Buyers' Consortium Nears Hotel Success: Group Of 12 Cos. Secures Rate Quotes

Following nearly a five-year push to arrange collective buying arrangements with hoteliers, a consortium of 12 midmarket companies including Tokyo Electron America, International Sematech and Bose Corp. this month secured rate quotes for chainwide deals from such chains as Hyatt and Best Western.

The business travel consortium this year sent requests for proposals to five hotel companies to fill roughly 250,000 aggregate room nights in 25 markets, and several hotel chains for the first time said they would honor a chainwide arrangement with the travel-buying collective.

"We have responses from Hyatt and Best Western and from New Otani in the Pacific area. Hilton is not back yet but they're responding," said Kevin Maguire, Tokyo Electron U.S. Holdings' manager of corporate travel and fleet services. "Marriott is the only one that—although they didn't give us a total no—said they don't work with consortia. The rest seem to be willing to approach it and formulate a program."

A major reason for their success is the modified pricing structure the buyer consortium employed. While consortium buying conjures up perceptions of a one-size-fits-all approach that delivers the same rate to all parties involved, that was not at all the approach.

"Nobody has fully understood collective buying in the travel industry because in the past it's been one agreement for 20 companies," Maguire said. "That never really worked very well in most cases. Ours is not that way. We want an agreement per company that is better than what it was before.

"Hypothetically, if you give me an agreement that is $2 better than before, because I'm part of this consortium, that's great," he continued. "Since there's also an incentive based on the total volume of the group, there are a couple of chances to reduce costs, but it does not mean we all get the same rate. That makes no sense to the vendor."

Bose Corp. travel manger Gary Polito said hoteliers, through their newfound willingness to accept consortia buying, benefit from a single point of contact for several contracts, a streamlined RFP process and a significant combined travel volume.

"When they look at the number of companies and they look at the RFP that we put out—because we include the volume—they realize this is quite a bit of money," Polito said. "Now they have more companies and the hotels are really looking at getting that incremental business that these companies can bring to them."

Polito continued: "In the last couple years, what we've tried to do as a consortium is work out a win-win partnership and that's what we stress to hotel suppliers. We made that point and that's attractive as well."

However, in recent years the consortia buying model has fallen flat with hoteliers. "We talked about it last year with hotels and they weren't really receptive to discussing it at all," Maguire said. "This year I'm not sure if their intent was to discuss a consortia rate but they are more willing to be flexible in the way they're doing rate programs, for the most part. They're starting to understand that when times are good it's great to make a profit but you cannot—for lack of a better term—screw the client, because when times are bad you're going to need those same clients."

The concept for the travel consortium began roughly five years ago, when Maguire and Polito noted similarities within their programs, concluding there were opportunities for leverage. "We decided that the two companies wouldn't have much success, so we expanded it to four companies, and four went to six," Maguire said. "There were six travel managers who were presidents of local NBTA chapters. We probably spent two months of hard analysis of why consortia programs never worked, then we put together a format that we thought would work."

Among the problems that have led to the downfall of other consortia models, Maguire noted, are lack of data, lack of consistency among the various travel programs, as well as buy-in from senior management. "The main problem is the data," he said. "People didn't have accurate data or they didn't know their data. The other problem is they didn't have mandated or heavily enforced programs. The last thing, which may have been the killer, was the fact that both sides in negotiations approach from a bullying standpoint. That's not the way this process can work."

Also, persisting to this day are the lingering perception problems of the collective buying model. "We decided to prioritize how we would approach the industry and when we did, nine out of 10 suppliers said it wouldn't work, it's a bad idea," Maguire said of when the collective buying concept first was broached with suppliers, adding that solid relationships among buyers and suppliers have been critical to making the model work.

After a year of working out kinks and refining the consortia buying model, the buying collective secured its first deal with a car rental company, followed by an agreement with a data warehousing company and even on a limited basis with airlines.

With chainwide hotel deals nearly secured, the consortium is moving forward to select a common travel management company.

"That may be the last piece of the puzzle," Maguire said. "We've already got responses to the proposals in front of us, and we're looking at the possibility of some time within the next few months to do that."

Although Maguire said other midmarket buyers are looking to join and leverage consortium travel volumes, the success of the program hinges on keeping data and travel programs in synch. In other words, the consortium is only as good as the weakest link. "I just got an e-mail today out of the Midwest. We have 20 more companies that want to come on line now," Maguire said last week. "So it's starting to snowball very fast, but we're very careful to be sure from our side that we keep the performance level and the priority level we have now. Everybody has to know the data and it's got to be accurate."