourcing process. Robinson says, “You have to keep asking, Are you still getting what you thought you were getting?”
There are multiple reasons why continuous sourcing is important, says Robinson. One is a new client win or corporate acquisition so “you shouldn’t have to be committed to something agreed on in March; you should be able to go in and renegotiate.”
Other salient reasons for continuous negotiations: A hotel that was under renovation reopens looking for volume and offering a more compelling price to draw guests, or three or four hotels suddenly come online in a market, which might mean attractive rates in that area.
Removing underperforming properties from the RFP process can redirect production to competitive partners that travelers prefer, says Virginie Pouget, head of global consulting for Egencia. And Neil Hammond, a partner with Goldspring Consulting, says companies that had 900 hotels in their programs are going to 500 or fewer because they were seeing 25 to 30 percent of preferred hotels with no activity. For a company with thousand preferred hotels using the Global Business Travel Association RFP format, Hammond warns, “if they go through three rounds of negotiation, it becomes a huge use of resources.”
Dynamic Decisions There’s no question that dynamic pricing continues to be a goal for many companies. Hammond says that tactic is an “entryway” to multiple-year programs, which is a positive goal. “You can’t have a static solution to a dynamic problem,” he maintains. “With dynamic pricing, multi-year pricing is much easier.”
Egencia has also seen a push – primarily from larger hotel chains – to move clients from static rates to dynamic rates as that approach provides better control over the average rates paid by travelers, according to Pouget.
The increasing use of strategic cost-saving methods such as dynamic pricing and multi-year agreements confirm that one size does not fit all when it comes to hotel sourcing programs, says Gus Vonderheide, vice president, global sales at Hyatt. Alternative pricing models have been accepted in other travel buys, such as air and car rental, he notes, but that acceptance is going much slower for hotels. Despite that, says Vonderheide, dynamic pricing is the chosen method for a number of Fortune 500 corporate organizations.
Disappearing Rates? With all the intense effort that goes into an RFP, unavailable negotiated rates remain a sticky and problematic issue. Robinson explains HRS is working on, and will soon be releasing, a continuous auditing tool to insure those rates are available. Dashboards will let clients know exactly what’s going on and will provide productive insights.
When preparing for an RFP, Pouget says companies should determine the average daily rate they have been paying at each property and compare those to contracted rates. If the ADR is higher than the contracted rate, the hotel may be restricting availability on contracted rooms and closing travelers out. And finally, she advises, make sure to audit regularly. “The value of a negotiated rate is minimal if you’re not checking performance. Clear reporting tools can make this simple.”
Negotiated rates are used only about 60 percent of the time, Hammond says, “which doesn’t make the travel manager look good.” Part of the problem is hotels that create many categories of rooms so it’s difficult to monitor policy compliance. “If I put that into one word, it’s ‘trust’ between buyer and property,“ says Hammond, “so we need better reporting, and better attention to existing reports with tools like Yapta and TripBAM making the whole landscape more transparent.”
Among the steps companies can take, says Phyllis Nakano, director of vendor relations, for Balboa Travel, is to analyze when travelers aren’t staying at negotiated properties. Her recommendation: “Talk, survey, look at booked rates. Is there something better or not known to you as to why they are not choosing preferred properties?” Gaining travelers’ support and listening to what they experience, says Nakano, “gives you the opportunities to educate them, them to educate you and to achieve a better program.”
Emphasizing Experience So central has traveler experience become to RFP’s, says Robinson, that HRS has customers who say the experience is just as important as saving money, “and we have to find a way to marry the two.”
FCM offers a SmartSTAY benefit that features additional products and services aimed at traveler satisfaction – anything from breakfast to an upgrade, according to Ondrus. Even if a customer is using only a few rooms a year in a market, he says, FCM still has the overall buying power to drive these benefits.
William Sarcona, assistant general manager of Kintetsu International, a TMC, says traveler feedback dictates which amenities and fringe benefits his company will push hotel partners the hardest to include. “If you don't know what’s most important to your client, how are you able to satisfy them?” he asks. “It's not always about price.”
However, travel managers should be careful that the focus on experience doesn’t cloud the overall negotiations, Nakano cautions. Her recommendation: Analyze data to see if, for instance, negotiating breakfast or parking or Internet is valuable. Are associates going to Starbucks and expensing breakfast even if it’s been negotiated? How many travelers are actually parking at the hotel? All of those “gives,” says Nakano, increase the rate, and if they aren’t being fully utilized, “you are paying more than you need to.”
Ahead: Reinventing RFPs RFPs are still the way to go, Robinson predicts. But that does not mean sticking with the traditional process “where you get together in July for a destination analysis and begin a march to the death until November, when the RFP is completed.” She notes that businesses themselves are dynamic and the world is shrinking. “You need to cover all the white spots,” she adds. “If you decided on a hotel program in August for a whole year then make a big M&A deal -- what then?”
Pressure may come from unexpected influences. “Green practices are increasingly being considered and are important to younger generations, who can strengthen usage of preferred hotels,” Nakano says. Sustainable practices that may matter to a client include low-flow shower heads, furniture from sustainable forests and hotels that are in the LEED green building program. These elements, she says, can be part of the selection criteria for choosing the right hotels for your program.
Jennifer Steinke, vice president Global Travel Experience at WHoldings, and the webinar moderator, concluded the session by saying: “Hotel sorcery means not doing things the same old way. Whether it’s driving innovation with creative technologies or rethinking strategy, it’s important that we as an industry start to have more creative conversations with hoteliers,” Steinke says. “Everybody benefits if we come up with a better system that delivers something attractive to travelers and drives compliance.”