Annual Hotel Chain Report: Seeking Major Marketshare Moves From Buyers

As a consequence of the current depressed state of the U.S. hotel industry, brought on mostly by the erosion in levels of business travel, hotel chains have emphasized marketshare this year much more than in any recent rate negotiations. For many buyers, the change in tactics has given them unexpected leverage at the bargaining table, though it's a power that quickly can turn illusory.

At multi-brand hotel companies, where the portfolio includes chains at different price points, a discussion of marketshare can cut different ways. It can include the share captured by all of a company's brands cumulatively or it can vary by full-service, midprice or extended stay chains, depending on the requirements of a travel buyer's program.

"There's no question it's become a marketshare game," said Terry Sullo, manager of travel and meeting services at Akamai Technologies in Cambridge, Mass. "Hotels this year want marketshare and a lot of the flexibility we're seeing on rate is about gaining share, particularly in such markets as Boston, where travel volumes are way down."

Sullo has found hotels ready to back up their interest with hard data. "Now we see hotel companies monitoring marketshare and calling us with numbers, which is something you never saw before. They simply have much better access to their data and they're using it. We've even been given quotes from global distribution system data."

To a degree, rate negotiations always have been about marketshare, according to Donna Reidy, manager of travel services at Ryder, the transportation company in Miami. "But it's much more pronounced this year. We're getting a lot more calls about it and the tone of those calls I'd describe as very eager."

Buyers understand that the present preoccupation is due to travel volumes being depressed severely. "In our given cities this year, it looks like we'll be working with fewer hotels, so we can focus more on the preferreds in order to drive greater share to them," said Colleen Guhin, global travel manager at On Semiconductor in Phoenix, Ariz. "With our volumes down over last year, it's one of the things we have left to bargain with."

Hotel company sales executives in recent weeks acknowledged the paramount role marketshare has taken on this bid season. "We continue to look at both the marketshare a corporate account can bring us in a destination and the absolute production numbers we can expect in that city, though, in my opinion, marketshare is more important," said David Ogilvie, vice president of global corporate travel for Starwood Hotels & Resorts Worldwide.

According to Ogilvie, this applies whether you are in good times or difficult times. "Marketshare numbers depict a truer picture of a corporate account's performance," he said. "You can't always get great marketshare data, but if you can get good marketshare numbers, that's what really tells you if a customer is working with you."

Actually, evidence of a corporate account's cooperation is clearer in a tough economy. "If you're in difficult times and your marketshare, let's say, goes from 20 percent to 25 percent over a period of time, you know that customer has really put effort into moving business to your company," Ogilvie said. "By contrast, if you're doing $10 million of business with a customer in good times, but your marketshare has gone down, that's not a real partnership in my opinion. You're probably just getting the business because in high demand areas customers have no choice but to stay with you for whatever reason."

Mike Fegley, vice president of global sales for the Americas for Six Continents Hotels, spelled out the arithmetic from the hotel companies' point of view. "Let's say corporate account X is going to decrease its spending by 20 percent this year, so you want to make sure they don't spend 20 percent less with you," he said. "To the contrary, you want to either maintain where you were or even grow and that our share comes from someone else. It's kind of the name-of-the-game right now, quite different, for example, than the year 2000."

Yet, hotels' interest in marketshare still remains closely linked to absolute room night production. "For us, it's really a combination of marketshare numbers and absolute room nights," said Steve Armitage, senior vice president of sales for Hilton Hotels Corp. "After all, if you can capture more marketshare, it stands to reason you can increase your volume. Granted, in today's business environment, the reality is there's less volume overall."

Therefore, for a hotel chain to continue to be successful, it has to increase marketshare, "otherwise, you're not going to be able to maintain—no less succeed—your prior business levels," he said.

By definition, bringing marketshare to one supplier means taking share from a competitor in that market. Given that room night volumes are down across the board, this means dividing up a smaller pie among fewer players. "At the trading level, there's no question hotels are interested in how well they're doing relative to their direct competitors," acknowledged David Townshend, senior vice president of global sales for the Americas for Marriott International. In terms of percentages, this means "capturing more share of whatever demand exists in that market."

Buyers, meanwhile, said they well understood that any negotiating leverage they received from the ability to move share was the result of this competition. "One hotel where we're negotiating is particularly eager for us to move share," said Bill Davidson, travel manager at International Sematech in Austin, Texas. "There's definitely competition going on in that market at the moment, which we can play to our advantage."

Given the current environment, it is an opportunity of another kind for Connie Cirillo Freeman, director of corporate procurement and travel services for Pitney Bowes in Stamford, Conn. "We've already concentrated our room nights in the hands of a few suppliers in our major cities, but this is an opportunity to drill down further in our program than we have in the past to look at cities where there also may be significant room nights," she said. In these cities, however, Pitney Bowes' travelers "may be spread among 20 properties. So if there's any opportunity to move these room nights into two or three centrally located properties, and thereby deliver marketshare gains to those suppliers, we'll do it," Cirillo Freeman said.



Every Room Night Counts

Buyers realize, though, that if the promised marketshare gains don't materialize, their upper hand vanishes. In the final analysis, the room nights have to be there. "The hotels have much more data, but what concerns me is the accuracy of that data," said Akamai Technologies' Sullo. "There's always a discrepancy between what was booked by the agency and what was booked directly with the hotel over the phone, using the company name."

Sullo wants to be sure her group bookings count toward her marketshare assurances. "The hotels still aren't very good at adding in rooms that are booked as part of meeting blocks, so I require sales managers to look at that when they speak to me," she said, "because that's really where we manage our share."

In light of the size of Akamai's program, Sullo cannot afford to have any bookings go uncounted. "Unless you have a ton of transient volume and don't need to worry about it, companies with small programs like ours just need to go to a greater level of reporting. In my case, I have to put everything into the picture, even if the hotels don't, to make sure they see that where we can direct, we do direct."

For hotels, the stakes remain high. "From our perspective, the ultimate measure of success is, 'Are you improving marketshare?' " said Tom Chevins, senior vice president of sales for Omni Hotels. "I can explain why we haven't achieved the goals we may have set for ourselves. But I have a more difficult time explaining why I'm losing marketshare. That's a conversation I don't want to have."

For Hilton's Armitage, the marketshare/absolute room night debate comes down to better communication with travel buyers. "It means working closely with accounts to understand their total business or total travel purchasing," he said. "In this way, we have a context to understand what share we've enjoyed in the past and where we can reasonably expect to take that share in today's economy."

In fact, this is where Armitage said a supplier could add value. "We want to be part of the discussion about how corporate accounts manage their placement of business," he said. "We want to work with them to understand the total spend, group as well as transient. Let's work together to find operating solutions that make it less expensive for them to do business. In other words, what's the overall business plan?"