Buyers Up Trading Down Hotels

An increasing number of corporate travel buyers are resorting to tiering down, or using lower- end properties in lieu of higher-end ones. While the strategy can help reduce costs in a time of rising hotel rates, travel programs that do not mandate policies and use of preferred vendors have had a tough time convincing travelers to buy into the approach.

Trading down in hotel type has its limitations. In some cases, the location to which travelers go only has one or two distinct types of properties. More often, the company's culture isn't consistent with using lower-end hotels.

"There are many things to consider during this market of increasing rates," said Maria Chevalier, vice president of hotel relations and travel procurement services for BCD Travel. "A tier-down strategy is certainly one approach, but you have to consider your company's goals, objectives and culture, as they may not be open to procuring a lower-type property."

One such company is Madison, N.J.-based pharmaceutical firm Wyeth, which functions under a nonmandated travel program. The company strongly recommends its employees use preferred properties, but Wyeth assistant manager of travel services Evette Payton-Toledo said that rarely persuades travelers to follow suit, meaning trading down would find low levels of support and efficacy. "I don't see that being a big success here," Payton-Toledo said. "Only in tertiary markets have I seen compliance with preferred properties, but that's because there is nothing else available. Trading down would only work in those markets. In places like Chicago and San Francisco, it's impossible. If our company's travel program was mandated, there would be a lot more compliance, but I've asked our director if we would mandate in the future and he doesn't see it happening."

Wyeth's policy states that travelers must use preferred hotels. The problem is there isn't a mechanism in place to punish them if they go out of policy.

The most they receive is a letter from Payton-Toledo reminding them that they strayed. "There is nothing I can do about it," she said.

BCD's Chevalier said that if a company decides to use a tier-down method, it is important first to note the company's goals and align hotel procurement goals with those. If they match, then tiering down could favorably impact company costs.

At food and beverage company Nestle, tiering down is becoming one of the major components of its hotel program , and it's paying dividends, according to Brenda Miller, Nestle's purchasing manager of travel services. "We have traded down and it's helped us control costs," she said. "We are beginning to look at the types of hotels that we include in our program. We no longer have five-star, and sometimes even four-star, chains in our transient program." Miller said that her company has turned to many midprice hotels, including Drury Inns, as well as many properties from Marriott's and Hilton's lower-end inventory. Miller still keeps a mix of four-star properties in her program, which are used to accommodate groups and meetings.

Many chains with midprice inventory are taking note of the gradual shift to limited-service properties. InterContinental Hotels Group recently announced that its Holiday Inn brand was experiencing a 20-year high in its pipeline, with 182 hotels in development or in plans to be developed. Further, 80 percent of the properties in the pipeline will be new builds.

As more corporate travel buyers turn to lower-end properties, more hotel chains will ramp up their limited-service pipelines. "Midprice properties are very nice now, and sometimes target business travelers moreso than luxury properties," said Heidi Sanderson Daniels, senior manager for projects and practice development for Advisory Services at American Express Business Travel.

Randy LaBouve, supervisor of ConocoPhillips' international travel and global hotel program, is adhering to a model similar to Nestle's Miller, although his approach is based more on the type of travel being conducted. "We try to have both categories covered in any given city, in case the business warrants more expensive hotels or the traveler can get away with a limited-service property," according to LaBouve. "It depends on the business need."

Amex's Daniels is another proponent of a trading-down strategy.

"More and more companies are interested in the approach," she said. However, before the approach is taken, Daniels said the first step is to analyze current spending patterns to determine the company's market tier mix. "Even a small percentage shift in tier usage can yield savings and that's what clients should understand," she continued. "If they find their upscale spending is at 55 percent and their midprice is only 10 percent, savings can result if there is just a 5 percent growth in midprice spending, because they'll be booking more volume at a lower rate."

While tiering down can save money for a company, the strategy only works if employees embrace it. Daniels said that choosing the policy must be coupled with a communications strategy, policy enforcement and monitoring compliance. "If you try and shift business to a midprice tier and you're not enforcing it, then travelers are probably still going to use upscale properties, most likely booking them at a higher price because there isn't a negotiated rate," Daniels said.

Ultimately, if tiering down is to be successful, there have to be checks and balances in place to monitor the program. The mechanism that is most effective in enforcing compliance is pretrip reporting, which can be used to notify a traveler at the point of booking if he or she is not using a preferred property. In highly mandated programs, travelers face nonreimbursement if they book and stay at nonpreferred property.

If a company does decide to tier down, the approach could do more than just realize savings, it also could cajole some upscale and luxury hotels to come down in rate to regain their business which was lost. "The upscales are losing business, so they might try to attract more business by coming in even more competitively in price," Daniels said, "so tiering down can work twofold."