By Marwan Batrouni, Senior Director and Practice Area Leader
In the last two years, the global hotel industry has experienced an unprecedented amount of consolidation. Marriott merged with Starwood, Accor acquired FRHI Holdings Ptd, Home Inns Hotel Group merged with BTG Hotels, HNA Tourism Group acquired Carlson hotels and IHG acquired Kimpton. We expect there will be more as the market is still quite fragmented.
Veterans in the industry know that hotel consolidation is not new, but these recent events are changing the way corporate travel is bought, sold and negotiated. While the full impact of the Marriott/Starwood and other mergers is uncertain, here is what we definitively know. The size and number of mergers are reshaping the hotel landscape. There will be more acquisitions around the world as other chains respond to increased pressure to remain competitive. And, the rate of change is not slowing down.
In this environment, it may seem like hotel chains have the upper hand during contract negotiations. But, you have leverage. It just requires you to discard the rule book that has guided travel management for years and employ these six strategies to manage hotel spend and change traveler behavior.
Keep it real-time.
Negotiating deals with preferred hotel suppliers is certainly important. But it places too much emphasis on annual sourcing cycles and not enough on managing spend in real-time to capitalize on opportunities between sourcing cycles. To realize the full value of your contracts and combat increasing hotel rates across regions, travel managers can optimize contract performance through continuous sourcing during the year. This is called dynamic performance management and requires you to invest in new intelligence and analytic capabilities. Dynamic performance management gives you leverage.
Track your entire footprint.
Despite procurement’s best practices of consolidating suppliers and mitigating risk, companies have long-defended silos of hotel spend. Current consolidation trends underscore the importance of integrating pockets of hotel spend across chains, lines of business or subsidiaries to improve your buying power and leverage. Demonstrate your ability to move market share with chains by aggregating transient and meetings spend. Although companies don’t always realize, many use the same hotel suppliers for both types of travel. While each alone may not be sufficient to warrant a corporate rate, together they may secure chain-wide hotel agreements and value-added amenities. Integrated travel delivers leverage.
Diversify your portfolio.
Hotel consolidation trends impose greater pressure on you to save costs. Your leverage lies in sourcing wider and investigating all options in a market. In the U.S., the biggest impact will be in gateway cities where there is already a shortage of supply and over-demand. For example, consider adding new hotel suppliers particularly in places where you have relied heavily on newly consolidated brands. These “other” hotels may feel increased pressure to respond and try to persuade you for your business in advance of 2018 negotiations. You can also diversify by testing sharing economy providers, like Airbnb, in strategic markets this RFP season. This offers you additional supply in competitive or secondary markets where negotiated rates with brand hotels are more limited. And, in LATAM, Europe and APAC, boost your use of independent and boutique hotels as chain-alternatives in select markets. Diversity breeds leverage.
Companies are realizing that policy compliance alone isn’t enough anymore. In fact, it is a rather weak and limited approach. Your negotiations can easily be diluted if your travelers don’t book preferred hotels and are distracted by direct communications from hotels. Communicate with your employees in the same manner that you communicate with your consumers. Strategic and engaging marketing helps guide and change travelers’ hotel buying behavior. This traveler engagement tactic works in marketing campaigns, social enterprise tools and digital messaging to communicating in the ways most relevant to your traveling employees. It uses attention-grabbing content to message about cheaper and more productive options, explain the value of choosing a preferred hotel and how a traveler’s choices impact the goals of the program. Engagement leads to compliance and compliance gives you leverage.
Cost will always be a driver for procurement, particularly in a slow-growing economy. Travel managers want to leverage digital technology to reduce their dependency on hotel chains and offer travelers more choices and on-demand ways to connect. More companies are taking a holistic approach and weaving virtual collaboration into travel programs to determine when it makes good business sense for employees to travel. If a trip isn’t revenue producing, travelers are presented with collaborative and less expensive options to conduct business without traveling and overnight hotel stays. As companies invest in these reinvented platforms, a case can finally be made that virtual collaboration replaces in-person meetings, reduces hotel spend and keeps people at home in certain and limited cases. Total collaboration offers leverage.
Monitor the spend of your contract/consulting workforce.
Many procurement teams are not actively managing the hotel spend of one-third of their workforce, or their contingent labor. These are the subject matter experts your company contracts with, on a short-term basis, to ensure the right talent for projects or just-in-time assignments. They are seasoned professionals, consultants and independent contractors who represent the on-demand workforce and a growing number of travelers in your company. Gain visibility into this slice of hotel spend to determine what percent is (or isn’t) going towards preferred suppliers. This gives you additional leverage with preferred suppliers and improves your probability of moving share. Contingent workers may add to your overall spend volume and this gives you leverage.
Hotel consolidation doesn’t mean you have lost your leverage. It just requires you to throw away the rule book and discard traditional practices and thinking in order to uncover new opportunities within this changing landscape. When you do, hotels will know the true value of your program to their business.