The Opening Bid
Leveraging hotel spend is not an easy task, and travel buyers face many challenges along the way.
by Elaine Osgood, Business Travel Executive, August 2006
The first step in leveraging such spend is outlining the needs of both the company and the travelers in the form of a request for proposal (RFP).
Overall, RFPs have grown in importance and complexity over the years, although their importance has waxed and waned. At one point, it was common for hotels to contact companies with a proposal. Right after 9/11, they were knocking on doors again to get new business. Now hotels and airplanes are full again and RFPs are once again necessary. There are exceptions; properties in the middle/secondary market still might be actively pursuing new business. But the largest hotels are merely taking orders from top clients.
When hotels and companies strike a good deal, everybody wins. Both the corporate buyer and the hotelier seller must strike a balance within their own operations as well as achieve balance between the two sides. Hotels need to sell rooms at a decent rate, balancing as both occupancy and average daily rate impacts hotel success. On the other side, companies need to save money while still making sure that their travelers' needs are taken care of properly and efficiently. Significant time and effort is put into forming these deals and one of the byproducts of a win-win outcome is the relationships that are created along with them for the mutual benefit of both companies and hotels.
Travel buyers should make sure that the right amenities are available to accommodate their travelers' and meeting participants' needs, all within the budget and scope that the company has laid out. Balancing the many aspects of RFPs carries its own challenges, but a successful deal is rewarding for all.
Planning ahead is the best way to organize the needs of the travelers and provides the hotel with an idea of the kinds of rates, types, amenities and dates that meet your needs. Information can always be offered in the form of listed requirements or even questions that are meant to solicit specific information about the hotel. A standard RFP for a meeting, for instance, should include the following basic requirements:Preferred dates and optional dates; Number and types of guest rooms; Number, size and usage of meeting rooms and the times they are needed; Range of acceptable rates; Dates and types of meal functions and breaks; Exhibits and any other special events or activities; Any related information such as complimentary requirements.
Data Integrity
Hotels are the most difficult sub-commodity in travel to manage. "The hotel buyer cannot possibly provide too much information, and the more credible the data, the more likely it will be to solicit a favorable rate," says Kerin McKinnon, executive vice president of new business development for Atlas Travel International. "In addition, the better and more complete the information is that is provided to the hotel, the more efficiently a hotel can respond to the client."
However, the integrity of the hotel data is often the biggest challenge for both hotels and companies. This data is critical in helping to create relationships with hotels and set everyone up for a fair deal. Many travelers book hotels outside of their travel management company program, which leaves much-needed data unavailable. "The single best source of hotel data is an electronic expense reporting system," says IBM consultant Mark Williams. "Otherwise the data is just not credible." Expense reporting, usually the last data collection point in the life cycle of a booking, is especially important when travelers book their own hotel rooms instead of going through their travel management company.
Data integrity will no doubt increase if a company mandates that all hotels are booked through a designated travel management company, but this method can be somewhat difficult to manage down to the individual traveler. To assist a company in managing spend, especially when travelers book outside of the travel management company, an expense reporting system such as Oracle or Concur is the best way to go. Systems such as these integrate a company's accounting data and travel data, which is obtained through the main GDSs. The accuracy of this kind of system is taken into account when a company goes to negotiate and reserve rooms with a particular hotel.
"The assessment of penalties for not meeting the agreed upon number of room nights varies from hotel to hotel, but it is common for a company to lose their discounted rate for the following year if their end of the contract is not held up," notes McKinnon.
Data integrity can affect the final negotiated rate as well because the demand for hotels is currently higher than the supply. In this seller's market, the travel buyer must have the best data available in order to get the best deal. Even a smaller company that doesn't require quite as many room nights can better negotiate a deal if its data is accurate and up-to-date.
Nevertheless, size matters. A smaller company will usually benefit the most from working with smaller hotel chains, four and five-star properties, independent hotels and boutique hotels. These properties are the most flexible in number of room nights; typically, they only require about 50 room nights for a satisfactory deal. If they are located in a secondary market rather than a downtown metro area, then the discount will be even deeper.
But negotiating a chain-wide discount — like those with Marriott and its several hotel flavors — requires considerable spend and thousands of room nights. With this in mind, the most likely candidates for large hotel chain bookings are big companies with many frequent travelers. And data integrity comes into play once again: larger hotels will want to know when people will be traveling, what their travel patterns are and what cities they are going to, as well as a significant amount of other pertinent information.
For large, multinational companies, the effort to issue an RFP is worthwhile because they have the spend to leverage sizable discounts. Small companies may be able to forego the RFP process and make their negotiations one-on-one since they work on a much smaller scale, but they still may benefit from using a travel management company to manage these negotiations because of their experience and relationships.
RFP Trends And Models
With all of the hotel options in today's market, it seems that RFPs would be more flexible, but they are actually more stringent than ever. This is because hotels need to work with the right companies and have the proper information, while the companies need to offer the right amenities to their travelers. A strict RFP is therefore needed in order to get all of the right data to the hotel to create the best deal for everyone involved.
The RFP of choice appears to be the National Business Travelers Association (NBTA) Modular Hotel RFP. It includes nine modules; any or all can be used. "Ninety percent of the RFPs that we receive are generated from the NBTA model," says Jesse Suglia, national director of sales for Omni Hotels. These modules serve as a great template for companies that want to include a high level of detail on their RFP or that have very specific needs for their travelers. The NBTA modules include:Services & Amenities Communications & Technology Geography & Transportation Safety & Security Groups/Meetings, Property Basic Groups/Meetings, Client Specific Client Specific Property Basic Extended Stay Tips For Getting The Deal
Most companies, with the exception of very large corporations, will benefit through the use of a travel management company as they may already have relationships with certain hotels because of other clients. "Companies should look beyond rate and think value when reviewing options — a great deal may include other amenities that the hotel offers," says McKinnon.
There are other factors that can influence the final agreement. "If the buyer can provide additional spend such as meetings, food and beverage spend, it may impact the rate negotiations," says Mark Walton, principal of Consulting Strategies.
Travel patterns are also an important factor to consider. For instance, Tuesdays and Wednesdays are the most heavily impacted corporate nights, so if the buyer can offer alternate nights the rates are likely to decrease.
While it is often difficult to think of savings beyond the room rate, consider the overall financial impact when a hotel throws in other items like free high-speed Internet, complimentary breakfast or a free hotel shuttle. These items would otherwise cost the company extra money, but it does not create a huge loss for the hotel to offer them for free as part of a package.
NBTA also offers the following tips for buyers:
1. Clearly communicate relevant RFP information to hoteliers.
2. Explain critical RFP fields, including which are key to acceptance and rejection.
3. Communicate how hotels should send the RFP and whether each module should be sent separately or as one single string of information.
4. Clearly define answer choices in the RFP; don't use open-ended questions.
5. Share your RFP timeline, including the release date, due date and date of decision.
A standard RFP timeline, according to NBTA, is as follows:3 days to acknowledge receipt of RFP. 7 days to submit intent to bid or decline to bid. 5-7 days is the deadline for travel management company questions. 7 business days for the response to RFP questions. 4 weeks from issue date for submission of a domestic RFP; international bids require more time. Evaluation of RFP may involve questions and clarifications from both parties, but basically the timeline after the corporation's receipt of the returned RFP is:
2-4 weeks: selection of finalists is made. 2-4 weeks: notification of travel management companies not selected. 2-4 weeks: site visit. 3-4 weeks: best and final presentation. 1-2 weeks after best and final presentation, announcement of selection. According to the NBTA, hotels should make sure to understand the RFP model as well as the specific buyer's RFP instructions, expectations and timeline. It is also important to answer all questions as accurately and completely as possible, enter quantities clearly and send the final proposal as an electronic file rather than as a paper copy.
Post-Negotiation Monitoring
Once rates have been negotiated and contracts have been signed, rates have to be loaded into reservation systems to ensure everyone has access to the correct rates. If a company wants to book a contracted rate, the information needs to be available. This is another avenue where travel management companies can ensure the correct rates are being booked, leaving the traveler to concentrate on their travels, not on their reservation.
Hotel RFPs can be a challenging process for both hotels and companies, but with the right focus on data integrity, negotiation expectations and formats, they are a great help to those trying to arrange travel in the most efficient way.
Elaine Osgood is president of Atlas Travel International, a full-service travel management company based in Milford, Mass. It serves the corporate and meeting travel markets, as well as the leisure segment. Osgood has worked in the travel industry for more than 20 years. She has been recognized by Working Mother magazine for running one of the nation's 25 best small companies for which to work; by Fast Company as one of the 25 top women business builders; and by the Worcester Business Journal as its 2006 entrepreneurial business leader.