Suppliers Formulate Short-Term Strategies

<B>Suppliers Formulate Short-Term Strategies</B>

By Chris Davis

Though many corporate meeting buyers have felt the financial pinch of shrinking lead times for staging events (see story, page 25), the effects of the continuing short-term meetings trend are deeply felt through all sectors of the industry. Hotels, airlines, technological firms and third parties all have had to ramp up response time to buyers' short-term requests, and some feel that the traditional negotiating advantage suppliers have in the short term does not always hold true today.

As the economic uncertainty that colors many business decisions these days continues, some suppliers said that jittery corporations would cancel or postpone some corporate meetings, allowing for some respite from rampant short lead times. In some particular industries, there is evidence this has occurred, but it is far from universal, lessening the overall impact on lead time.

"We expected to see more tightening than we have," said Christine Duffy, president and COO of McGettigan Partners of Philadelphia. "We expected corporations to pull back on meetings expenses or eliminate or reduce the size of meetings, and we prepared for that environment, given that corporations would look closely at such controllable expenses as meetings because of the uncertain economy. But there have not been the kinds of changes we anticipated. There's still 60 to 90 days of lead time for many events, with a lot of pop-ups that are shorter."

Hotels are in a far more disparate environment, with their locations and the type of industries and corporations that comprise their base of clients weighing heavily on their average meeting lead time.

"It really has depended on the sector," said Joann Kurtz-Ahlers, vice president of sales and business development at Ritz-Carlton Hotel Co. "The financial sector is in a wait-and-see mode and postponing meetings, and they usually are the most frequent buyers of short-term meetings. But the pharmaceutical industry is exploding with demand and is moving forward--in January alone we had about 300 leads from 10 pharmaceutical accounts."

Along the same lines, Kurtz-Ahlers said, the technology industry has been somewhat hesitant to book events, while consulting firms have been particularly busy.

The upshot of this is a less reliable base of short-term meetings, which poses a conundrum for hotels: They don't know whether to book longer-term events or wait for potentially more profitable business.

"In the past, people were planning last-minute events throughout all industries and the short-term trend affected everyone," Kurtz-Ahlers said. "It has become a little harder to plan: Do we book way in advance or wait for possibly more lucrative meetings?"

The answer, at least for Ritz-Carlton, is based on so many factors that it's different for each property. One key factor is the location of the property and the makeup of its key accounts. A property that derives much of its business from East Coast pharmaceutical companies, for example, may find more success waiting for profitable short-term corporate meetings than a resort catering to financial company events.

"You have to interpret every city and every market," Kurtz-Ahlers said. "There are cancellations, and the business itself is more diffuse. Overall, though, there is a little more caution in the air than there was one year ago."

Since the short-term trend in the meetigs industry is nothing new (Meetings Today, March 22, 1999), hotels have had time to digest the causes and effects of shrinking lead times and adjust their operations accordingly.

"There are two reasons behind the trend," said Fred Shea, vice president of sales operations for Hyatt Hotels Corp. "The nature of corporate business as a whole is short term, and corporations wait until the last minute to book because they want to ensure the meetings will happen and not be stuck with a contract they can't fulfill."

Shea said Hyatt has learned much about the short-term meetings business during the past few years, resulting in better processes for quick RFP turnaround and property yield management.

"We understand this type of demand better now," Shea said. "We're not as willing to book bad business or meetings with a lot of meeting space versus guest rooms, and we will wait for a better piece of business. We track past demand and can analyze each city better. And we've focused the past few months on doing a better job of responding quickly, ensuring that the buyer will get a qualified salesperson on the first contact, which saves a lot of telephone tag you can't have in the short term. We're training our salespeople better, and looking at improving our internal electronic systems to ensure we capture and respond to electronic RFPs."

But the recent blips in the economy, should they continue or deepen, could change Hyatt's philosophy, Shea said.

"We will watch the economy carefully and if there is a downturn, we won't take chances with business," Shea said. "We'll ensure that we have meetings business on the books."

Also affecting the trend is a general movement toward greater enforcement of preferred supplier agreements, which usually offers corporate meeting buyers better rates but can restrict their choice of suppliers, which can be critical in the short term.

"I see this as a continuing trend where corporate planners will push the limits of advance planning calendars," said Janice Blevins, vice president of meetings management for St. Louis-based Maritz Travel Co. "Obviously, this comes at a cost to many companies that now are getting smarter by putting in place better technology tools and better preferred supplier agreements. These steps are making the process of planning more efficient and thus reducing some of the cost and risk associated with making fast decisions. I think the drive toward preferred vendor agreements will help to maximize the potential for hassle-free contracting, as well as limit the search to some very targeted and pre-defined venues. It'll be interesting to see what happens to this trend, as corporations incentivize planners to use preferred hotels and facilities. Could the demand for space help to lengthen the planning calendar?"

But the effects of any further shortening of lead times will reach past the buyer and supplier, Blevins said, significantly affecting third parties that are responsible for part or all of the sourcing and planning process.

"The quick turn of business will put more stress and risk on independent planners and firms dedicated to a narrow client base. It will be a challenge to continue to keep their staff fully utilized to respond to dramatic peaks in activity without the depth of resources. Travel management companies with a broad client base will come out ahead, given that their ability to deploy and redeploy resources very quickly contributes to financial stability."

The influx of Internet-based site selection and RFP transmission tools has the ability to reduce lead times even further, and vex hotels in the process, said Ed Tromczynski, president of meeting portal PlanSoft.

"Technology allows the buyer to procrastinate a little bit, by looking to find available meeting space or distressed inventory from canceled meetings, and have less anxiety that they'll be able to get the space," Tromczynski said. "That's not good for hotels, since they have staffing issues and there's some question as to which side of the table the negotiating power lies in the extreme short term. Eighteen months out, a buyer may get a great rate for a meeting, which would be through the roof six months out. But if it's negotiated one week before the event, the hotel might back down."

Technology also permits the buyer to wait until the short term to decide whether it's even necessary to hold the meeting at all, rather than book early and pay cancellation fees.

"There are all kinds of Webcasting tools out there now that will play a part in the decision whether or not to travel or even have the meeting," Tromczynski said. "It also allows hotels to blast out available inventory at the last minute to clients. The tools to help the buyer find last-minute space are very interesting, and that's really what the Internet is all about--empowering the buyer."

Major airlines already have addressed the short-term corporate market with the development over the past few years of systemwide zone fares, which allow for groups or meeting attendees to pay flat fares based on geographical zones without a Saturday-night stay requirement, if they book at least one week from the day of departure. While there has been some talk, and one temporary attempt by Continental Airlines in 1999, to reduce that booking window even further to accommodate short lead times, American Airlines product manager for meetings and group sales George Coyle said there has not been overwhelming corporate demand to do so.

"The standards for lead time have stayed pretty close to normal, and we're not recognizing any deviation from business as usual in that area," Coyle said.

While Coyle said American has not negotiated shorter zone-fare advance booking requirements with key corporate clients, some have received the ability to block space on a given flight in the short term.

"We recognize account segments that perform well," American Airlines' Coyle said. "The only time this really surfaces is when a corporation wants to block space from point A to point B 15 days out, and then add the information of who's flying less than seven days before departure. That can be frightening for us if we don't have a relationship with the corporation, but it's a viable option for those with which we do, since we strive to work together with them.