Challenge
Due to the COVID-19 pandemic, all major hotel chains were putting pressure on companies to “roll over” 2020 rates for 2021 in lieu of negotiating rates via an RFP. However, the 2020 rates were based on some of the strongest economic conditions in recent years and provided a very high baseline for any negotiations moving forward out of the crisis.
Through months of data collection, we found market rate deterioration ranging from -10% to -40% across the U.S., especially in highly compressed markets such as San Francisco, NYC, and Chicago where the client has historically had strong travel volume.
“We were years into a seller’s market with significant volume in compressed markets, so we needed to be creative with how we were going to minimize YOY increases. By taking a step back and understanding how we were creating value and measuring savings, we were able to simplify the process and focus our energy where it mattered – on rate, high volume hotels and markets, and partnerships.”
Approach
We moved forward by adopting a program reduction strategy. The first thing we did was re-establish market and hotel room night thresholds. By reviewing only those top markets above a specific room night threshold, we ultimately reduced the overall number of program hotels by nearly 40%.
Once the hotel solicitation list was created using the 2020 program, we reviewed each negotiated rate against the current market conditions and established fair negotiation rate targets for hotel partners in these top markets. While some chains and hotels continued to advocate for the rollover strategy, we released the 2021 Hotel RFP and leveraged our relationships to move forward with rate negotiations for 2021.
Results
faster hotel sourcing timeline
hotel response rate
reduction in negotiated hotel rates
After the initial resistance from chains and hotels, we successfully followed our strategy which led to competitive pricing and an 11% decrease in negotiated rates compared to 2020. By focusing only on the top hotels in the program, we saw a reduction of 50% in the number of RFPs distributed, which in turn yielded a 99% response rate – removing the historically time-consuming process of chasing hotel responses.
We completely eliminated static rate negotiations outside of top the 15 metro markets which allowed us to increase dynamic coverage where the client’s leverage was not as strong. We also focused on dual rate loading (static + dynamic float-down) to ensure competitive rates were available to travelers regardless of current global economic position and market volatility.
All of this ultimately allowed for a very streamlined RFP timeline and reduced hours spent on the annual hotel RFP by half, giving all parties bandwidth to focus on other urgent needs.
By adopting a “reduce and diversify” approach, the company was able to:
- Reduce their RFP timeline by 50% over the previous years’ sourcing events by strategically focusing on the top markets
- Increase hotel response rate to 99% by pre-RFP communication and strategically sending requests to key hotel partners
- Realize an 11% decrease in average negotiated rate which in turn will provide an estimated $3.7M reduction in overall travel spend over a two-year period
