Complicated in the best of times, hotel sourcing is particularly tricky right now. Derek Sharp, SVP and COO for CWT’s RoomIt, makes the case for ongoing program maintenance and closer relationships with key providers.
It’s the end of 2020 and that means more than just a nip in the air and aspirations for a happier and healthier new year. Within the hotel sourcing world, it means that the request for proposals season is still in full swing. And as much as the travel industry has been tested to its limit this year — with suppressed demand leading our industry to operating at only about 20 percent of 2019 levels, and organizations adapting and evolving to emerge stronger — hotel sourcing traditions still fundamentally haven’t changed. Here’s why.
Industry advice of late has been confusing for companies struggling to figure out exactly what their travel patterns will look like in 2021. Against this backdrop of uncertainty, at a time when the market is in the buyer’s favor, certain industry experts have suggested corporations take advantage of a once-in-a-lifetime opportunity to push hotels for massive concessions. Contrary to this, GBTA advised earlier this year that corporate travel buyers should play it safe and take a pass on the traditional, annual RFP process. Concurrently, other corporate travel experts have recommended organizations move away from old processes (e.g., hotel RFPs) and static rate structures altogether and fully embrace dynamic pricing.
No wonder travel buyers are confused. Each approach may have its merits, but what’s evident is that hotel procurement strategies revolving around a once-a-year RFP exercise have a diminished place in our changed environment. The greatest degree of flexibility — both in terms of availability and pricing as the market comes back — is the only way clients, travelers and hoteliers can realize maximum benefit. An example of this new reality is last room availability. It may now prove to be less valuable than before as hotels experience historically low occupancies. At the same time, many hotels stopped offering hot breakfast in lieu of grab-and-go meals as part of enhanced hygiene programs.
This is not to say that RFPs are dead. Without doubt, they serve a critical purpose in this new paradigm, especially when health and safety is a primary concern for the return to travel. Buyers want to get as much information as possible on what their hotel partners are doing to help on this front.
Corporate travel buyers have to change other elements of their strategies as well. Before the pandemic, many procurement departments would focus primarily on amassing huge numbers of corporate negotiated rates and chainwide deals. More was always better because, by showing the CFO potential savings across a wide number of properties, procurement teams believed they could highlight the substantial financial benefit their efforts could deliver.
One of our clients in its top market had 12 preferred hotels. Another 300 were part of chainwide deals, and these had over 50 percent market share, possibly diluting from the client’s future negotiating power with the 12 primary preferred properties. The traveler, particularly the novice, may not see the distinction, but it is critical for long-term savings. Deals can look great on paper, but corporate buyers need to pay attention to actual outcomes. Some costs are easily avoided, and additional savings may be easily extracted.
The focus on negotiated rates generated a massive amount of work for procurement teams and hotels alike, yet a majority of them were seldom if ever used. That meant the financial benefits of these programs were often far less than advertised. Companies missed out on other key elements of value, notably availability of favorable rates.
It’s in a TMC’s interest to help corporate clients find the right mix of negotiated rates, chainwide deals and partner-sourced rates. Companies need to do this on an ongoing basis throughout the year. Only through constant diligence can buyers ensure they are getting the full value of their programs and delivering the maximum realized savings.
After all, what value is it to the company or the traveler to have a competitive rate that is almost never available for the date of travel?
Meanwhile, focusing clients on properties that matter the most to their travelers — based on location, health and safety, traveler ratings, etc. — is paramount. Building stronger relationships with these hotels and shifting a maximum number of room nights to them will provide corporate clients with the leverage to negotiate truly competitive rates. Some might view this as Hotel Procurement 101, but it’s especially important when travel buyers and suppliers have limited resources to focus on partner relationships that deliver the most shared value.
This approach to ongoing program optimization and scaling up with key hotel partners — as opposed to an infinite number of negotiated rates — will become standard in the hotel procurement landscape. The trick is to get started now, as travel partners are eager to help companies build out safe, reliable and efficient programs to help their travelers get back on the road.
And that will be a seasonal gift that keeps on giving.
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