Six Ways to Turn Around Tired Hotel Buying RFPs

KI_8708_RTBy Kevin Iwamoto, Senior Consultant

It is that time of the year when travel buyers start planning for their annual date of negotiating via eRFPs for their corporate hotel programme, usually with some pain and frustration. Never has an annual sourcing activity generated such universal negative reactions from corporate travel buyers worldwide. It is also amazing to hear the level of consistency in negative comments.

I have had many consultations with clients and prospective clients about their hotel programmes and regardless of whether the programme is ran internally, via an outsourced third party or a mixture of both in collaboration, hardly anyone has a lot of positive feedback for the annual sourcing process.

Frankly speaking, the hotel suppliers also dislike the current processes and negotiations.

This makes for a very peculiar situation where both parties dislike the process but very little has changed to make it a better and more efficient process for all.

Rather than dwell on the push and pull of it all, I want offer some suggestions for the buyers who are gritting their teeth, putting on their battle armour and gearing up for what looks like will be another contentious year of sourcing preferred properties for their corporate hotel directories and programmes.

1. Align your negotiation strategy to new parameters

Do you have a negotiation strategy? If you are simply doing the same thing year after year, then no wonder you are frustrated and have not made significant progress in changing the dynamics for a successful negotiation season.

Whether you go it alone in your annual sourcing, use third parties, or use a mixture of both – you need to have an annual strategy based on current marketplace dynamics and realities. When the marketplace is taxed with more demand than supply (hotel rooms, properties, consolidations, etc.) as it has been for several years, it changes the dynamics for negotiations.

A good example where buyers should not be doing the same thing is the old “volume is king” strategy. In today’s environment, volume, especially tied to last room availability (LRA), is NOT king. It dilutes the average daily rate (ADR) for the hotel properties that have to answer to their owners and brand management teams. In addition, hotels have realised that capturing higher yield and ADR coming from medium and smaller sized clients not only fills room inventory nicely, it comes with less corporate demands and requirements.

Industry-wide consolidation should also be factored into your strategy. Now that some of the larger ones have been approved to move forward (most notably Marriott and Starwood), buyers can expect to have more of a challenge in negotiating lucrative terms, conditions, rates, LRA, etc.

Will there be more industry pressure on corporate buyers to include more dynamic pricing in their programmes, drop or reduce LRA requirements or eliminate/reduce free benefits and other buyer-advantaged negotiations? What will it do for chain-wide discounts and revenue-market share requirements from corporate accounts to maintain discount and amenity levels?

The uncertainty should be disconcerting for all buyers and you need to be having an open and transparent dialogue with your preferred hotel suppliers about all of the above and other factors that will affect your annual negotiations and strategies.

2. Consider duty of care

Duty of care is becoming more of a requisite for corporate programmes for all locations, not just politically unstable countries and cities, areas affected by disease outbreaks or random terrorism and kidnapping.

If you haven’t already noticed, the number of questions and details have grown within RFPs. Make sure you stay aligned with your corporate risk and human resources groups to include relevant and requisite questions in your hotel sourcing process.

3. Think about the generational fit

Are you still stuck on traditional hotel standards and groupings? You should not be, especially if your traveller generational mix continues to increase for millennials while decreasing for Baby Boomers and Gen X & Y. Perhaps you need to reduce the number of deluxe properties for mid-tier ones or include sharing economy properties like Airbnb, which is heavily investing in developing its corporate marketplace offerings.

Double check to ensure your sourcing activities are relevant to the generational mix of travellers in your company. Your compliance figures and statistics are at stake if you fail to pay attention to this area.

4. Get out of dynamic pricing denial

I have met so many travel buyers who continue to believe that zero to no dynamic pricing choices are made by their travellers.

Do yourself, and your programme, a big favour and check your year-over-year spend data. If more than 15% of your programme mix is from dynamic pricing offerings, you need to start planning for how that affects your programme and sourcing initiatives.

Speak with your preferred hotel partners and find out what they would do to incentivise your company to develop the market share or revenue for that dynamic pricing segment with their hotel brands and chain.

5. Rethink last room availability (LRA)

LRA does not really stand for last room availability. It is often higher than what you can get via dynamic pricing or corporate sourcing and most egregious of all, it is often inventory controlled! That means you may never get it at all. Do you currently audit how often you use LRA? If not, you should.

Why waste so much time, effort and follow-up to audit if it is not achieving what it’s supposed to in your programme? Find another way to get access to discounted room inventory without the sourcing and audits.

One corporate buyer friend I know uses his travel management company’s (TMC) consortia rates based on the 80-20 rule. For 20% of his programme he uses dynamic pricing and his TMC’s consortia rates, which not only reduces the number of sourced hotels annually, but also maintains traveller satisfaction and reduces the annual cost for the annual hotel sourcing initiative.

6. Realise the value in your data

Your hotel spend data is invaluable and should be your bible to develop annual sourcing strategies. It will help with…

  • Choosing which chains and properties you should be partnering with
  • Developing cost reduction strategies
  • Understanding and analysing your traveller preferences and choices,
  • (Best of all) identifying what you should, could and should not source for your annual RFP exercise

Sourcing your annual hotel programme does not have to be as painful nor onerous as sourcing categories go if you prepare upfront with solid information, develop smart strategies and understand the marketplace dynamics in play.

Each year is not the same so you should not source and plan the same way. The market dynamics are fluid, so you should be as well. If you are smart, strategic and understand your spend data and dynamics, your hotel sourcing season should not be as painful as I’ve heard it can be for many buyers.

This article originally appeared in Business Travel iQ, the online information portal for the European business travel buying community. For more information, please click here.

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