Will Annual Hotel RFPs Ever End?

Ask parties on both sides of the negotiating table what they think about the annual hotel RFP season, and more often than not, they'll say it's an inefficient, outdated process. But that doesn't mean everyone's ready to change it.

A recent GBTA study of 161 travel managers found 66 percent were satisfied with the RFP process. While satisfaction may seem like a good thing, satisfied people don't see a reason to innovate. And innovation is exactly what many say the industry needs. "I've been in the travel industry for a little over 20 years, and it feels like we talk about the same issues for decades," said Yapta CEO James Filsinger. "We are continuing to rely on systems and processes that have been in place for decades that worked effectively and efficiently 20 or 30 years ago. We have not brought or adopted innovation into the process."

The BTN archives are filled with prognostications of changes to the hotel sourcing process—to be ushered in either by shifting market conditions, new technologies or bold strategies deployed by a handful of powerful travel buyers. Consider this declaration from then Worldhotels Americas VP Tom Griffiths in May 2009, a time of high volatility in the hotel pricing market: "The days of issuing a simple, one-year request for proposal in September that would be accepted in October, loaded in November and available in January ... are gone. Companies and hotels are going to be looking at ways to maintain the greatest degree in flexibility, both in the way of availability and pricing, even as the market comes back. … The old days of 'seasons' is long gone. Every month will be a new season."

Almost a decade later, though, the industry is still keeping largely to a season, only now it starts even earlier. Despite new technologies that give companies greater visibility into their hotel data and the value of their negotiated rates, the one-year contract of static rates is still king when it comes to hotel procurement.

OK, Why Is The Industry Stuck?

While there's a temptation to point fingers, many buyers and suppliers, some of whom declined to be named for this story, don't place blame with any one stakeholder.

The Buyer Side. If the same group of people complains about something but then 66 percent proclaim satisfaction, it's not satisfaction. That's resignation. "I learned a long time ago, from an old boss of mine, that people or companies or programs change for two reasons: pain and urgency," said David McDonald, an independent global travel and procurement professional. "When you think about the annual hotel RFP season, it's not painful. That is, it's painful because it's work and it's lengthy and it's tactical, but it's not painful to the point that everyone hates it so much that they want something new."

The near-constant turnover of the RFP cycle—gather data, send out bids, negotiate, negotiate again, negotiate once more, sign a contract, check the rate loads, check the rate availability, start all over again—means that smaller programs with limited resources have little time to dream up alternatives on their own.

The rise of sourcing partners that can negotiate on behalf of travel buyers has alleviated some of the pain of RFP season; according to the GBTA study, those who rely somewhat on a TMC for hotel negotiations report even higher levels of satisfaction, 75 percent. But by McDonald's formula, removing some of the pain consequently removes a trigger for change.

Some buyers, though, have managed to embrace newer solutions. Steven Schoen, Siemens director of mobility services for the Americas, procured two-year agreements for about 75 percent of his hotels last year. That means he's already nearly finished as the 2018 RFP season approaches. Others—like Unilever's Yvonne Moya and Microsoft's Eric Bailey, Marta Rodriguez Martinez and Julia Fidler—are deploying proactive approaches to sourcing that put the desires of the travelers, rather than the suppliers, at the center of the decision-making process.

The Hotel Supply Side. The hotel industry is fragmented—far more so than the airline industry. Consider the limited power for change that Delta Airlines, for example, would have if each of its planes were owned by any party other than Delta. In the hotel space, hundreds of companies each have a growing number of brands, and those companies typically franchise to hundreds of thousands of private owners or ownership groups.

Major hotel companies have rolled out systems for managing revenue and on-property operations, but hotel technology systems still lack uniformity from property to property. That means any creative initiatives a buyer and salesperson dream up around pricing—say, a corporate dynamic rate discount that has a built-in cap—may not be feasible to enact.

MGM Resorts International chief sales officer Michael Dominguez said the hotel industry needs to change the way it does business. "We are so far behind the speed of change that we cannot keep up. We say we're innovative; but we're innovative in product. We need to start being more innovative in process." Hotel owners, he added, likely will adapt if the larger hotel company really decides to make a change. "When hotel companies want something, they get it done. You don't have owners around the country that want to pay marketing fees and all of the fees they pay for loyalty programs," he said. They do it because hotel brands require it.

The Data Problem. Hotel data is bad. Not just because it's too often inaccurate but also because it's incomplete. And that lack of visibility not only can paralyze procurement professionals exploring alternatives but also can ensure that they continue in ineffectual pursuits out of habit.

Buyers and hoteliers scrapped for decades over contracted last room availability, only to find via new data sources like Tripbam and Yapta that revenue management practices were blocking negotiated rates and that LRA contracts "weren't worth the paper they're written on," as Tripbam founder and CEO Steve Reynolds told BTN in 2015.

Data consolidation tools like Carlson Wagonlit Travel's AnalytIQs, American Express Global Business Travel's Premier Insights and Omega World Travel's Omegalytics have afforded corporates better views of their hotel spend. Yet, with line-item invoice data still a rarity, corporates continue to spend a significant portion of the RFP season negotiating for amenities they can't be certain their travelers use.

"We had a customer panel and I asked, 'What percentage of your travelers eat breakfast at the hotel?'" said HRS head of corporate sourcing for the Americas Jeff Hillenmayer. "Everyone said, 'I don't know.' So if we don't know, why are we negotiating it?"

Additionally, buyers and hotels continue to make room-night commitments even though marketshare data isn't tracked or standardized on both sides of the negotiating table. Instead, Reynolds said, when it's time to renegotiate, buyers and hotels have to play an annual game of Whose Data Is Right?

Alternative RFP Models

While hardly exhaustive, the following models range from tweaks on the current model to a radical overhaul of the procurement process.

The Off-Cycle Model. This remains an annual process, but buyers shift their bidding process away from the typical July/September/August start dates. Haemonetics global category manager for travel, fleet and card services Sharon Fogarty is in her third year of going off cycle with her RFP process, which now follows Haemonetics' April-to-March fiscal year. "It makes it so much easier for my hotel partners, as well as for myself, because it's a quieter season," she said. Hotel negotiations for her program now begin in January or February, and from hoteliers, she gets better benchmarking data, service and initial bids. Hilton executive director of business travel sales Maria Chevalier said clients have had great success going off cycle, and it's a practice Hilton is encouraging more corporates to adopt.

The Hybrid Model. This is still an annual process. Buyers use data to identify their top markets based on spend or volume and then secure static, negotiated rates only at top hotels in those markets. In secondary and tertiary markets, buyers adopt some mix of chainwide discounts, agency rates and rates found through hotel rate shopping tools. Though this model has become well worn, many sourcing professionals maintain it's still one of the best options for corporates because it allows for flexibility, it shortens the procurement season by limiting the number of property negotiations and it protects programs from rate spikes in important markets during periods of high occupancy. "From our perspective in working with a variety of clients, there's room for all of the rates that can be negotiated out there," said Advito senior director and hotel practice area leader Marwan Batrouni. "There isn't a one-size-fits-all approach. Fixed rates, dynamic rates and chainwide agreements can live happily together."

The Airline Model. This means multi-year agreements in which almost all dynamic discounts are calculated as a percentage off the best available rate. From the hotelier perspective, static negotiated rates constitute a backward pricing model, while dynamic pricing would better reflect real-time market conditions. Additionally, dynamic rates would mean throwing out the annual RFP process and moving toward longer agreements. For corporates, hoteliers' guarantee that dynamic rates will benefit both sides isn't good enough to give up the assurance of static rates. "[Dynamic rates] do reduce workload and drive efficiencies," Hillenmayer said. "However, there isn't currently a very valuable way to know if it is actually getting the same sort of value and market picture that the fixed-rate model is. Not getting the entire market picture could hurt the corporations."

The Long-Term Service-Level Agreement Model. This long-term contract, tracked and measured monthly, includes several service-level metrics that can trigger renegotiation or termination by either party. McDonald posed the question: "Why would you basically hit reset from zero and negotiate every agreement for every rate for every year for every property? The reality is: Unless something has fundamentally changed in your business, the movement of hotels in or out of your program could be a max of 10 to 15 percent of the hotels you had the year before." According to the GBTA survey, travel buyers typically drop just 12 percent of their hotels from the prior year. Yet each year, the process of sending out lengthy RFPs is repeated. "It seems so silly for both sides to have to go through this process each and every year," said Coach senior manager of global travel Rosemary Maloney. "The current state of the 150 questions that have to be filled out each year—[the hotel] should only have to fill that out once. The hotel doesn't move away from the fire station."

Reynolds believes the solution is to negotiate only as often as key metrics make necessary. For instance, a buyer could require that their negotiated rate—dynamic or flat—generate at least 20 percent in savings, not including amenities, when compared to the lowest qualified rate, which excludes rates corporates wouldn't use, such as nonrefundable. The buyer would also require that the discount be available, via last room availability, at least some percentage of time. Hoteliers, in turn, could require that a discount be renegotiated if it goes above 30 percent of the lowest qualified rate for an extended period of time. It could also demand some marketshare commitment from the buyer.

This model isn't just about rates and savings. Reynolds said long-term SLAs also could include metrics like traveler sentiment and satisfaction measures or safety and security ratings. The catch? Reynolds' model does depend on an independent intermediary to measure the savings and marketshare metrics, a role he'd like Tripbam to occupy (see sidebar: Tripbam Wants to Be the Hotel Industry's Prism).

However, McDonald did suggest a similar model, independent of Reynolds' proposition, in which buyers negotiate for a set list of amenities via a long-term agreement and reevaluate only price.

This All Could Be Irrelevant Soon

Yes, the corporate travel industry is extremely slow to change. Yes, this article did begin with a decade-old anecdote about how everything would be different and nothing would be the same. But new developments around analytics and artificial intelligence really could prove disruptive to the hotel procurement process.

Consider this: Organizations are constantly in flux. Clients change, teams change, travel patterns change. Yet, current hotel contracts are static and negotiated based on events and behaviors that have occurred in the past.

What if travel buyers, rather than pulling reports to get snapshots of data, could access continuous data streams and market dynamics in real time? And what if online booking tools and the agent desktop portals could use that data to encourage booking behavior that optimized travel programs to meet their contracts?

Jay Richmond, Amadeus IT Group head of business travel for North America, thinks the technology is here to wire that sort of supplier data into the current hotel search and shopping infrastructures. But to make that effective, automation needs to step in. "The human element of doing [a supplier] assessment is quite a high cost," he said. "If that could be automated, now you're constantly knowing that you are managing your supplier spend to the best goals of your company."

If these advancements occur and travel buyers are able to access real-time program data and can guarantee market share or spend to suppliers, then sitting down to negotiate won't be the headache it is now. And if both the buyer side and supplier side can agree to hotel contracts that enable flexibility for both market dynamics and changing business needs, there won't be a need to negotiate every single year. In that scenario, the annual hotel RFP season would no longer exist.