Unfortunately, the days of obtaining easy travel discounts are over and the rise in airfares and hotel rates won't stop anytime soon. In response, some travel buyers will accept the increases as unavoidable, continue past practices and settle for substandard agreements. Others, however, will raise the negotiating bar to not only eliminate the increases, but also obtain better discounts than they ever thought possible. How? By proving they can move share and requiring their vendors to pay for performance.
Historically, vendors didn't believe travel buyers could shift share significantly, and current discount levels reflect it. It's a primary reason travelers can find better air and hotel deals on the Web. Many domestic air agreements today have little value, and hotel deals, lacking ceilings or last room availability guarantees, also don't mean much.
In contrast, strategic vendor management programs create real partnerships. Using technology to support strong, incentive-based programs, such initiatives have three primary components: an analytical process, point-of-sale communication and data capture on performance. To achieve a dramatic and permanent shift in share to preferred vendors, all three components are required.
The analysis phase is a step that many companies, though still too few, perform today. Services from travel management companies and others can help you review markets to identify opportunities for share shift. Keeping it simple, ignore airline markets that are monopolies or where a preferred vendor has little presence. Focus on driving share in "opportunity markets" with balanced competition. Potential hotel volume commitments should be based on aggregating volume within a "competitive cluster" (say, all the comparable hotels in a one-mile radius) rather than at a property level. The higher the committed volume, the more frequently analysis should be performed to track progress and enable fine-tuning.
Once opportunity markets are identified, it's time to negotiate. Some companies with travel budgets higher than $10 million and mature travel management programs hold annual supplier summits to "speed up" negotiating. Senior management clearly articulates to suppliers the company's vision and needs. Suppliers are given time to discuss the client's vendor management approach and discounts required to participate as a preferred vendor. Clearly request the desired discount and be sure it's reasonable. You'll be amazed at the flexibility shown by vendors who know your company will support them and that their competition is right outside the door.
Once contracts are negotiated, senior management should communicate to travelers, travel arrangers, agents and management the value of preferred relationships. Preferred vendors must be clearly communicated through all distribution channels (i.e. travel counselors and online booking tools). Bias the travel counselor's point of sale display (global distribution system) and set up rules win the self-booking tool. Travel counselor biasing varies depending on the technology, but clarity is the key: do not complicate call handling. A simple highlight or text message at the city-pair level works well. Online tools vary in their abilities to promote vendors. Simple icons don't work well, and out of policy questions cause confusion. The real challenge is managing biasing from a central location; your TMC should provide this capability. Only bias where there is a real opportunity for share shift. Over-biasing can result in mediocre shift along with confused travelers and travel counselors.
Finally, measure and reward performance. Ask the TMC to take the lead, showing how it measures and reinforces preferred supplier support. Establish key performance indicators (KPI) with your TMC on preferred vendor selling, and expect it to implement an incentive program that meaningfully rewards travel counselors who perform. If the agency's finances are tight, consider sponsoring it; this is money well spent. Require your TMC to benchmark counselors against peers. Accurately measuring agent performance can be challenging, but automation is available.
This process can lead to dramatic results. Share will shift beyond expectations, resulting in a "thrilled" supplier. Once this new ability is proven, it can help establish even better agreements. Vendors are willing to reward the commitment with bigger discounts, and they also realize your ability to just as quickly shift away. This tips leverage to the buyer's favor, which will continue as long as both parties perform.
Steve Reynolds is vice president of technical solutions for consulting firm Management Alternatives Inc. He can be reached at [email protected].