Taking the lip service out of hotel negotiations

White Papers 02 Feb 2016

Each year, corporate businesses go head-to-head with hotels to strike a win-win deal...good rates for the business traveler client and good returns for the hotel. How do hotels build their negotiated pricing programs, and how can your business ensure it is achieving the best possible value? The key lies in better mutual understanding.

The hotels' perspective-What are they looking for?

Like any successful business, hotels are seeking to increase their rates, particularly in buoyant markets where Average Daily Rates (ADRs) are trending upwards. They aim to fill as many rooms as possible, at the best price, and with an equitable spread of occupancy across the week. Hotels are also looking for commercial agreements that are sustainable for both parties.

As a corporate client, hotels value your spend, particularly if it goes beyond the room rate and includes elements such as food and beverage, groups and meetings, or extended/weekend stays. Hotels are looking for you to increase or shift market share to them, whether that involves booking more room nights, and/or spending more on-site at their property. These are the triggers that will help reward your business with better hotel value.

Bigger isn't necessarily better

Large hotel companies target corporate clients of all shapes and sizes...not just the big end of town. They aim for a mix of small and discretionary clients, mid-sized businesses and large corporates, as this blended approach provides them with the best opportunity to yield their inventory and help reduce the risk of unsold rooms.

How pricing is determined

Corporate hotel rates are generally negotiated one-on-one and based on a range of elements including

  • which night/s of the week your travelers stay
  • how many nights they stay
  • whether your travelers use ancillary services within the hotel (e.g. food and beverages)
  • the volume of business you will generate in group bookings, meetings or conferences
  • the overall mix of the customer base in the hotel: a business hotel will charge more for week night rates, compared with a predominantly leisure hotel who will have lower occupancy during the working week

Corporate negotiated rates can drive significant cost benefits for clients, compared with dynamic pricing agreements (ie. a percentage discount off the hotel's Best Available Rate). When determining the rate for your business, hotels will consider your past bookings and behavior, as well as your forecast spend for the year ahead. Hotels also look at their own forecasts of incoming and outgoing inventory.

In the negotiation process, hotels particularly value the relationships they have with loyal guests, whose travel patterns and policy compliance they already understand and appreciate. Clients who have previously demonstrated buying behavior that includes expenditure on food and beverage, plus groups and meetings, will have a significant head start in achieving better value for the year ahead. Hotels also value loyalty program participants, and multinational or global clients who provide an opportunity to add other locations to their existing cities and hotel usage.

When dynamic pricing is better suited

Hotel pricing in different cities takes a market-by-market approach, as rates are affected by factors including local economic conditions, world events, and supply and demand dynamics. In major cities with high occupancy markets, hotels don't generally need to offer significant discounts. In these cases, dynamic pricing agreements may be more cost-beneficial for clients than corporate negotiated rates.

Strategies to reduce your hotel costs

Hoteliers' approach to pricing creates a number of opportunities for your business to increase the value of its accommodation.

  • where to start?
  • what is your anticipated volume for the year ahead
  • look at your company activity: Mergers/Acquisitions
  • is there growth into new markets?
  • are you changing travel to certain destinations

Even if your accommodation volume is expected to remain flat or slightly decline in the coming 12 months, you can achieve savings by being more strategic. Implementing the following recommendations will enable your business to demonstrate greater market share to the hotel suppliers that are important to you.

Track your total spend

To give the hotels a clear picture of what your company is spending, you need to track your total accommodation spend – not just the room rate. This includes incidental costs – food and beverages, Wi-Fi, car parking/valet parking, mini bar and laundry etc – as well as any hotel conference and meeting facilities you are using. Collectively, these costs will be significantly higher than the room rate alone enabling a hotel to view your company as a more serious business proposition.

Consolidate your suppliers

A powerful strategy for reducing hotel rates, consolidation involves expanding or contracting your hotel program by using more or less preferred hotels. For example, companies using a wide range of different hotels, can cut their costs by consolidating their business with a smaller, more select number of preferred properties. This enables companies to build greater loyalty, relationships and value with the preferred properties.

Re-tier your travel policy

Value can be driven by re-structuring your policy to focus on the standard of accommodation that is appropriate for each stay. For example, senior executives may require five-star accommodation to attend important meetings or conferences at a hotel, whereas frontline employees may only require 3.5 star accommodation if they are spending little time at the property. Locating travelers in budget hotels that are still relatively close to where they need to be can save substantial cost – not only in room rates but also in ancillary expenses.

Choose the properties that are right for you

When consolidating your program, aim for a selection of properties that best fit your company's specific needs. Consider factors such as

  • proximity between the hotel and where your travelers need to be; aim for walking distance to cut taxi costs
  • rate availability – Avoid the hotels that don't offer good rate availability
  • guest loyalty programs – Encourage travelers to join your preferred hotels' programs. The benefits to the traveler, can improve productivity
  • food and beverage options – Look for properties that provide cost-effective options. ('grab and go' style breakfasts)

Educate + encourage compliance

Educating employees about your travel policy and the benefits of compliance is the 'make or break' factor in your efforts to reduce costs. Employees need to understand where they can and can't stay, and the reasons – which may include both savings and safety/duty of care. Education across your company has to be driven from the top down, with policy endorsement and compliance from your executive team. Pre-trip approval processes, in which your travelers' managers can be alerted to any out-of-policy bookings, can further improve compliance.

Continuous reporting on your bookings and expenditure is essential to enable your company to monitor compliance and ensure savings are being achieved.

Negotiate Early

FCM product solutions recommends you commence your negotiation with hotels as early as possible in the traditional hotel tendering/ RFP season (July to September each year). At the season peak, hotels are negotiating with a vast number of different clients. The sooner you can be part of the negotiation process, the greater your opportunity to build a value-focused

New version summary

Each year, corporate businesses go head-to-head with hotels to strike a win-win deal… good rates for the business traveler client and good returns for the hotel. How do hotels build their negotiated pricing...