Bidding Out Beds: GSK Using Auctions To Stabilize Hotel Rates - Business Travel News

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Bidding Out Beds: GSK Using Auctions To Stabilize Hotel Rates

February 16, 2012 - 04:25 PM ET

By Michael B. Baker

Tasked with negotiating rates for thousands of properties globally, GlaxoSmithKline sourcing group manager Paul Plank turned to an auction to help keep rates in check, even in a supplier's market.

Plank since 1997 has worked in procurement positions for the pharmaceutical giant and now manages the company's £60 million global hotel program. The auction approach first was used in 2002 on a small scale.

Paul Plank"We were successful, and that gave us the groundwork to expand it," Plank said in December at The BTN Group's Travel Management 2012 conference.

GSK's hotel program runs on an atypical June-through-May cycle. Last year, the auction program during a three-week period included 1,801 properties and 346 auctions. To control rates, Plank and his team before each auction set ceilings based on market benchmarking that accounted for such factors as inflation.

Plank also prefaces the auction with a bidder's conference to outline the process, provide ceiling rates and, often, specify the volume in each of the cities. "This gives them confidence about what they're participating in," he said. "We do still end up with some properties that don't log in, but participation is high."

Auctions are conducted on third-party software, and most last about 15 minutes. A few, particularly those in markets with differing cultures and less familiarity with auctions, can run as long as a week, he said.

The annual auctions cover only transient hotel rates. Group rates are negotiated and managed separately on a two-year cycle.

Last year, despite industry projections of significant rate hikes, Plank said the auctions largely kept rates steady.

"We kept rates flat and saw decreases in some markets," he said. "We reduced costs in [U.S. headquarters city] Philadelphia and had a slight increase in [global headquarters city] London, but it was very marginal."

To overcome projections for more rate hikes throughout 2012, Plank said he will increase the number of auctions to 400 and solicit several hundred more properties, about 2,400 total. He expects contracts with more than 1,000 properties, about the same as last year.

"Extra competition will drive costs, and the ceiling rates will trap the bidding below a certain level," he said. "We are hoping that we'll be able to avoid cost increases and maybe get some cost decreases this year."

Plank acknowledged that auctions are not an ideal solution for every travel procurement department, and they require heavy prep work. Once auctions begin, he and three others in different time zones must manage them.

Extra competition will drive costs, and the ceiling rates will trap the bidding below a certain level. We are hoping that we'll be able to avoid cost increases and maybe get some cost decreases this year.

PAUL PLANK, GlaxoSmithKline sourcing group manager

Still, for GlaxoSmithKline, it's better than multiple rounds of negotiations with thousands of properties.

"It's the only way we could possibly do direct negotiations with all of these properties," Plank said.

Advito vice president Bob Brindley said that although he has not seen a large increase in auctions, several clients use them for at least part of their hotel programs, particularly for certain high-volume markets.

"It's a tactic to go along with all the other potential tactics," Brindley said. "It's also something you can run in tandem with RFPs to see whether you can drive better rate performance."

Brindley said that one drawback in using auctions in high-volume cities is that it could jeopardize long-standing relationships with hotels there and discourage new ones. "Your relationship with suppliers in that market might allow you to get a market-leading offer, and you don't want to put that strong rate at risk," he said.

For GSK, auctions generally don't mean a high turnover of properties each year. Plank said the company maintains good relationships with most chains currently in the program.

"Occasionally, rates go up and we have to kick them out, but typically we find that the rates drop back down next year," Plank explained. "It's a tough decision, and it's not always popular, but it's really the only way to do it."

This report originally appeared in the February 2012 issue of Travel Procurement. 

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