Corporate Travel: Direct negotiations still primary source for hotel discounts
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Travel buyers with small and medium-sized programs have more choices than ever in finding discounts and special pricing for hotels. Sadly, it has not made pulling a hotel program together any easier. Figuring out the magic mix to optimize options can be a bigger challenge than before, but it is the key to success for SME buyers.
SME buyers can negotiate volume discounts and send out requests for proposals in their key markets. That option is not going away in the near term, despite the "RFP Rest in Peace" proclamations made by industry "disruptors." Nearly 80 percent of SME buyers, according to BTN's Small & Midsize Enterprise Travel Management Report, used direct negotiations as their primary source for hotel discounts. While that survey was conducted in 2016, there is little evidence to suggest that SME buyers have discarded direct negotiations or jettisoned the RFP process. Many SME buyers continue to use direct negotiations, whether they negotiate on their own, rely on their TMC to handle the effort or engage with third-party consultancies.
SME buyers' choices still boil down to two options in negotiations: fixed and dynamic rates. Fixed rates are flat rates directly negotiated with a property, perhaps with some seasonal fluctuations, for specific room types exclusive to that company. With dynamic rates, buyers get a fixed percentage off the constantly fluctuating best available rate.
Buyers who develop direct relationships with suppliers can achieve the deepest discounts over time. However, SME buyers often have few internal resources to manage the arduous process. They also might find suppliers less responsive compared with larger programs, especially in high-occupancy markets.
In response to the complexity, hotel chains began a hard push of dynamic pricing programs more than a decade ago. While signing on to dynamic discounts offered by chains is less time consuming than negotiating fixed or dynamic pricing with properties, savings negotiated through property-level agreements will be deeper whether fixed or dynamic. The savings expected from dynamic priced discounts overall, however, can quickly diminish when hotel rates peak. To further complicate matters, there are other options for SME buyers, including:
TMC / Consortia hotel programs: Rates negotiated by travel management companies and consortia require no time and effort nor volume requirements, but they will not be as deep as discounts negotiated by buyers and are more difficult to quantify and track.Rate re-shopping tools: New technology allows buyers to game hotel yield management systems by continuously searching for better rates after booking. These can support negotiated rates if managed properly, but they also are prompting hotels to create more stringent last-minute booking windows and penalties. Hotel SME programs: More chains are offering special programs for SMEs with deeper discounts than what they could get from their TMC. These may come with requirements in client size, volume and distribution channel.
SME buyers looking for a silver bullet with any of those methods will be disappointed. Instead, they will have to create a blend of some—or perhaps all—of them. The right mix will differ with every program.
We've noticed some trends among our clients with effective hotel programs. Direct negotiations work best for SME buyers when they take a surgical approach with key markets, rather than trying to negotiate rates in too many markets. Looking outside the major chains at independent properties as well as newer hotels courting business will help maximize savings, too.
Buyers with concentrated volumes in secondary cities and suburban markets will find negotiations particularly effective. Rate re-shopping tools can help fill in the gaps here, and the data gleaned from these tools can potentially help clients in their negotiation efforts by assessing how many times a lower rate was discovered.
When SME buyers need to drive volume to larger chains, they might find the most success with dynamic pricing. It will help to be armed with traveler preference data, so buyers source the chains relationships accordingly.
Regardless of the discount mix, success comes down to an SME buyer's ability to ensure compliance to the program. Among our clients, the best performers have compliance levels of at least 80 percent.
Boosting compliance does not mean stricter policy. Noncompliance often comes from traveler misunderstandings, so targeted communication can drive improvements. So can soliciting feedback. Buyers can use feedback not only to ensure they source and then monitor traveler-preferred hotels, but also to include amenities travelers need to be most productive.
SME buyers should be more strategic in how they measure the success of a program. If they only are looking at year-over-year savings with their hotel rates, they are missing several factors. Consider external market forces or savings through included amenities or proximity to travelers' business location. Other metrics include benchmarking savings against peers, measuring savings achieved in negotiations versus a hotel's first offer or measuring savings off hotels' best available rates and traveler satisfaction.
Source : BTN, November 26, 2019