Hilton Faces Online Future

<B>Hilton Faces Online Future</B>

<I>Hilton Hotels Corp. vice president of sales and marketing Steve Armitage recently spoke with Meetings Today editor Chris Davis about the promise of automatic requests for proposals, the dangers of online auctions and the problems of volume-based meeting agreements.</I>


<B>MT:</B> How does Hilton define the differences between e-procurement initiatives and auctioning?

<B>Steve Armitage:</B> The electronic procurement process in many respects is an automation of the manual process. Corporate accounts advise hotels where they have business travel and meetings and seek a bid on that business, and the e-procurement process brings it online. It allows people to submit RFPs in a consistent format, and more time to prepare and make decisions quicker.

Auctioning is making price bids for business travel sales volume more competitive in nature: We can see what competitors are offering and have an opportunity to make adjustments to our own pricing.

<B>MT:</B> Where do you see the pitfalls of online auctioning?

<B>Armitage:</B> There are cases where corporations go through the RFP process, reach an annual agreement, then have an auction later on. That makes it difficult to have an agreement based on annualized volume of business in which we can assess total travel demand and all the highs and lows regarding time.

With the sophistication of yield management systems, hotels can come up with an annual price based on total volume. Auctioning today takes a model where hotel communities are asked to offer a price based on total expected volume throughout the year, with the possibility that they may incur an auction anytime within the year. It's difficult for hotels to make the best agreement in that case.

<B>MT:</B> Is that because the hotels, in that case, can't count on certain levels of revenue in times of low seasonal demand?

<B>Armitage:</B> Yes. Let's say there's an annual agreement based on high and low demand, giving the corporation price consideration through the high demand season based on past history and the capability to pick up volume through the low demand period. Theoretically, there's the possibility of offering space in the high demand season with a discounted price, leaving revenue on the table, only to have an auction in low season, meaning we can't capture the market share or volume.

<B>MT:</B> Are you seeing similar trends in the corporate meetings market?

<B>Armitage:</B> We have seen some of that for meetings too. There are different models. Submitting an online RFP for a specific event with specific dates and requirements is close to the traditional model. Another model is seeking an all-meetings price throughout the year on annualized meeting volume in which the company tries to place a certain amount of business in your hotel. That is much more problematic, as it's very difficult to identify what is a truly fair value for guest rooms without the arrival/departure patterns of attendees or the dates of the meetings.

Some models actually get into a complete meeting package environment, where the price bid is based per attendee audiovisual needs, food and beverage, meeting rooms and any number of other services. Unless you know specifically the menu requirements, exact number of attendees and audiovisual requirements, it's actually next to impossible for hotels to give a fair price quote. Going online for an individual event RFP has many benefits, but a single price for all meetings is virtually impossible, unless you're willing to make a lot of mistakes through the process.

<B>MT:</B> Are there any online RFP models for multiple meetings that could work?

<B>Armitage:</B> Not in a generic fashion, no. We could do multi-meeting RFPs as long as we have all of the specifics for all of the meetings. But if it's generic, just one price for 100 meetings, that's not realistic to give a proper proposal. Both sides lose.

For business travel sales agreements, we support automated RFPs and long-term mutual commitment, where both sides concentrate on meeting each other's needs. Without that, there could be an auction every quarter or every month, and that's pure commodity sales. If that's the environment, then our fair and rational pricing strategy for the general public overall would be just as good, so we wouldn't feel the need to further discount.

<B>MT:</B> In that case, would you be less inclined to seek annual volume-based agreements with those corporations?

<B>Armitage:</B> If we agree that due to a corporation's annual business, we won't take prices higher, even though we could get more revenue, and the customer holds an auction during that year, the price point goes down and we lose the business. The next high season, what would motivate a hotel to displace revenue again? There may have been short-term gains, but the business relationship would change dramatically.

A good relationship is two-way. I don't think corporations would like the same situation in reverse. They wouldn't like us to commit to a price point, then say that three months later business is too good and we won't offer that price to you anymore. But that's what some auctions do to hotels.