Chainwide hotel discounts once were a procurement hot
potato. For years, many hotel companies resisted buyer requests for them. They
softened that stance after seeing such deals as a vehicle to move the industry
to a more dynamically priced structure. In turn, buyers became more skeptical.
Now, there's some settling, particularly as more buyers
embrace hybrid pricing models: maintaining flat, negotiated rates with
last-room availability in high-volume cities while using chainwide deals and
other dynamically priced methods to fill in the gaps. Applied properly, such a
strategy can lessen the negotiating burden for both buyer and seller. Even so,
chainwide discounts must be carefully negotiated and executed lest they
undermine a hotel program's overall value.
Anatomy Of A Deal
It's only in the past five years or so that hotel companies
particularly have been interested in chainwide deals, according to Advito vice
president Bob Brindley. He said earlier resistance stemmed from the ownership
model, particularly in brands that are heavily franchised. A hotel in one city
might be eager to offer a discount, but a hotel flagged as that same brand—but
under a different owner—in a higher-occupancy city might not want to offer that
same level of discount.
"They're interested in their own economic well-being,
and they want to discount based on the volume at their property," Brindley
said. "Chains have been able to convince hotels that these are a good
deal."
As such, chainwide agreements tend to lean toward the "lowest
common denominator," said Flo Lugli, who recently retired as Wyndham's
executive vice president of marketing. "If you have a chain of 2,000
hotels, and you offer 20 percent, there might be some specific markets where
you could negotiate better rates and other markets where that is not what the
market is demanding. That's the challenge, and the fragmentation of the
ownership and management structure make them very difficult to enforce on the
brand side."
Many hotel companies, however, in recent years have been
more aggressively pushing them. InterContinental Hotels Group, for example, a
few years ago trained its sales staff on strategies to get larger corporate
clients to adopt dynamic pricing. About that same time, Carlson Rezidor Hotel
Group also launched a corporate rate program, said senior director of global
sales Brad Penrith during an education session at the Global Business Travel
Association Convention in San Diego in August. At the time, about 90 percent of
corporate business came through the traditional request-for-proposals process, and
garnering interest from key accounts took some convincing, he said.
"It's not like we launched the program and global
customers were like, 'Great, sign me up,' " Penrith said. "We had to
sell the benefits of it, and we're starting to see traction. More and more are
seeing the value of it."
While chainwide deals initially were limited largely to big
corporate clients, hotels now increasingly are offering them to companies with
small or midsize programs, Brindley said. In recent years, some hotels during
the negotiating process have pushed harder to move LRA-inclusive deals to
chainwide deals, with the thought that they would remain a preferred hotel,
though they are "quickly reminded that they'll go from primary to
secondary status," he said.
Besides generally offering less savings than a
hotel-specific deal, chainwide deals rarely include much in the way of
amenities—outside of those properties at which key business amenities already
are included. "Clients are trying to move chainwide deals in that direction,
but I haven't seen a lot of success with that," Brindley said. "Hotels
are digging in their heels." He added that chainwide deals also usually
come with a total revenue or room night target. "They're not doing it out
of the kindness of their heart; it's a way to improve market share."
Leveraging Agreements
Roche Pharmaceuticals manager of travel and offsite meetings
Steve Sitto has transitioned his program to a hybrid model that includes
chainwide deals. As a result, he saw his company's average daily rate decline,
he explained during the GBTA session. However, deriving that value required
thorough analysis beyond simply supplementing property-specific rates.
"In addition to chainwide deals, we wanted something
more robust that gave us additional discounts and value-adds but also
strengthened the partnership with the hotel chain," Sitto said. "We
wanted to take a deep dive into the program, to dissect it to the point where
there are not only dynamic/hybrid opportunities, but also brand-specific,
global opportunities where we could improve our program even better by having
consistency with a brand and service offering."
That analysis included a close inspection of potential
chains—not just rates and amenities, but also their footprint and duty-of-care
considerations. Sitto said leveraging the best deal also requires a
well-managed program, as hotels are more receptive when buyers can prove an
ability to shift share.
Similarly, hotels are becoming more sophisticated with their
data for determining chainwide deals.
"It's not like chains are just coming back and saying, 'Hey,
we're going to give you 20 percent,' " Sitto said. "One chain went
back two years, did an analysis on our spend by room night and showed us on
graphs how we performed and why they came up with the percentage that they did."
Aided by BCD Travel and its Advito consulting unit, Sitto's
efforts resulted in benefits to both his company and the chains, he said. Roche
now has three-year deals with multiple chains, which lessens the negotiating
burden on both sides. The overall average daily rate for the company was down 5
percent year over year in 2012 versus 2011. In the first quarter of this year,
ADR at one contracted brand declined as its share of the company's hotel
program increased by 15 percent, he said. Sitto added that adoption of the
preferred hotel program also has increased as travelers are happier with more
options.
Sitto said that managing the program still has its
challenges. A chief one is the consistency of data across the hotel industry,
particularly the data needed to track traveler behavior.
"Airlines can show you how many bags were checked, how
many travelers were upgraded," he said. "We're waiting for the hotel
industry to catch up. As that evolves, our programs will continue to evolve."
Though Sitto for 2014 seeks to further expand his hybrid
program, he does not foresee the elimination of the hotel RFP in the near
future.
"The industry is not ready for something like that,"
he said. "It's about a more strategic and efficient approach to the RFP."
Preferred Property
Overload
As chainwide offers proliferate, they ultimately can dilute
and reduce savings from a preferred hotel program, cautioned Egencia vice
president of supplier relations in the Americas Chris Vukelich.
Egencia's mid-year hotel review, published this summer,
noted that while overall ADR largely was flat, negotiated rates on average were
up 5.1 percent at large hotel chains—which accounted for 88 percent of
negotiated-rate bookings—and up 4.5 percent at regional hotel chains. That
likely is a result of companies "blindly" accepting chainwide
discounts, Vukelich suggested.
When a company accepts a chainwide discount, rates from
hotels in that chain as displayed in corporate online booking tools are denoted
as "negotiated" and move to the top of search results, he explained.
Multibrand companies that include brands with nearly 1,000 or more total
hotels, such as Hilton's Hampton Inn or Courtyard by Marriott, could fill the
entire first page of listings—from which two-thirds of self-bookings are made,
according to Egencia—while pushing non-negotiated but potentially better rates
out of a travelers' view, Vukelich said.
The problem will become even more pronounced as bookings
migrate to mobile tools, which usually show just a handful of properties after
a search.
"A 3 percent or 4 percent discount at every Marriott or
Courtyard may be more expensive than the published rate from the hotel just
around the corner," Vukelich said. "If your objective is truly cost
savings down to a discrete level of individual transactions, we're suggesting
that there's a better way."
Cognizant Technology Solutions North America travel manager
Sonia Giddens during another GBTA session noted that with chainwide discounts,
she often weeds out brands she does not need, focusing largely on extended stay
brands that best fit her travelers' needs. By doing so, she usually negotiates
even deeper discounts with the brands she uses, she said.
When taking such an approach or a regional approach with a
chainwide discount, buyers should pay close attention to how rates are loaded,
Vukelich said.
"With many of the chains now, you're talking to a chain
rep as opposed to a hotel rep, and that person's objective is to sell the
network," he said. "You may say you want Hamptons, but they might
think you want Embassy Suites as well, and that gets loaded. You have to
understand how that gets displayed and its propensity to get booked."
As such, Brindley said chainwide discounts should be an "important"
but "secondary" part of an overall hotel program. Fixed rates and
those with last-room availability remain ideal for any company in most markets
with at least 100 room nights, he said. Spot-buying, or flexibility to take
advantage of better rates than preferred rates, also should remain an option.
This, of course, harkens back to one of the chief buyer
concerns when hotel companies became more aggressive on dynamic pricing
agreements: that hotels would use them as an excuse to inflate their rates to
offset discounts. In a well-managed program, that should not be an issue, Sitto
said.
"It's a competitive environment, and [hotels] have to
earn the business," he said. "I trust our hotel partners that they're
not going to gouge us."
This report
originally appeared in the November 2013 edition of Travel Procurement.