You may see a lot of stressed hoteliers this month. July traditionally marks the start of the hotel request for proposal (RFP) season. Corporates will be looking to hotels to offer competitive rates to secure their business. For their part, hotel general managers and revenue managers will be walking a tightrope to keep both clients and bean-counter masters happy.
The hotel RFP may be a buying tool, but it is only partially about cost. Ian McBride, group hotel solutions manager at ATPI, says: “It should help buyers achieve cost, policy and availability objectives. Each client should understand objectives, but most focus on cost – although there’s an increasing focus on availability.”
Trevor Elswood, chief commercial officer for Capita Travel and Events, agrees with McBride that understanding corporate objectives is invaluable. “The underlying principle is that people are buying space. There are three objectives: security, making sure that the programme they’re recommending ticks all the duty-of-care boxes; price leverage or product quality; and third, the guiding principle, is to create a programme to guide travellers where they would like to end up.”
He adds: “The customer will hold information about new offices, new demand, projects, acquisitions and whether the market may be shrinking.”
Pauline Houston is global director of supplier management at Carlson Wagonlit Travel (CWT). She believes hotel RFPs are “absolutely not” just about cost savings. “Hotels have to be of reasonable location and good security,” she says. “Ultimately, a hotel programme must de-risk any liability.” She adds that green and other ethical criteria, such as those emanating from the ownership of a hotel company, are also being included so that hotel programmes can underpin corporate strategy.
Staying relevant
Without doubt, the process is evolving. Marriott vice-president Phil Andreopoulos says: “We’re seeing a more holistic approach that considers the requirements of the traveller. It’s about staying relevant to a changing workforce whose values are different to those of their predecessors. If companies have internal pressures to achieve compliance, they need to be offering choices that people want to make. Nobody likes to be told to stay somewhere they don’t want to be or somewhere they don’t feel comfortable.”
The corporate objective can also vary by business sector. “People operating in an industry with downward margins are very cost-oriented,” says McBride, “but for those looking to capture market share, it’s about availability, and cost is not so important. It’s specific to each customer.”
Moreover, hotel products and market conditions, such as capacity, will vary in different destinations. No one hotel group is likely to be able to offer suitable accommodation in every city. This could be because of location (most of those that travel on internal business want to stay at the hotel nearest the local office) or because of quality differences.
Seasonal differences
Seasonality can also affect rates. Mark Spivey, international sales director at Germany-based Maritim Hotels, points out the best available rate (BAR) can be lower than the negotiated rate at certain times of the year. “At the end of the day, it’s a supply and demand issue.”
Revenue managers in global cities such as New York and Hong Kong don’t usually offer attractive corporate rates year-round. They know that the high demand for quality accommodation in such cities means they can fill their properties easily.
However, a negotiated rate with last room availability (LRA) – that is, that an agreed allocation of rooms will be held for the client at that price until an agreed point, say, 48 hours in advance – will guarantee availability in those cities with high demand. But this year-round rate can sometimes be higher than the BAR. Buyers might reserve the negotiated rate as their safety umbrella – the highest price they will ever pay – and buy at BAR when possible.
According to McBride: “It’s not worth having a rate without LRA.” He argues that without that obligation, a hotel need not honour the agreed rate if it believes it can sell it elsewhere at a higher rate.
Hybrid models
Pauline Houston says that e-RFP technology has simplified and streamlined what was once a very time-consuming process. That, coupled with different markets and corporate objectives, has led to hybrid RFP models proliferating. This has enabled bid managers to focus on variable elements such as LRA, room allocations, black-out periods on availability, breakfast, wifi and ‘Club’ executive floors.
It’s about more than volumes. Capita’s Elswood says that hotels are increasingly looking at total revenue per available room (TRevPAR), which includes additional spend such as on food and beverage. “Just saying that you produce half a million pounds in London will not leverage the best result. An overview of normal spend patterns when you are in a property can aid a better outcome for organisations. We try to break down the profile by length of stay, arrival day and so on. What the travel policy allocates to food and beverage is useful information to a hotel.”
This is backed up on the hoteliers’ side by Maritim’s Spivey, who says: “An international guest will stay longer and spend more on extras than a local guest. Brits are a good clientele to have because they like to entertain and spend a bit of money.”
Marriott’s Andreopoulos agrees: “We look at arrival and stay patterns, the booking window, previous performance, what our competitors might do and, of course, the wider global relationship.”
The power of market share
Pricing itself is also becoming a more hybrid affair. Rates might be a fixed rate or a discount based on volume but, just as with the airlines, market share is increasingly being used in competitive cities. Andreopoulos says: “We cannot underestimate the power of market share. If a company can genuinely shift share into our hotels, they will have a strong position during the RFP process.”
Elswood says that the variations are increasing all the time. “I’ve seen a marginal swing to more hybrid agreements including a discount of 10 per cent off BAR at certain locations, but 5 per cent at group level.”
Pauline Houston points out that market share can also be a driver in cities with surplus capacity. She says: “Sometimes it’s a trade-off. For a corporation to get an attractive rate in a location where demand is high, they may add a hotel that isn’t necessarily heavily demanded as a trade-off for a hotel the corporate really wants.”
And, as many companies have travellers of different seniority levels, the use of different grades of property in the same city is not unusual.
As with all procurement, the key to hotel room purchasing is to look to buy what is fit for purpose. Elswood says it is always cheaper to pre-purchase breakfast, but that it is important to know whether your travellers want to eat breakfast.
As Andreopoulos says: “There have been many occasions when a company has actually saved money by taking breakfast out of their rates and, system-wide, moving to room-only rates. There are also examples where the opposite is true. Either way, it’s worth experimenting to see how many travellers take breakfast. You’d be surprised how many people get by on just a cup of coffee in the mornings...”
Another variable is the length of the agreement. The hotel RFP season starts in July-September so that responses, decisions and contracts can happen before the next calendar year. But some RFPs run on a financial year, some want only six months, and some will want two years to lock-in rates and availability, a tactic that was seen in London at the time of the Olympic Games in 2012.
Ian McBride says popular e-RFP technology can mean that a corporate is fitting into an existing RFP process rather than having the RFP process fitted to them. “Think of a hotel as a cart and the client as a horse,” he says. “First and foremost, you need a deep understanding of the horse before you know what kind of cart it needs fitting to.”