Hotelier Outlines Midprice Strategy

Several months after he assumed the helm of Best Western International, president and CEO Thomas Higgins spoke with BTN hotel editor Bruce Serlen about the hotel membership association's new products and how it works with travel managers coping with reduced travel budgets and the spread of Web rates.

BTN: Best Western now offers a prepaid travel card. Aside from ensuring compliance, what advantages does such a tool provide to buyers?

Tom Higgins: If you give travelers a prepaid card, then the buyers know—and the travelers know—exactly how much they're entitled to spend, so it helps buyers control costs. Anything over the face amount and travelers are on their own. It also helps make expense reporting easier, since travelers aren't fumbling with a bunch of receipts. They've got the one card, which is good for use throughout our entire system, and once they've spent the face value, they're done. When we were developing the card, we didn't expect as much pickup by business travelers as we've gotten. In fact, the original target was leisure travel. Yet, with the state of the economy and travel buyers' need to carefully track expenses, they've had to become much more resourceful. Considering that we're a global chain, the card is available in U.S. dollars and euros, with probably more currencies to come.

BTN: Have you seen a lot of buyers trading down?

Higgins: Though trading down is hard to measure accurately, we've got to believe there's some tendency to do exactly that. In the same way upper-end properties have seen some fallout to midscale, the mid-tier properties now experience fallout to economy properties. What I see happening more, though, is rate compression, meaning that everybody has a set inventory to sell, so how do you go about selling on any given day? If you take the right day and you take $80 or $100, there are a wide variety of properties and tiers from which you can buy a room. It just depends on what is available and where it is.

Yet, travel buyers still are looking for the basics. They want the most value they can afford, and anybody who says travel managers aren't price sensitive, not only in today's economy but overall, simply is missing it. So you've got to price your product there. As it happens, the midscale is the broadest scale in the hotel industry and has probably the fuzziest definition because it is so broad. Subsequently, you may have rates as low as $40 or $50 and be a midscale property or rates as high as $120 or $125 and still be midscale. It's really where you are located. The fact that it's market driven is really what it comes down to.

BTN: Don't buyers continue to have concerns about quality and consistency of service, particularly at the midprice, economy and budget tiers?

Higgins: There's no question that value is the other side of the equation, what travel buyers on behalf of their travelers receive for their money. After all, we don't always go for the cheapest price. Just look at our own buying habits. You stay at hotels where the staff remembers you, where you prefer the brand's loyalty program, where the service is particularly to your liking. All these traveler preferences add to the buyer's decision-making process in selecting certain brands to work with. Consequently, we have to make darn sure that every time a Best Western is selected, the traveler's level of expectation of what that hotel is going to be like is met, if not surpassed.

BTN: Was the perception of value behind the decision in March to designate 45 properties in Europe as Best Western Premier hotels?

Higgins: Sure, these properties' owners were looking for a distinction that would mark their hotels as special to travel buyers and other segments of the consuming public when booking stays in Europe. It's true that the amenity package was a common denominator that all 45 shared. At all of our hotels worldwide, there already were 14 quality standards in place, known as Best Requests, to ensure that travelers found a certain consistency. To qualify for the Premier designation, hotels had to meet an additional 27 criteria, and these were even more stringent. They included things like concierge service, onsite restaurant and bar, recreational facilities and the like—services not usually thought of when you think of a Best Western.

BTN: With more than 4,000 hotels in the system, the Premier's 45 represents slightly more than 1 percent of the total. How large can you see the Premier designation growing?

Higgins: We expect there will be approximately 125 in the next two years, whether in Europe, Asia, South America or even North America. The one thing we want to be sure of, though, is that we do not become solely numbers oriented. Rather, it's about quality and the integrity of the concept that places these Premier properties on the upper end of the midscale tier.

BTN: Has the fast growth of the Web as a distribution channel surprised you?

Higgins: Yes and no. As buying decisions increasingly move to the Web, it really comes down to where you think your product needs to be to make sure it gets in front of travelers on a priority basis. Clearly, it's a bigger issue for owners than just, "What site am I on, and how do I pop up?" You need to understand how consumers use electronic means to buy a range of things, including travel. Also, the technology landscape is changing, so what's available today is nothing like what will be available next year or the year after. We're aware, too, that as the economy comes back, some distribution channels that now feature distressed inventory will face a dilemma. What do they do when inventory dries up because hotels, travel agents and so forth simply no longer need that vehicle?

BTN: Is there a Best Western-wide strategy on Web rates?

Higgins: What we try to do is educate first and then influence: Make sure owners understand what this relatively new phenomenon is about and then help them see why the very best rate needs to be on Best Western's own branded site. In other words, if they're going to put a given rate—discount or otherwise—out there on one channel, then why isn't that same rate on our mother site? Like others in the industry, we believe hotel companies need to take back control of their inventory.

BTN: What do you say to travel buyers who are frustrated by Web rates that are lower than their negotiated rates?

Higgins: We're definitely sympathetic. This is one of the areas where we have policies in place. We want to prevent hotels from just plugging in a rate, thinking it's a great rate for that particular day or whatever, without thinking of the impact it will have on other rates in the system. We want to put a system check in place to ensure that any time a rate is entered we know the impact. If there's something that would look strange to buyers—meaning "Hey, this is a negotiated rate and all of a sudden somehow you've undercut it"—then the system automatically would send up a flag. The more Web sites you're on, of course, the harder this is to control.

BTN: In past travel industry downturns, the midprice sector typically led the recovery. Will that be the case this time?

Higgins: We'd like to believe that. You can point to isolated events, such as the Iraqi situation or Sept. 11, but these weren't the main sources of the problem. That's been the economy, corporate profits and all the things that feed business travel and consumer confidence. Once these things get fixed, demand will start to come back, but it won't come roaring back. We think all segments of the industry will start to come back at relatively the same pace.