Wilton, Conn. - Deloitte & Touche's global hotel program this year underwent a major overhaul, enabling the firm to deliver greater marketshare to fewer hotel companies and, in return, reap deeply discounted rates and more value-adds for travelers.
To ensure the company attained maximum negotiating leverage from its preferred properties, Deloitte took a two-pronged approach. The strategy included an almost 70 percent expansion of the number of cities where the travel team negotiates rates and a decrease by about 20 percent of the number of preferred properties in its top cities.
"Overall, we increased the number of cities to 334, from 200 in 2002, because we wanted to cover 80 percent of our annual hotel spend, which we hadn't been doing," said Brian Nichols, hotel and ground transportation travel manager in Deloitte & Touche's global travel group. "Expanding this way allowed us to extend the amount of discounting we were getting and gave us more leverage with suppliers." Previously, Deloitte's 19,000-plus profiled travelers visiting these additional cities were charged the basic corporate rate, which wasn't as deep as a negotiated rate. "Even though we were extending the program it became more cost effective because we were able to negotiate better deals across the board," Nichols said. "In these smaller markets, hotels proved more willing to negotiate for any piece of volume business, so it proved a win-win proposition for the hotels as well." Among Deloitte's travelers are those from Deloitte Consulting, which is being spun off from the parent firm this year and renamed Braxton. The travel program is sourced jointly.
The actual number of hotels rose to 732 in 2003, from 556 in 2002. "You could look at the numbers and say we just threw in a bunch more properties," Nichols said, "when in reality, the average per city went down." Given that Deloitte was reducing inventory, especially in its top cities, the firm was able to deliver greater marketshare to fewer providers. For example, in Chicago, where Deloitte books a significant amount of room nights, the number dropped by 25 percent.
In choosing specific hotels, the approach was to look first at properties' historical usage by Deloitte travelers. "We also looked at the logistics of the hotels' location in relation to our offices or offices of major clients," said Reita May-Scott, senior manager of travel categories in the firm's strategic procurement services department, which works closely with the global travel group. "Then we looked to decrease the number of properties in dense areas, such as Manhattan's Times Square, where the number of hotels fell by 30 percent. The marketshare gain benefits the hotel and consequently benefits us."
As part of its RFP, Deloitte provided projected room night volumes within dense locations in a summary by postal code. "This way, hotels could see not just that Deloitte has a large number of room nights in New York, but exactly how much we spent in their hotel's zip code," Nichols said.
Hotels appreciated the specific data. "Hotel companies, especially those with multiple properties, reviewed our data and decided which of their properties were the right fit," Nichols said. "It made more sense—and was more efficient—than asking them to bid on total room nights for an expanded metro area."
From the travel team's point of view, the specificity helped improve compliance since travelers want conveniently located hotels. "Plus, it showed the hotels that we were serious about living up to our volume projections and, thereby, moving marketshare," May-Scott said.
For the first time, Deloitte for 2003 also negotiated system-wide discounting with hotel chains. This was intended to cover the remaining 20 percent of the firm's annual spend not covered by negotiated rates. "In other words, in cities that our request for proposals process didn't cover, we encourage travelers to take advantage of those discounts," Nichols said.
Hotel companies acknowledge that the ability to move marketshare has become much more critical in negotiations. "Travel managers are consolidating their buying power to work with the hotel chains they have confidence in," said Knud Svendsen, vice president of sales for Adam's Mark Hotels & Resorts.
The new strategy at Deloitte was symptomatic of a larger trend among travel managers.
"The dynamics of managing a hotel program have changed so much in the past couple of years," said Ruth Philpott, manager of hotel programs at American Express Consulting. "New possibilities are out there. In the past, travel managers might never have thought about changes they could make, but now their hand is being forced by the tight economy."
Underlying Deloitte's specific approach has been the significant increase in the number of new hotels, starting in the late-1990s. "There's definitely more product out there, so buyers simply have more choices at their disposal in formulating their programs," said Keith Boccuzzi, vice president and general manager for the northeast region for TQ3 Maritz Travel Solutions. "Given the economy, it continues to be a buyer's market, so travel managers know they have a lot of room to negotiate."
Unlike some companies where travel management and procurement departments find themselves in conflict, May-Scott and Nichols said the opposite was true at Deloitte. The bid process that resulted in the 2003 program was a good example of the mutually beneficial arrangement, where neither department reports to the other but has distinct roles and responsibilities internally and with suppliers.
This was the first year the group worked together on the hotel program, which had been outsourced in prior years.
"More effort was involved, collecting and reviewing data, because hotels in so many more cities were included. In addition, we added more moderate and extended-stay properties, so travelers had more flexibility in major cities, depending on their particular budget," Nichols said.
The joint team set a timeline for negotiations and stayed on track, wanting to avoid going back and forth repetitively with suppliers.
"We set a gate for the first round that hotels had to pass through. Those that passed were in the final negotiation for positions at their market tier," May-Scott said.
Such a methodical approach became more the norm last year. "Buyers became very careful in making sure they did their homework," Boccuzzi said. "They know exactly what it is they want and what they need, and they negotiated more aggressively to get it."