Alexis Sisko, Director, Hotel Spend Management, Hotel Solutions
When it comes to your hotel sourcing strategy, adopting a reduce and diversify approach has never been more important than it is now.
Between drastic shifts in demand, staffing shortages, and increased costs, travel managers can’t rely on traditional sourcing strategies anymore. It is critical to perfect the focus of your RFP efforts on the top properties being used by your travelers to maximize your ROI in the RFP.
Let’s start with where the hotel chains stand today. BCD, Advito’s parent company, recently held a supplier forum to align with key hotel chain partners on their strategic outlook and chain direction for the 2023 RFP season. While their strategies are certainly nuanced, every hotel partner in attendance agreed that 2023 negotiations will be “intense”. As we pointed out in the last blog in our series, How to Map Out Your 2023 Preferred Hotel Program Strategy, hotel chains are intentionally ramping up their staffing levels to better support this difficult RFP season. So, why will this year be so difficult? Regardless of client volume or leverage, hotel chain leadership is advising hoteliers to align their negotiated rates with STR market predictions, likely resulting in double-digit increases for client negotiated rates. Hoteliers have been instructed to reject rate extensions and most will utilize TravelCLICK Hotelligence reports as additional market level benchmarks for client RFPs. Hotel Effectiveness recently reported that the cost of labor per occupied room has increased 26.8% for full-service hotels, 14.4% for extended stay hotels and 31.1% for select-service hotels YOY from March 2021 to March 2022. During the supplier forum our hotel partners harmoniously confirmed that the hotel industry desperately needs to offset these increased labor costs by pricing corporate negotiated rates relative to recovered market rates, a data-driven position that is understandable.
Given everything we know about this upcoming RFP season, our mantra remains, “work smarter, not harder.” Our reduce and diversify strategy is intended to simplify the RFP and mitigate costs whilst still driving chain partnerships through negotiated rate programs.
Leverage is the golden ticket for 2023
Our reduce and diversify strategy is designed to help you focus your RFP efforts on the top 10% of properties used by your travelers, which accounts for approximately 65% of your total hotel spend. Digging deeper, our analyses indicate that the top 5% of properties receive 50% of the total hotel spend, enough to warrant static rate negotiations. This is where companies should sit down at the table and negotiate. The next 5% of top properties receive 15% of the total hotel spend. We recommend negotiating competitive dynamic discounts that exceed chain discounts (if applicable) at these hotels. By simply focusing your efforts on sending RFPS to only the top 10% of properties used by your travelers, you’ll have negotiated preferred program coverage for over half of your total spend.
Before we talk about how you can potentially supplement your preferred hotel program in secondary or tertiary markets, let’s talk about the RFP logistics. It’s no secret that corporates pay a per RFP fee regardless of the negotiation outcome. Instead of engaging in inefficient negotiations due to lack of leverage, you can reduce your RFP fees by taking advantage of negotiated discounts and amenities at global and local hotel chains through programs like BCD’s Global Hotel Program (GHP) and the Small and Medium Enterprise (SME) Rate program. Our consultants perform a gap analysis for secondary and tertiary markets to identify coverage options and clients can select which hotels to accept.
To avoid leaving money on the table, we recommend distributing property-level rate targets to hoteliers in advance of the RFP instead of letting them make the first bid. BCD utilizes a third-party provider to audit hundreds of thousands of hotels each month to drive visibility to market and hotel rate recovery. Utilize year-over-year market and property trends to benchmark property-level rate targets and tell hoteliers what they would need to offer in exchange for fast-track acceptance. Deploy a data-driven strategy to ensure targets are aligned with market recovery.
13% of our client accepted rates were dynamic in 2021 versus 39% for 2022 – an increase of 26%! Set dynamic rates to evergreen status and be prepared to educate hotels on why it’s good for them too. You’ll save money in the long run because you won’t have to send an annual RFP unless one of the parties wants to revisit the agreed upon discount and amenities.
Start looking at sustainability – if you’re measuring it, great. But if you aren’t looking at it yet, you absolutely need to start. While only 21% of our clients currently use sustainability data to select their preferred properties, 79% have reported an interest to do so moving forward. Sustainability is here to stay and our Sustainability Consulting Practice is ready to support your company specific initiatives.
Now that you have your sourcing strategy set, it’s time to focus on monitoring your rates regularly for competitiveness and availability. The next blog in our series, “5 ways to ensure business travelers use your hotel program,” will break down how to do just that!