|By Marwan Batrouni
Senior Director and Practice Area Leader
Is your organization still operating the same as it did two to three years ago? Or has it adopted digital and social technologies, embraced greater global connectivity and innovated data analytics? If you answered yes, then you know traditional approaches are no longer valid. If you answered no to these changes, then hotel procurement is still viewed as a back-office support service. Now is the time to think about this as change is imminent – even if your company or industry hasn’t quite caught up.
Now think about your hotel program. Do you manage it today as you did even two to three years ago? Or have you integrated a mix of booking options, new data sources, and non-savings performance metrics? If you answered yes, then your innovations are contributing to ongoing and strategic value. If you answered no, you are not alone. Most companies fall somewhere in the middle. But with the market changing so fast, how do you, at a minimum, keep pace and, more importantly, innovate in real-time?
Hotel procurement roadmap
April Bridgeman’s last post identified an innovation roadmap for procurement to manage hotel category spend like an investment portfolio: holistically, dynamically and in a balanced fashion. In this post, I share just how relevant this approach is now. You’ll learn about innovative practices you can use to put procurement in the driver’s seat of your hotel program (even in a seller’s market!). Look for these icons to see which to employ in the short vs. long term:
Why innovate now?
CEOs expect it, suppliers are pushing it, new data sources enable it and market complexity demands it. CEOs look to procurement to function as a strategic arm of the business and contributor to competitive advantage.
Their top priorities now include compliance and innovation. Over the last couple of years, suppliers have made huge investments in technology and yield management techniques. Hotels are modeling future demand and changing market conditions to adjust rates in real time because they have greater access to better data. They are gaining revenue beyond room rate with new metrics, like revenue per guest or revenue per available customer (RevPAC). And, corporate discounts and buying leverage are waning while increasing the complexity of managing hotel spend. The key is to manage hotel spend like an investment portfolio.
Manage hotel spend like an investment portfolio
A holistic approach to hotel procurement
Now with a strong cost savings structure in place, procurement’s focus is on activities that contribute to company growth and top initiatives. This means aligning your hotel program with the goals of the business and the needs of key internal stakeholders.
Use business-centric metrics. Look beyond cost to gauge effectiveness. Use top-line and bottom-line program metrics like percent of spend at eco-friendly properties, the total cost of a hotel stay, and the revenue impact of your hotel spend on the hotel’s business.
Stay agile to change. Respond to organizational expansion and new travel patterns. Use preferred suppliers in markets where the volume and spend require it and allow business travelers to book with non-preferreds (within a certain rate cap) or try alternatives in secondary markets.
View suppliers as an extension of your company. Partner with progressive suppliers who understand and deliver innovative services that increase traveler engagement, productivity, and performance.
Like in your own investments, you’ll want to diversify and neutralize risk for your program. In this environment, no company or hotel program is immune. It requires a market view of your program, agility in how preferred supplier relationships are built and innovation in how contracts are evaluated. You will pay more for these options but that is because you are investing in your suppliers and gaining market flexibility.
Capitalize on market volatility. Incorporate spot-buying to take advantage of off-peak and special rates. Include rate assurances into your contracts to account for increased rate variability arising from better yield management practices by hotels.
Embrace the sharing economy. Rather than warn against using the new shared services, evaluate travelers’ business and personal experience with them (e.g., Uber, Airbnb). Gauge their viability as an add-on to your current program or a preferred vendor in next year’s program.
Dynamically monitor rates. Employ technologies that continually monitor rates and alert business travelers for price reductions and amenity gains. This is especially relevant as hotels upgrade their revenue management systems.
Diversify by market. Assess each market individually to hedge program risk and uncover new opportunities. Property or chain-specific contracts lock in the price and provide last room availability in key markets. Negotiated rates are essential for primary markets and cities with heavy demand. Chain-wide, fixed discounts on the best available rate (BAR) are important where your volume is too small to merit a negotiated rate but where you need to protect travelers against sold-out situations with preferred suppliers. And, dynamic pricing agreements are advantageous to test new brands in secondary and tertiary markets with limited supply.
Employ a responsive design. Design your hotel portfolio to be responsive to the buying practices across the executives, road warriors and infrequent travelers using your program. Include not only different levels of hotels but actively solicit travelers’ preferred brands and feedback into your program.
Hotel spend management now requires you to think like a CFO – profit-oriented, risk-aware and commercially focused. This means uncovering new opportunities for growth and sustainable savings based on what is anticipated to happen. It requires innovating what is measured, the type and level of data accessed, the frequency of tracking and the data sources and tools used to unlock strategic value from your contracts.
Keep the score on your suppliers. Replace post-contract auditing with supplier scorecards and spot audits to see how frequently your negotiated rate is not being offered, adjust for errors in rate loading, be aware of unexpected blackout dates in the system or recognize when the lowest available rate comes with a non-negotiated minimum length of stay requirement.
Use real-time benchmarking. Instead of waiting for annual benchmarking or quarterly historical data, real-time tracking offers advanced analytics to dynamically compare performance in a market and predict changing demand. When paired with data modeling, you have prescriptive information to also isolate how you can map and react to seasonal or unanticipated changes the data reveals. This may uncover opportunities for better payment terms, complimentary amenities to negotiate into contracts, etc.
Trade-in static spreadsheets with forward-looking tracking. Use monthly, real-time auditing to check the availability of your negotiated rates. You can find out when to take advantage of market rates lower than your preferred ones. Employ predictive analytics to gauge the value of your rates against what will be available in the market, what to do if they are not, and when hotels are closing out your rate and making it difficult to satisfy your commitments.
Leverage new data sources and levels of data not previously available. Gain insight into behavior, travel patterns and hotel spend to drive down rates and the total cost of hotel spend. Work with partners, like Advito, to replace standard summary data with transaction-level data.
We believe that there are three elements to managing your hotel program like an investment portfolio. First, anchor program performance to the goals of your business. Second, diversify and balance the elements of your program to hedge against risk. And, third, actively manage your performance with real-time data and advanced analytics so that, like your suppliers, you, too, can price dynamically.
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