With hoteliers more flexible in negotiations during a buyer's market, travel buyers are finding success with alternatives to the standard negotiation strategy, including reverse auctions, block space programs, capped dynamic pricing and consortia negotiations.
Reverse auctions for hotel programs all but disappeared in the most recent seller's market, but Bob Brindley, vice president of BCD Travel consulting arm Advito, said he's beginning to see them return. "In a buyer's market, psychologically, they can be beneficial," he said.
Paul Lang, Bayer corporate and business services manager of travel services, already implemented reverse auctions for a portion of his hotel program, as he detailed during an educational session at the National Business Travel Association International Convention and Exposition in San Diego. Through setting up reverse auctions in a few key cities, he cut hotel rates by half, he said.
Bayer began its reverse auction strategy in 2008 with a pilot program in the company's largest market, as Lang followed a directive from upper management. He initially was skeptical about reverse auctions, he said.
"I was against it and thought it wouldn't work, but we were told to do it," Lang said. "It was very effective, to my surprise."
Through the auction and cutting the number of preferred properties in that market, Bayer cut about $50,000 in travel spending. This year, Bayer expanded the strategy to two additional markets and drove an additional $400,000 in savings.
Most of the work came before the auction, Lang said. He and his team personally visited 14 hotels in the cities, spending at least an hour with each to explain the process.
"We had lengthy discussions with hotels and explained how we were going to do the reverse auction," Lang said. "We asked them for feedback and made sure they were as comfortable as they could be."
Lang grouped the properties by tier—also checking with the hotels to make sure they were comfortable with their tier grouping—and told them the rates would include a full breakfast and high-speed Internet access. Those hotels that opted to provide continental breakfasts instead of full breakfasts were weighted accordingly, and hotels also were weighted by their distance from the location Bayer needed.
The actual auction lasted less than an hour, with Bayer selecting three hotels out of the 14. The one thing Lang said he would do differently is better define last-room availability in the pre-auction discussions rather than leave the definition up to the hotels.
Advito's Brindley said Lang took the right approach with reverse auctions: Use them only in key markets and pit hotels only against those in their same tier. "These work best when they are a subcomponent of the overall strategy," Brindley said. "They might be a good idea in the second round of negotiations in cities where you have a very large room requirement, where you can cut down to the best and final few."
PricewaterhouseCoopers, which spends more than $300 million annually on hotels, has found success with a different strategy. In a separate NBTA educational session, PwC director of operations for U.S. travel Kim McGlinn said the company has implemented a hotel block space program in a few key markets.
"We've seen a tremendous amount of success with this, and it's resulted in tremendous cost savings," McGlinn said. "There's also been some ancillary cost savings, as other suppliers became competitive when the block space was at capacity."
Kim Maschoff, director of the hotel practice at TCG Consulting, said there are two approaches when exploring a block space agreement. One is to have it set where inventory releases back to the hotel at a certain point if not booked. The other is to prepay for the block space, which can drive further savings but requires strict policy compliance by travelers, she said.
If prepaid rooms are not used, that could leave to further confusion, as it would be difficult to tell with which department the billing for the rooms should lie, Maschoff said, "but when it works, it can really be terrific."
Dynamic pricing, widely resisted by buyers during the seller's market, also has emerged as a negotiating alternative during the buyer's market, particularly as buyers have faced constant renegotiations to keep fixed rates in line with economic conditions. Cisco Systems director of travel, meetings and events Susan Lichtenstein, Business Travel News' 2009 Travel Manager of the Year, used the strategy as she overhauled Cisco's hotel program, netting multiyear agreements with six multibrand hotel companies to combine dynamic pricing and fixed rates
(BTNonline, Sept. 7).Like reverse auctions, dynamic pricing works better as a component, not the sole strategy, of a hotel program, Advito's Brindley said. For most buyers, the best strategy is to explore chainwide agreements to have dynamic pricing options in low-volume markets but keep fixed rates in top markets, he said.
"Over time, it could evolve into a hybrid where you may not have to renegotiate the whole program every year," Brindley said. "For now, in key markets, the most compelling case is for buyers to stay with the LRA-type structure."
As buyers face declining hotel room-night volumes, many also are looking at alternate ways to boost those volume numbers. Some are taking a consortia approach, Brindley said, either uniting disparate businesses through a single program or a group of buyers uniting under a single negotiation from an agency. Consortia strategies currently are much more common in Europe than the United States, he said.
"Consortia negotiating doesn't work on the air side, but the hotels have been a little more lenient," he said. "If a hotel thinks it can gain additional business, it will look at every potential opportunity."
With the right data in place, buyers also have the opportunity to leverage transient and group hotel negotiations to boost volume, Brindley said. Similarly, Gaylord Hotels senior vice president of sales Mike Mason said he sees corporate buyers combining group and incentive travel. The buyers are opting to add incentives to group travel rather than sending employees to posh locations, he said.
"They're eliminating the actual incentive trip and lumping it together," Mason said. "Winners on their sales team get upgrades and a different experience in the hotel, but it's all part and parcel of the national sales meeting."