WorldTravel BTI and hotel online reverse auction vendor ProcurePoint Travel Solutions last week announced a marketing agreement whereby WorldTravel BTI will recommend ProcurePoint auction technology to its clients when appropriate. The deal is the first of its kind between a travel management company and a reverse auction vendor.
Reverse auctions remain controversial a full year after they first began gaining traction as a way for travel buyers to negotiate hotel rates. Hoteliers have claimed that for all the hype, less than two dozen of these auctions have been held so far. Many buyers also are not convinced that the process is a long-term solution for their companies.
Given such concerns, the WorldTravel-ProcurePoint arrangement likely will raise questions about travel management companies' advisory role, as well as about pricing and buyers' long-term relationships with their hotel suppliers. "We're presenting reverse auctions as an option in our clients' procurement strategy," said Jerry Murck, WorldTravel vice president of hotel relations and consulting, noting that hotel reverse auctions differ from other types of commodity reverse auctions in that there are a range of variables to consider. "By aligning ourselves with ProcurePoint, we can do this much more seamlessly."
Murck acknowledged that there could be scenarios in which WorldTravel would recommend against conducting an auction, even though the partnership now is in place. "We have a couple of clients who are definitely committed to conducting reverse auctions and a number of others that we will encourage to try it," he said. In the case of clients who already are working with a ProcurePoint competitor, "we will encourage them to test it against the other reverse auction option."
Pittsburgh-based Freemarkets and Walnut Creek, Calif.-based A.T. Kearney Procurement Solutions
(BTN, June 3) also market reverse online auction technology, but the formats differ as do fee structures.
WorldTravel has negotiated a preferred pricing arrangement with ProcurePoint that "allows clients to conduct auctions in fewer markets than ProcurePoint would ordinarily allow its existing accounts," Murck said. "The way we have our pricing, we could help a client look at one or two markets, if they want to test it."
Clients of WorldTravel get much more consulting support than do direct clients of ProcurePoint. "When we sell direct, it's much more self-service," said Scott Reynolds, ProcurePoint director of marketing.
For many buyers, the auction tool remains problematic. After considering participating in an auction this fall, Connie Cirillo Freeman, director of corporate procurement and travel services at Pitney Bowes in Stamford, Conn., still feels it is a mismatch for her program. "You need to have a large enough volume into a market to make the auction worthwhile," she said. "Similarly, the market you're bringing the volume into has to have a lodging inventory deep enough to provide a sufficient number of hotel choices at the same price point, if the auction is going to be effective." Freeman doesn't feel Stamford passes that test.
WorldTravel's preferred pricing aside, non-clients have found reverse auctions to be an expensive proposition. "We were looking to experiment this year, but the reverse auction solutions we looked at were very costly, certainly compared with sending electronic request for proposals to hotels in significantly more cities," said Sheila Kittle, vice president of corporate travel for Raymond James financial advisors in St. Petersburg, Fla.
On their side, hotel companies' main complaint with the reverse auction tool continues to focus on the competitive set, that too often hotels at different price points end up competing against each other because the parties conducting the session did not do their homework. "To be fair, the client should come forward and disclose who is in the comp set, as well as who is in the auction," said Jack McHugh, vice president of sales and marketing for Prime Hospitality.
Hotel executives also said fewer buyers are committed to the tool than are considering experimenting with it. Another concern frequently voiced by hoteliers is that at an auction's conclusion there is no commitment to the room nights under discussion, nor is there any kind of penalty, if the room nights are not delivered.
Hilton Hotels Corp. in September became the first hotel company to issue formal guidelines to its owned and managed properties outlining when they should or should not participate in auctions
(BTN, Sept. 23).Murck acknowledged that, in its role as consultant, WorldTravel might not recommend the client sign with the hotel that had prevailed in the auction, if the lowest bid is the determining criterion. "In fact, a number of factors are considered, including location and other services and amenities, so it may not be the lowest bidder that gets the business," he said.
Reynolds said that the majority of ProcurePoint's clients up to now have had some sort of procurement culture. "The travel department either reports directly to the procurement department or procurement has some degree of input or influence into the travel department," he said.
Looking to the long term, McHugh agreed that the procurement mentality is having an impact on purchasing travel. "Reverse auctions are likely to take off as the procurement people get more involved," he said. "There'll be less emotion. It's all about the buy and the compliance to the buy."