Marriott International has begun adjusting corporate rates based on market conditions and, when that rate falls below the negotiated rate, billing the traveler the lower price.
Marriott's move comes as hoteliers scramble to retain, if not grow, their share of corporate accounts' room nights amid growing concerns from travel buyers that falling rates and Internet discounts are undercutting their negotiated rates. With the same intention, Six Continents Hotels previously introduced special tier pricing to capture accounts' stays at its properties where there is no negotiated rate in place
(BTN, Oct. 7)."Every night, the computer checks how the account's negotiated rate at that property compares to the corporate rate," said Bruce Wolff, Marriott senior vice president of distribution sales and strategy. Aside from the financial benefit, Wolff said the initiative is intended to "save travel managers embarrassment that they'll find out they're paying more than the corporate rate." While other multi-brand companies also adjust the corporate rate in place at their properties, Wolff said Marriott alone lowers the negotiated rate when the corporate rate falls below it.
While Wolff would not mention specific amounts that Marriott had reduced negotiated rates to match corporate rates, he described some reductions as "significant," depending on the market. Each property makes the adjustment on its own. "The review can occur several times a year. In markets where business suddenly has fallen off, hotels don't want to keep a corporate rate that's unrealistically high," he said. "On the other hand, they don't want to have a rate that doesn't match expectations in the market that business is improving."
The Marriott negotiated rate initiative is in effect at all 2,400 of its properties, including such full-service brands as Renaissance Hotels and J.W. Marriott Hotels in addition to the core Marriott brand and the midprice Courtyard and Fairfield Inn brands. Wolff said the predominate rate Marriott sells is the corporate rate.
The integrity of the negotiated rate also has been challenged by the growing availability of discounted rates on Internet sites, particularly such "merchant model" sites as Hotels.com and Expedia's Travelscape. Much to their dismay, buyers increasingly have seen rates on these sites that are below their negotiated rates. In response, particularly irate buyers have begun to hold the hotels accountable as a condition of getting their business.
Along with the growth of the merchant sites on the Web has come an unheard-of degree of transparency of hotel rates. Inadvertently, this transparency has had the effect of making buyers aware of how much leeway actually exists in rates—to the point that they can't help but realize how significantly, in many cases, their negotiated rates are being undercut.
Essentially, the merchant sites secure inventory at given prices from hotel companies either through a contract to sell or outright purchase. They then mark up the inventory and resell it on the Web at a profit. Bear Stearns analyst Jason Ader said the sites are comparable to travel agents, though they're not reliant on commissions for revenue. "Their profit is the difference between the contracted price and the price at which they sell to customers," he said. Over the course of the year, travel buyers have seen travelers become well aware of the existence of the discounted rates. "The impact of rate transparency and the steep discounting will affect negotiated rates in 2003," Ader estimated, especially as buyers have "gained greater pricing leverage this year as hotels compete for their business."
Previously, travel buyers were negotiating in the dark as to the parameters possible on rate. "Pre-Internet, there had been a sizable spread between corporate and discount pricing," said Paul Keung, analyst at CIBC World Markets. "The Internet has compressed any such disparity."
Frustrated at having his negotiated rates undercut so consistently, Kevin Maguire, travel manager at Tokyo Electron America in Austin, Texas, has gotten more forceful with would-be suppliers. "We're stipulating in our contracts this year that we get parity. If hotels have Web rates out there that are better than our negotiated rates, we want to be sure the lower rates apply to our travelers," he said. Maguire acknowledged that there are no systems presently in place to ensure such parity is honored. "Sure, it's difficult to verify, but it's become a trust issue for us. Right now, we have situations where travelers check in and they're paying $30 or more higher per night than the Web rate. Consequently, the negotiated rate means absolutely nothing to us. Why have a negotiated rate, if we're still going to pay a rate that's much higher than the one available to Joe Traveler?" he said.
According to Marriott's Wolff, the risk inherent in offering discount Web rates is precisely that it will alienate travel managers. "As a result, Marriott's participation on the merchant model sites is one of the lowest in the industry," he said, citing the company's single image policy. This means that the rate available for a room on a given night is the same through every distribution channel.
Yet, Marriott does participate in opaque Web sites, such as Priceline.com. In opaque channels, customers don't know which brand hotel they're booking until the transaction is complete. In addition, Marriott maintains its own site, Marriott.com, and is a founding member of Travelweb.com, of which Wolff is chairman. Marriott is one of five hotel companies, along with Pegasus Solutions, that owns Travelweb, which has been described as the lodging industry's version of Orbitz.