By Laura Kusto, Vice President and Global Hotel Practice Lead
With escalating hotel rates, uncertain demand forecasts, and pressure to include sustainability measures, the 2023 RFP season calls for adjusted strategies and approaches.
For some companies, this is the first time they are engaging in full-scale RFPs since 2019 and others still haven’t taken any action as we reach the end of 2022. Based on BTN Group’s 2023 Hotel Sourcing Strategy webinar data which surveyed 327 corporate travel professionals, only 4% of respondents claim they have already finalized their 2023 RFP process and only one-third of respondents were on schedule to complete the process. This shift in the timing of RFPs looks like it might be here to stay. With all these changes, we can’t approach sourcing the same way we did in the past, but instead, need to reevaluate our strategies.
Understand your markets
You won’t find success using a blanket approach across all of your markets. While it’s important to look at what’s happening with the overall data, you need to understand what’s specifically happening in each city. If we look at the top ten US cities, rates are going up this year in comparison to last year. However, the magnitude of this increase greatly varies. So how do you know if you’re getting a good discount in each market?
Start by looking at 2019 volumes for your key cities and compare where those cities are tracking to reach those volumes again. This allows you to see what capacity is potentially available and understand the supply and demand relationship in those markets. For example, there are cities like Chicago, San Diego, and Dallas that have had high demand and we see that the Best Rate Available (BAR) has significantly increased from 2021 to 2022. In locations like this, it’s important to understand that you will be facing an increase, but your goal should be to still beat BAR with a lower increase. Meanwhile, in cities like Houston, Nashville, and Washington D.C., where our data is showing that hotels are pushing for negotiated rate increases that surpass the BAR increases, you should be negotiating hard.
This applies globally as well. We are seeing areas in APAC that are still trying to recover and have BAR rates in 2022 that are lower than 2021. In those markets, any sort of negotiated rate increase would be unacceptable. India is the other market where data is essential – hotels in many cities within India are proposing massive negotiated rate increases that simply are not justified by the changes in BAR.
Evaluate your supplier’s challenges
After you have a sense of what is happening in your key cities, take the time to understand the economics facing hotels. We’re hearing a lot about the cost of labor increases with the current staffing challenges hotels are facing. At the same time, some hotels are still on the road to recovery from the effects of the pandemic while others have bounced back.
While you can’t possibly be an expert on all of your hotels, get to know the challenges your hotels and suppliers are facing in your top markets. The more you talk with the hotels and try to understand each other, the more productive discussions you will have.
Embrace unconventional strategies
With the hotel landscape experiencing some major shifts, you should be open to trying new strategies that will help your program remain competitive despite the changes. Here are six unique trends some of our clients are using today.
- Shifting to off-cycle: We have seen more clients shifting to off-cycle (about 1/3), which is anything outside of Jan-Dec, such as April through March or June through May. If you can, this is a great strategy to implement this year as we expect markets to soften somewhat in 2023. And as an added bonus, when you move off-cycle, you will be negotiating when there is less RFP activity and hotels will not be as busy with other clients.
- Monitoring rates throughout the year: Moving into 2023, we expect pent-up leisure demand to drop and the economic outlook also supports that trend. This will give some leverage back to business travel and provide an opportunity to re-negotiate rates to more competitive values. It’s never been more important to make sure you’re checking that those rates you negotiated are staying competitive.
- Adopting a progressive approach: Traditional sourcing consists of large programs, and/or mainly static rates with not many dynamic rates. Progressive approaches are more strategic. These are smaller, more thoughtful programs, focused on top properties in key markets. And progressive programs also utilize both static and dynamic rates, along with taking advantage of BCD rate programs. This year we have also seen hotels supporting this progressive approach. They are responding competitively only to programs that can show their leverage.
- Leveraging loyalty: If you’re a smaller client and can’t bring a large volume, one strategy you can use is to quote the percentage of your business that you’re bringing to the hotel. If you can tell a hotel you’re bringing 80% of your volume in a specific city to them, that might help them see that while you aren’t one of their biggest clients, you are loyal to them.
- Focusing on sustainability: Everyone is talking about sustainability in the business travel industry, and hotels are no exception. It’s time to educate yourself on sustainability and start talking to hotels about their initiatives to make sure your sourcing decisions align with your company’s sustainability goals.
- Prioritizing traveler safety: We are seeing more efforts from clients to ensure traveler safety. While you can include questions about safety and security in the RFP, some companies are hiring third parties for high-risk areas to evaluate proof of property safety. Paying for a service like this shows the importance companies are placing on safety for their travelers.
The bottom line
Hotel sourcing is changing for good and you need to be adapting your strategy accordingly. It’s time to shift away from traditional sourcing strategies and towards a more progressive approach if you want your program to remain competitive throughout the year. If you want to modernize your approach, but need help getting started contact our team today!