NBTA Recasts Hotel RFP: Fluid Negotiations Prompt Simplification Of Modular Approach

A new version of the electronic National Business Travel Association hotel request for proposals format released last week is designed to allow buyers to react more quickly to changing market conditions and, consequently, renegotiate rates through the year starting with the fall bid season.

An RFP developed to permit buyers to respond this way is a significant departure from the past, when rates were set annually and remained fixed through the year. The sea change reflects both recent market conditions and the seminal influence the Internet—with its transparent pricing—has had on traditional hotel negotiations.

In the most critical change, all pricing information, including value-add amenities, is contained in a new, dynamic module. Previously, this information had been included in the core pricing module along with various other modules, particularly the services and amenities module.

"Any item negotiable between the buyer and supplier now will be located in this one place," said Elizabeth Caligiuri, hotel committee chair, who also is travel procurement manager for The Coca-Cola Co. in Atlanta. As a result, the RFP's remaining modules now contain only static information that typically does not change.

Consequently, buyers interested in sending out RFPs more frequently need only use the client-specific module to negotiate rate and the amenities included. They only have to update the static information on an as-needed basis, usually once a year.

"The new system allows just this one module to be variable by client," said committee member Davina Fellows, who also is hotel/car rental manager for Wal-Mart Corporate Travel in Bentonville, Ark.

As an example of a value-added amenity that affects negotiations, Fellows cited complimentary breakfast. "The fact that a hotel serves breakfast doesn't change from client A to client B. This information still appears in the services and amenities module. But the fact that the hotel is willing to include breakfast in the rate for client A would be in the client-specific module," she said.

The committee also cut the number of fields of requested information in the entire RFP to 621 from 668.

The NBTA hotel committee had taken initial steps in this direction in the 2002 bid season, when a more flexible, modular approach to RFPs was introduced. The latest version makes the process even more time-effective.

"It allows you to be more reactive. You may have unexpected volume into a market midyear, for example. Now you can send out a new RFP more easily and not have to reinvent the wheel," said Kari Knoll Kesler, sourcing specialist for travel, meetings and promotions at ING Americas in Minneapolis.

The annual RFP model has been under siege since the hotel industry contracted in 2001.

"To a certain extent, the change has been driven by the hoteliers," said Wendy Blaney, manager of travel services at Johnson & Johnson in New Brunswick, N.J. "By consistently adjusting rates, they've become their own worst enemy. Certainly, the economy is a factor, but the hotels are forcing it because of poor judgment during the RFP season. During negotiations, they say they don't want to get occupancy, if it means giving up rate. But at the point buyers have made their decisions and business is going elsewhere, they panic and say, 'Okay, we'll take occupancy. Forget about rate.' "

The growth of Internet-only rates has exacerbated the situation. "The entire negotiating season needs to be reexamined, if rates are going to be floating and on the Internet," Johnson & Johnson's Blaney said. "Hotel chains need to reconsider what their rate programs are going to look like. No sooner is there a dip in demand in a market then they're putting inventory on the Internet, they're confusing the end users. That's what's forcing all this to happen."

Travel managers equipped with tools to react quickly will take advantage of market fluctuations. "A key market, for example, may have an unexpected oversupply of rooms because of a drop in citywide conventions. Chicago is in this situation in 2004. "Hotels automatically will drop rates on their own branded Web sites as well as on the inventory they give merchant model and travel agency sites," ING's Kesler said. "Buyers want to be able to benefit from these opportunities. With the more streamlined RFP tool, you have a way of potentially benefiting from the new circumstances."

Administratively, Blaney said the Johnson & Johnson travel department successfully could manage a hotel program that wasn't based on an annual model. "But we would need to understand the parameters we were negotiating within. It wouldn't be that hard to change the pattern," she said. "Because all the systems today are electronic, we could renegotiate every quarter, then load rates into our Web site every quarter. Yet, it would have to be something we felt held significant value for us."

NBTA promotes its RFP as the industry standard. In addition to buyers, it is used widely by third-party vendors that assist both buyers and hotels in managing the process. Exact usage numbers by buyers year over year are hard to ascertain, however, since many buyers restrict its use to key markets only, scale back the full RFP to suit their needs or customize it in some other way. This especially is true for buyers with small to midsize programs, who may have felt the previous format was not time effective.

"The new format should benefit buyers who in the past felt they didn't have sufficient volume in enough markets to warrant an RFP," Kesler said.

One midsize corporate travel buyer, Yasuo Sonoda, travel manager at Macromedia in San Francisco, welcomes a more simplified RFP tool, but expects he still will need to customize it.

"We use the NBTA form, but strictly as a template. We focus a lot on benchmarking rates to see what's out there market by market, so rates provided by a hotel are just a starting off point for negotiations," he said. "This includes benchmarking against rates available on the Web sites. In addition, we ask for information not on the RFP, such as occupancy rates at each property, and compare that to occupancy rates for the entire city. It becomes criteria we can use for leverage."

Sonoda said his team no longer views sourcing hotels as a once-a-year opportunity.

"It depends on how closely you monitor demand market by market. If you're accruing volume in specific cities fast enough, for example, you don't want to restrict yourself to a single RFP a year," he said. "Given time restraints, it's all about how actively involved the travel department can afford to be."

According to Coca-Cola's Caligiuri, the hotel committee released the new version early in the year so buyers and third-party vendors can allot the necessary resources for planning and implementation to get up to speed by the fall start of the 2005 bid season.