Third-party technology providers A.T. Kearney Procurement Solutions, Freemarkets and ProcurePoint Travel Solutions are rushing to enter the reverse online hotel auction market, expecting demand from travel buyers for such tools to soar as the bidding season for 2003 rates approaches.
The vendors are positioning themselves as both service and technology providers to buyers, who remain under intense pressure to keep a lid on hotel costs next year. Still, hoteliers remain opposed to the new channel—saying it ties their hands in negotiating and reduces travel to the level of a commodity (BTN, May 13)—and the tech vendors are trying to ease their concerns.
"In addition to setting the auction strategy with the buyer, we can provide training for suppliers to ensure they understand the parameters of the auction and are comfortable with the technology," said Jane Wanklyn, senior e-sourcing manager at Kearney in Walnut Creek, Calif. "It's certainly to all parties' advantage to have everyone at ease."
For buyers, the initial challenge in a reverse auction—in which hotels compete online and bid down the price of rooms—is to ensure that only appropriate hotels are included in the event. Buyers also must be clear on what amenities are important to them, as the value of these items also figures in suppliers' total bids.
"Unlike office supplies, where the product and the need are easy to identify, sourcing hotel rooms raises a variety of different issues," said Connie Cirillo Freeman, who as director of corporate procurement and travel services at Pitney Bowes in Stamford, Conn., already has sourcing responsibilities as part of her job. "Hotel room auctions are successful, however, in getting the price out there, which allows the buyer to move on—ideally, during the auction itself—to other aspects of the negotiation, such as value-added amenities."
According to Chris Kane, vice president of marketing for ProcurePoint in Sausalito, Calif., "Once buyers have sourced the suppliers that meet their profile, the other principle we encourage is to limit the number of suppliers, so it's a genuine opportunity for them. Once the invitations go out, suppliers understand the scope of the auction and how big the piece of business being negotiated is." Suppliers are free to decline the invitation to participate.
Freeman agreed, noting that hotel auctions work best when a buyer requires a large number of hotel rooms in one city at one price point. "This way, it is easier for buyers to be sure all the hotels participating are in roughly the same location, as well as at the same service level," said Pitney Bowes' Freeman, who has considered using the auction tool, but held off because the hotel inventory in Stamford, the destination that makes the most sense for her, is too limited.
"Frequently, an existing client will come to us and say, 'This is an area we'd like to try,' " said David Clevenger, Pittsburgh-based Freemarkets market development manager. "Essentially, buyers we work with are looking to find the true market value of hotels in the particular destination, which is what the auction tool is designed to provide. It's a market assessor. At the same time, the auction format helps to identify an opportunity for the hotels."
While the technology providers' software is identical in some ways, the formats vary in other ways.
ProcurePoint's system, for example, shares with suppliers the identity of all other competing suppliers in advance of the auction. During the actual session, however, competing suppliers are identified online only as paddle number one, paddle number two, etc.
By contrast, in the Freemarkets system, suppliers do not know the identity of the other suppliers at any point in the auction process. Technology also is available that prevents a low bid from being slipped in at the very last moments of the negotiation.
"Buyers set a base time for the auction, but then can build in a number of extensions," according to Kearney's Wanklyn. "This adds more time to the clock if a bid is placed within a few minutes of the end. It allows properties to view this final bid and, potentially, still have time to make a counteroffer." Kearney's technology, known as Ebreviate, also has a message feature. "This allows the buyer to communicate with the properties during the auction—either individually or as a group—typically to offer encouragement," Wanklyn said.
Similar to any new channel, reverse auctions involve an often-steep learning curve.
"We held our first auction last year and learned a lot, particularly about how we should be grouping hotels to ensure those participating were apples to apples," said Joanne Gallardo, travel manager at Dell Computer Corp. in Round Rock, Texas. "A buyer conducting an auction for the first time would also want to be sure not to target too many cities initially." Dell intends to do additional auctions this year.
It also is easy to assume that because the tool is a timesaver and helps streamline the process, it doesn't require much preparation, Gallardo said, "But the opposite is true, because the auction is only going to succeed, if all the necessary advance work has been done."
Dell already had a positive history of conducting online auctions for other goods and services—and had a technology vendor in place—when the travel department decided to undertake a hotel auction. This is a typical pattern, Clevenger said.
As auction tools grow in popularity, buyers and suppliers alike will come to accept them, said Grant Kaplan, a principal with Consulting Strategies in Houston. "There's a certain segment of the business travel population for whom this is great," he said. "Unlike traditional negotiations, there's much less of an emotional component and more of a commodity component in the sense that a bed is a bed is a bed."
Hilton Hotels head of business sales Alistair Rodger disagreed. At the recent United Kingdom and Ireland's Institute of Travel Management annual conference in Scotland, Rodger revealed he had participated in six online auctions to date and said, "The buyer conducting every single one of them came back to us with a normal RFP because they didn't get what they wanted."