One-On-One: Cotter Charts Web Rate Course
Aware that Web rates often undercut negotiated room rates, Robert Cotter, COO of Starwood Hotels & Resorts Worldwide, last month met with BTN hotel editor Bruce Serlen to address Starwood's overall Internet strategy and how the present economy is shaping buyer decisions.
BTN: How do you respond to travel managers frustrated by Web rates?
Robert Cotter: Negotiated corporate travel eventually will be able to be bought on the Web sites. If you go back to the introduction of the global distribution systems and the ability to put specific negotiated pricing to specific GDS addresses, the situation with the Internet isn't any different, it's just more pervasive. Consequently, we believe we will be contracting for corporate accounts across the Web. Companies will have their own URLs that will contain their negotiated rates and their travelers will be able to access the URL with a password.
We're working right now on the ability to do our contracting in this fashion in the short term, rather than the long term, but understand that travel managers' levels of frustration also change depending on the environment we're in. During recessionary periods, for example, travel managers always have been extremely frustrated by the inability to manage travel expenses because they get a kind of pressure from senior management they don't get when times are more robust. As a result, in times like these there's a lot of pressure for convergence of pricing and ease of booking. At the same time, the transparency of Internet pricing sometimes puts negotiated contract pricing in conflict with what their travelers are seeing on the Web. Then, other issues come into play. It never fails that when you do your homework on Web rates, you see a price that has restrictions built in that business travelers wouldn't have put up with in the past. Unfortunately, the fences or travel restrictions are never quoted to the travel manager by the employee doing the traveling. The only thing quoted is the discrepancy on price.
BTN: How would you describe Starwood's overall strategy to the Internet?
Cotter: It's clear the Web will be the dominant way of buying travel products in the short, moderate and long terms. Travel already has proven itself to be the second best killer app of the Internet. Going forward, we project that the Web is likely to account for 70 percent to 80 percent of travel purchases, individual and group business travel included. Therefore, it seems to us that our Web pricing strategy shouldn't be any different than our overall pricing strategy, not if you believe the medium is going to be pervasive.
BTN: Where did this lead you in your thinking on rates?
Cotter: We had to get integrity in the way we approached pricing from a complete customer perspective, which meant that the Web and our normal pricing had to begin to converge and converge consistently.
BTN: Do you include online booking tools when you talk about a Starwood-wide Web strategy?
Cotter: Definitely. People make a mistake thinking the Internet is only Expedia, Travelocity and the merchant model sites. We view the Internet as online booking, screen inventory, meetings inventory, virtual hotel tours, all distributed through a multitude of sites. It's actually the underlying technology and the medium that technology created that we should be talking about. To the degree online booking tools are relevant, we've got to work with these providers to make sure we have the appropriate interface, that the property content is as rich as it needs to be, for example.
BTN: As with other hotel companies, it is to Starwood's advantage to drive Web traffic to its own branded Web sites or at least the industry's answer to Orbitz—Travelweb—and away from competing sites. How are you going about this?
Cotter: One of my favorite sayings these days is, "Nobody ever slept in a portal." Certainly we don't believe that the owner of a portal should be the one who profits most from the customer experience of a hotel room. The cornerstone of how we best need to get back in control of the distribution situation is our Best Rate Guarantee program that we launched recently. As the name implies, Best Rate Guarantee makes it clear to everyone in the industry that the rates on Starwood's sites won't be undersold.
BTN: Please explain, then, the decision also to participate on Travelweb? Isn't that a contradiction?
Cotter: Clearly, this was a strategy that said, "We don't expect that the Starwood sites can meet everybody's hotel needs every day," but we do expect we can control what pricing we're putting out into the marketplace. Because we're dealing with a perishable product that has limited supply, it'll always be in the provider of that product's interest to yield the inventory. There may be yielding inventory midweek when business travel demand is strong and there may be yielding of that same inventory on weekends when we may be looking to stimulate demand.
BTN: Travelweb allows this?
Cotter: It's a model where we yield rates, have direct links into our inventory, maintain price control and still have the opportunity for Travelweb to make a legitimate profit. By contrast, we felt we couldn't do business on a tool as pervasive as the Internet on an antiquated, block space basis that deals with negotiated contract rates that can't be yielded.
BTN: That would be one definition of the merchant model sites, but don't you believe the influence of these sites will diminish once the economy strengthens and demand returns?
Cotter: The merchant model has been getting out of hand. Some on the supplier side believe that demand and supply naturally will take care of that. In other words, when demand comes back into a limited supply environment, we're going to be able to just turn off the merchant sites. If you believe, as we do, that the Internet is going to be the primary booking vehicle going forward, then it's important that the rules surrounding the merchant sites be established now.
Perhaps it's the fact that Starwood is primarily an owner-operator that we have a good understanding of who actually has the most capital at risk and actually has the obligation to serve customers. Yet, when a significant portion of the rate is going to a third-party Internet provider as opposed to either the hotel company that has to provide the service or the pocket of the traveler in terms of savings, nothing is really gained.
BTN: While Starwood mostly owns and manages its hotels, there's still a large franchise network, certainly at the Sheraton and Four Points by Sheraton brands. Can you control these owners' approach to Web rates?
Cotter: We would never restrict a licensee from using a merchant site. However, whatever price appears in the marketplace on that site has got to appear on the Starwood Web site and the branded site, whether it's Sheraton, Four Points or any other of our brands. In other words, if the rate on the merchant site is deeply discounted, the licensee has got to be prepared to put that discount onto our Web sites. Given the pervasive nature of the Internet, once these discount prices go out, they're in the public domain. You can't underestimate the public nature of that pricing and the disconnect it can create for every other customer segment, including buyers.
BTN: Web rates aside, another reported trend at the moment concerns buyers trading down from one price point to a lower price point to save money. Is this something Starwood is seeing?
Cotter: Not significantly. What we're seeing in the metropolitan markets are corporate accounts narrowing the suppliers they want to work with, rather than any trading down. They're looking to find value in their negotiating by limiting the number of suppliers, as opposed to forcing their travelers to go down in price point. They're using the ability to deliver higher volumes as a way to negotiate for the same level of hotel at a better price. From the travelers' point of view, if they are used to staying at a Westin, for example, they seem to want to continue staying at a Westin.
BTN: There also has been talk of buyers combining their transient and group spend to increase their negotiating leverage with such hotel brands as Westin and Sheraton, many of whose properties are designed for group business. This presupposes that buyers are able to get an accurate handle on their group spend. What has Starwood's experience been with this?
Cotter: You could look at the data and come to the conclusion this is happening, but as we look underneath the data we're seeing that the really large controllable travel expense is group, so we've seen more group cancellations. In fact, necessary individual business travel seems easier to get approved in this environment than a corporate meeting—to the point that small to moderate-size meetings and incentives have become the customer segments most under attack today.
That said, we actually haven't seen much consolidation within companies of one department taking charge of everything. When companies eventually resume holding meetings, the most important part of the meeting has little to do with where you sleep. Rather, it has everything to do with the content and message delivery, and that's where the expertise of the meeting planners come in. They understand the motivation of the internal customer, the partner or vice president who is having the meeting. Meeting planners specialize in getting that right. It's really not the core competency of the travel manager.
BTN: Speaking of the current environment, what will be the short-term effect of the Iraq situation on Starwood's business, whether transient or group travel?
Cotter: What we're seeing is likely to have the tightest stranglehold on decisions around groups. Our sense is that when the conflict is behind us—however long that takes, whatever form it eventually takes—we'll see a key amount of pent-up demand for booking meetings, demand that's been held back for months now.