REPORT FROM THE U.S.—Arne Sorenson didn’t mince words when asked what corporate travel buyers should expect from the hotel industry in the upcoming round of negotiations: “Higher rates.”
The answer should not surprise anyone, said the president and CEO of Marriott International last week during the “Luminaries of Travel CEO Panel” at the Global Business Travel Association Convention. After all, the hotel industry’s recovery cycle has followed the same pattern during the past few downturns.
After dramatic—and in the case of the 2008/2009 recession, unprecedented—declines in performance, the industry recovers first in occupancy and second in rate, Sorenson said. Hotels have reported record demand during the past year, and occupancies are nearing previous peaks.
Rates will naturally follow suit, he said.
But that is not to say travel buyers are prepared to roll over, sources interviewed for this report agreed. Just as hotel sales managers feel pressure to push rate, so too do corporate buyers feel pressure to keep costs as low as possible.
“I think we’re going to see the hoteliers try to exert that stronger position. At the same time, I think the travel buyers are going to be pushing back as much as they can. They’re always, always under constant pressure to get the best rate possible,” said Joseph Bates, senior director of research for the GBTA Foundation.
To avoid potential stalemates and to come out of the process with goals still intact, industry experts recommended the following five strategies during the coming round of corporate rate negotiations, which heat up in October and are typically finished in December.
1. Make things personal
Once a healthy back-and-forth banter over the negotiation table, the process now has become increasingly impersonal, sources agreed. Requests for proposals are often submitted electronically, with various rounds of proposals sent via email.
“Successful negotiations are getting harder and harder because we’re taking that interpersonal relationship off the table because so much of it is being done through electronic (requests for proposal),” said Maria Lowry, director of market strategy for Marriott, during a panel discussion at the GBTA Convention.
An electronic exchange can only do so much. Sales managers would be better served to have a frank discussion with travel managers before the process begins to understand exactly what both sides are seeking, she said.
“In order for negotiation to be successful, you need to have two sides that come and meet on common ground and come to a win-win solution,” she said.
It’s a matter of identifying strategic partners, said Michael Sacks, associate professor in the practice of organization and management at the Goizueta Business School at Emory University, during that same panel discussion.
Target relationships where interests align. If Hotel X’s primary aim is to drive volume, then it should partner with a company that can generate a significant number of roomnights. In the process, Hotel X might be willing to sacrifice rate slightly to accommodate the decreased travel budget of that company, Sacks offered as an example.
Likewise, if Hotel Y is trying to drive longer lengths of stay, it should target a company where associates typically travel for longer engagements.
The hotel and the company should be honest about their goals upfront. Significant overlap between the two suggests a strategic partnership worth pursuing. Little to no overlap suggests a fruitless waste of time, Sacks said.
2. Maintain your perspective
Negotiations often can become heated affairs. Hoteliers always should remember to keep their cool and maintain a long-term perspective, Steven R. Spivak, VP of transient sales for Loews Hotels, wrote via email.
A lasting relationship can produce dividends that typically outweigh short-term gains, he said.
“One thing we will not do is sacrifice our relationships to gain a few dollars in ADR,” Spivak said. “We have been through a lot with our customers, and it is clear that we have all learned that in order to be successful, the relationship needs to be a true partnership.”
“It strikes me that this is a lot like dating. … It’s about working the rough parts out,” commented Isaac Collazo, VP of performance strategy and planning for InterContinental Hotels Group, while moderating the panel with Lowry and Sacks during the GBTA Convention.
3. Employ flexible pricing models
Every company has different needs, sources said. A pricing model that works best for one might not work for another.
The fixed pricing model, in which hotels and corporations negotiate fixed rates for the entirety of a fiscal year, work best for companies that need to budget—to the penny—their annual travel spend, said Teresa White, senior director of North American sales for Dolce Hotels and Resorts.
The fixed approach is preferred by most of Dolce’s corporate clients, she added. The Rockleigh, New Jersey-based management company, which has 25 hotels worldwide in its portfolio, focuses on smaller regional meetings and conventions.
Some corporate clients have begun to request caveats to the fixed model to take advantage of promotional rates, White said.
Dolce Hotels and Resorts
Other companies prefer a dynamic pricing model, in which rates fluctuate with market supply and demand. Under this arrangement, hotels and corporations typically negotiate a fixed percentage discount off the hotel’s best available rate.
“An under-utilized option is also multiple-room types” which employs different negotiated rates for various room types, Marriott’s Lowry said.
The arrangement works best in high-demand markets that frequently sell out of traditional room types, at which time corporate travelers can book a higher-rated room at a discount.
Lowry also suggested multiyear contracts as a possible pricing model.
4. Remember: Each market is different
Perhaps the most challenging aspect of corporate rate negotiations is applying a brand-wide strategy to specific regional dynamics at each hotel, sources said.
“We are making decisions based on the unique market conditions in each of our destinations,” Spivak said. Loews owns and operates 18 luxury hotels and resorts throughout North America.
“Where the market bears it, we will seek appropriate rate increases. Some of our hotels are in destinations that have enjoyed double-digit demand increases (year over year). Certainly in those cities, we will strive to be market leaders based on the level of product and service we offer,” he continued. “Conversely, some of our hotels are in areas that have been slower to recover, and in those markets we will be less aggressive.”
Sales managers need to do their homework to understand those dynamics, Dolce’s White advised. Not only do they need to understand how the market in general is performing, but also they must understand what that property’s competitors are doing.
“We look at rates from a regional perspective to make sure we’re as competitive as we can be and that we’re not leaving any money on the table,” she said. “It takes a lot of doing homework.”
The GBTA’s Bates said using strong data in that process is essential. It is unrealistic to try to push rate by 10% if a market is showing ADR decreases of 5% or 6%.
5. Focus on value
If there is a recurring theme that will emerge during negotiations this year, it’s one of “value,” sources agreed. Travel managers are scrutinizing costs like never before so they can justify travel expenditures internally.
At Dolce, White’s team is coming out of the gate with slightly higher rates and using value-adds as bargaining chips. The company already offers complimentary Wi-Fi, breakfast, parking and access to fitness rooms, among other perks, she said.
Often travel buyers are asking for the actual dollar value of those services to they can put a price on overall value, White said.
Steven R. Spivak
Loews Hotels & Resorts
(For more ways to justify rate increases with value-adds, see sidebar.)
The focus on value has prompted Loews’ sales team to deploy a completely different strategy called total account management, which acts as a one-stop shop for all the varying needs of one corporate client. Events, meetings, transient bookings—all would be handled within the same account by a dedicated sales executive or team of sales executives, Spivak said.
“By focusing on the needs of an entire account,” he said, “we provide a much more comprehensive service to our customer and, we gain a much better understanding of the value of the entire organizational spend of that customer.”