By Laura Kusto, Global Hotel Practice Leader
Active hotel category management has changed – it’s not just about sourcing anymore.
This is the final entry in our 5-part blog series on COVID-19 and managed hotel programs. It’s time to look ahead beyond sourcing and towards a new future for hotel category management.
If you’ve been following this series, and taking the action outlined, you’re going to enter 2021 with a very different hotel program than you had in 2020. It will be smaller and more diverse. With a majority of dynamic rates set to never expire, you will spend less time sourcing rates each year, which means you can spend more time driving savings that go beyond sourcing.
“Save beyond sourcing” has been the tagline within our consultancy for a while now. But what does it really mean? We’re going to unpack that for you today. First, we’ll talk about what it means to really own your program and some key changes you can make to keep your program fresh and relevant – and put you back in the driver’s seat. Then we’ll talk about how you can really level up your strategic approach so your program is leveraging the best opportunities available in the marketplace.
Own your program
If you aren’t monitoring your program and consistently optimizing it, you are missing savings opportunities and your travelers are likely going out of channel because the program doesn’t stay relevant. Hotels monitor their performance daily and adjust rate constructs just as frequently to ensure optimal performance. If hotels are making changes that often, you cannot expect your hotel program to stay fresh and relevant if you only optimize it once a year.
First, you need to monitor your program. How competitive are the rates your travelers are booking? How do they stack up to what you negotiated and what is available to the general public – what we call the “market rate” – at those hotels? You need to have a solid grasp across those 3 metrics – booked rate vs. negotiated rate vs. market rate. Along with that, you need to dig a little deeper into why your booked rate is what it is. Are your preferred hotels making your rate available? Rate availability is one of the top drivers of the rate your travelers will actually book.
The other factor driving your booked rate is the action you are taking – or not taking – each month. You have to use the performance information to optimize what your travelers are seeing and hearing each month. If the action you take doesn’t change what is visible to your travelers, it is as if you are doing nothing. There is always something present in the performance information that can be actioned. Here are some ideas:
- Chase hotels to improve rate availability where it is poor and contact them to negotiate lower rates when they go non-competitive.
- Remove hotels from the program where you can’t get competitive rates – that is a sign you don’t have enough leverage and your program is too big.
- Use rate targets, which drive savings in both program and non-program markets and update them each month.
- Detail your performance expectations, the monitoring you will be doing and the resulting actions you will take in your RFP cover letter and acceptance notifications. Tell your hotels you will remove their preferred designations when performance slips below specified levels – and actually do it.
It’s your program – you have a right, and a responsibility, to own it!
Last, if you haven’t already, implement a rate re-shopping service such as hotel price assurance (HPA). From the moment a traveler books a hotel, HPA constantly monitors the rates available in the marketplace. If rates dip below an existing booking and match pre-defined criteria you set for re-booking a hotel, HPA automatically makes the rebooking. It does all the work for you and you pocket the savings. HPA is something every company should be utilizing as part of their modern hotel program.
Level up your strategic approach
Owning your program may seem like a lot of extra work to take on. And to some degree, it is. But it’s work that drives higher attachment and lower booked rates – isn’t that what you want? So, if it seems like there aren’t enough hours in the day, the first thing you need to do is look at what work needs to stop.
Are you running reports and sending them around to various teams in your organization? What is that accomplishing? How are they being used and what actions result from them? If they are not driving measurable results, stop producing and distributing them.
Another area where time can be saved is in the sourcing – how much have you really diversified your program? Every opportunity to convert a static rate to an evergreen dynamic rate is going to save you time in the future. Every RFP costs money and it takes valuable time to complete everything an RFP entails. It’s much simpler to set a rate to dynamic and keep it in your program until performance indicates it needs renegotiation or removal. Evergreen dynamic rates dramatically reduce time needed to source and improve the return on investment in what sourcing activities remain.
Along with stopping non-productive activities, there are two areas in which you can really level-up your strategic approach:
Chain partnerships – a common misconception in hotel category management is that securing a chainwide discount is always a good thing. That is not always the case. Some chainwides are beneficial but many are not.
First, think about what you are marketing to your travelers when you allow all the properties from a chain to be presented to them with rate descriptions that include your company name and the words “chain discount” – it’s telling them their company is special and getting a discount. But when that is applied to all properties within the chain, including expensive brands you’d rather they not book, they will buy up. If a full-service property has a special discount for your company just like a limited service, your travelers are being encouraged to “buy up” which drives up your booked rate.
Second, many chainwide discounts have poor commercial aspects. They tend to be Non-Last Room Available so each property is at liberty to shut down your discount during times of high occupancy. And when the chain discount is less than 10%, you’re effectively paying more than BAR when you compare that chainwide rate to a 10% commissionable rate.
Old thinking says chainwides are a good way to ensure you have discounts in secondary and tertiary markets. But again, these are not always the best deal, not always available and encourage your travelers to “buy up” in the chain. Instead of chainwides, use spot market rates and direct your travelers to book the most competitive offers. Remember, you own your program. You can drive your savings and will get far better results than if you rely on a hotel chain to consistently do that for you.
Nontraditional rate types – hotels started introducing nontraditional rate types within the last decade. Nontraditional rate types offer flexible cancellation policies and give you the ability to pre-pay for the hotel stay. When you’re willing to accept a longer cancellation policy and/or prepay, most hotels will give you a discounted rate in exchange.
The initial reaction from corporate travel programs in response to these rate types was, “they’re not a good fit and will never work.” But the data tell us otherwise. Across our BCD and Advito client base, 25% of hotel stays are booked within 48 hours before check-in. If you have a traveler who waits until 2 days prior to departure to book the hotel for that trip, why wouldn’t you want that traveler taking advantage of a rate with a 48-hour cancel policy or even pre-paying for it? If it can save 20-30% per night on rate, that seems like a very safe bet.
The key to taking advantage of negotiated rate types is all about leveling up. You have to examine your advance booking behaviors to get a sense of the opportunity and set a baseline for savings estimates. From there, you can configure your booking tool to recognize when a hotel search is being conducted within 48 hours prior to check-in. If it is, you can add messaging that encourages booking a restricted rate in these situations. Last, educate your travelers – and position it as, “We know you travel in your everyday life and have seen these rate types before. We’re now encouraging you to take advantage of them when booking business travel last minute.”
Don’t miss out on this opportunity
Your travelers are smart, they’re consumers of mobile application-based marketing and they certainly use mobile applications to procure items in their everyday lives. By not applying those marketing strategies and taking advantage of the creative pricing constructs available on the open marketplace – and relying only on relationships with hotels and chains – you’re missing out on savings and losing credibility with your travelers. Times have changed. It’s time to own your program and level up your strategic approach. We are well versed in helping our clients apply these methods to drive savings beyond sourcing – contact us to see how we can help you too.