Dynamic Performance Management finds the missing links in your hotel negotiations

Posted in Blog

By Marwan Batrouni, Senior Director and Practice Area Leader

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Could there be significant missing links in your efforts to effectively negotiate hotel rates? The answer most likely is yes. As today’s hoteliers become more sophisticated in yield and revenue management, average booked rates now trend higher than negotiated preferred levels.

While we are accustomed to airfare rate fluctuations based on booking date and overall supply/demand factors, this concept is relatively new to the hotel industry, where prices can change even on an hourly basis. To better control airfare expenses, travel managers are moving toward ongoing management programs versus annual sourcing. This same approach will prove effective in the hotel arena – if those responsible for oversight have access to the right data.

The challenge is that some of the most essential information is not readily available. Key performance indicators (KPIs) for the company — which address spend, travel patterns, compliance and leakage, for example – may be within reach. In addition, because a great number of travelers tend to book hotels outside of the program, it is also necessary to examine credit card data (or other forms of spend data outside of agency). Yet this approach only addresses a company’s internal scorecard.

To obtain a comprehensive picture regarding the effectiveness of your hotel program, it is essential to also review supplier performance. This scorecard should encompass two types of audits: rate availability AND market rates.

 

Rate Availability Audit

On behalf of our clients, on an ongoing basis Advito audits specified properties one month in advance to determine how frequently suppliers make their rates available for booking. If we identify a property that is consistently not available 25 percent of the time or more – that’s a red flag. If the rates are loaded higher than negotiated prices let’s say 15 percent of the time or more, that presents an additional issue. This data helps determine whether hotels are engaged in “availability games” by playing around with their inventory and their yield management.

 

Market Rate Audit

The second piece of this external puzzle is a market rate or BAR (Best Available Rate) audit. We shop the best available rate at every hotel that has been negotiated by the client. If the BAR available to the public is close to or lower than the company’s negotiated rate, that gets our immediate attention. It means we found a better rate than the company is receiving, which diminishes the impact of their negotiations.

 

The Big Picture

It is necessary to address all of these factors to see the big picture. Assessing comprehensive data enables travel managers to negotiate more effectively. They have precise information based not only on internal monitoring and tracking, but also how suppliers are living up to their commitment related to availability and whether negotiated rates are still competitive. By putting all this information together, you can identify gaps and make adjustments throughout the year. We call this process Dynamic Performance Management (DPM), which places ongoing program management on steroids.

As travel managers move forward in this new hotel environment, DPM delivers the info needed to determine whether to consider solutions to:

  • Replace negotiated fixed rates with negotiated dynamic rates in certain markets
  • Add price assurance programs
  • Complement the preferred fixed rate program with chain-wide agreements
  • Look into more spot buying and implement a lowest logical rate policy
  • Implement market caps to control costs
  • Communicate more closely with travelers to influence the right behavior

For more information about how DPM can help your travel program, visit http://localhost/advito/services/dynamic-performance-framework/

NOTE: Want to hear more? Visit ProcureCon Travel May 7-9 in Henderson, N.C., where Marwan Batrouni will moderate a roundtable discussion at 5:00 p.m. on Monday, May 8 about how to innovate your travel category management.

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