The hotel industry isn’t making things easy for hotel procurement right now. As consolidation progresses, individual chains are using increasingly aggressive means to try to exploit the power they have sometimes enjoyed as dominant players on the market, whether it’s by extending cancellation periods or adjusting rates. At the same time, yielding throughout the sector has reached a dimension that would leave any buyer who is interested in reliability and the ability to plan ahead struggling helplessly (negotiation rate? BAR? LRA? NRLA?). That‘s not to mention direct booking offensives and the expansion of increasingly refined loyalty schemes.
So it may not come as a surprise that during the HRS Corporate Lodging Forum in Berlin, serious discussions were held about whether it actually still makes sense to draw up travel guidelines or whether we shouldn’t simply give travellers free rein ("traveller centricity"). The results are unsurprising: while there is "nothing wrong" with a travel guideline, as Daimler travel manager Bernd Burkhardt asserted, simply treating staff with suspicion won’t get management very far these days either. His conclusion was: "Trust is the key. Mistrust causes too much administration."
A future without hotel sourcing?
So what does this mean for hotel procurement? Should companies dispense with any kind of sourcing in future and let travellers decide for themselves? It certainly sounds tempting. Hotel sourcing ties up valuable resources for months on end, and the multitude of different rates and discount models, combined with the fact that there is often no analysis and benchmark data available, makes it increasingly difficult for travel managers to make well-founded decisions.
But unfortunately it’s not that simple. Hotel procurement may no longer be a core competence of travel management, as is regularly emphasised by suppliers such as HRS CEO Tobias Ragge. Nevertheless, this strategic task involves much more than simply making sure that travellers are satisfied. In other words, sourcing remains a vital component of travel management.
At the same time, however, changes in market conditions mean we need to rethink which tools are appropriate. "We live in a time of information overload and constant change," says ACTE Executive Director Greely Koch. This could prove expensive for travel managers who fail to react quickly to market trends, "both in monetary terms and with regard to traveller satisfaction."
So how is travel management set up in 2018? What do its sourcing strategies and tools look like? How does it stay informed of changing requirements, the multitude of different discount and rate models and market conditions? And where is optimisation needed? These questions and others were included in a hotel sourcing study that ACTE conducted jointly with HRS among travel managers worldwide early this year.
We can’t go on like this!
To be clear, more than half of all those surveyed (51 per cent) have changed or reorganised their negotiation strategy since 2015. Small companies with a budget of less than USD 5 million (percentage of those surveyed: 32 per cent) reported this, as did medium-sized companies (14 per cent) and large companies with annual hotel volumes of over USD 10 million (44 per cent). That shows that the sourcing strategy used in previous years has reached its limits and that there is substantial need for change.
What might this look like? A look at the current situation with regard to global hotel sourcing shows that more than half (59 per cent) of all companies surveyed still carry out hotel negotiations internally. Only one third (30 per cent) outsource this process. However, what is striking is that this third comprises mainly large corporations: fewer than half (44 per cent) of companies with an annual budget of USD 10 million or more still manage their negotiations themselves.
The study shows that the sourcing strategy used in previous years has reached its limits and that there is substantial need for change.
On the whole, it is nevertheless apparent that the majority are not really convinced that there are not better alternatives. The reasons for this relative dissatisfaction are obvious. The majority of those surveyed complained in particular about the fact that the hotel market is severely fragmented, the large amounts of time and effort involved in sourcing and rising hotel prices. They are therefore seeking solutions that will reduce costs and save time. There are also calls for transparency with regard to booking and billing data and benchmark information that can be used to define targets and assess performance.
The decision-makers who were surveyed initially sought answers to the above challenges within their own organisation. Are the employees in their team the right people to solve existing and emerging problems? Are the hotel programmes in the various regions appropriately weighted? Do travellers actually book at the rates that have been negotiated (keyword: rate audits)?
Adjustment to changes in conditions? Twenty per cent don’t do this beyond the RFP season
One of the key challenges for an international travel manager or hotel buyer is always to keep an eye on changes in business that could have an impact on his/her hotel programme; new demand in a new geographical region owing to a new project, for example, or an increase in the volume of overnight stays. Decision-makers were therefore also asked what sources they obtain their information from to make sure they always stay informed of the latest developments affecting their hotel programme.
Companies that review prices and demand for their hotel programme all year round instead of just once a year will cut hotel costs and also increase compliance.
It’s no surprise that the majority monitor the markets either through a TMC (49 per cent) or a preferred hotel operator (45 per cent). However, it is remarkable that one fifth of travel managers take changes into account only when the next tendering season is imminent.
At this point in their study, the experts from the ACTE and HRS concentrated on questioning those companies that had redefined their sourcing process. They were interested above all in the question of whether or not they had outsourced the time-consuming sourcing process, which is actually no longer considered to add value. What is interesting is that the size of a company appears to have an impact on whether it decides for or against. While companies with medium-sized hotel programmes (USD 5 million to USD 10 million) in particular had decided to handle all of their hotel sourcing internally, just under half (48 per cent) chose the opposite path and brought in external experts.
Continuous sourcing: Redefining the RFP process
Either way, the change in strategy has paid off for every single company, with hotel costs falling by an average of six per cent per year. There was nevertheless one method in particular that attracted the attention of the experts from ACTE and HRS. Companies that set up a so-called continuous sourcing process, in which prices and demand for the hotel programme are reviewed year-round rather than just once a year, not only reduced their hotel costs but also increased compliance and the frequency and intensity of communications between individual stakeholders (TM, assistants, hotel; see graphic).
Continuous sourcing is still a relatively new concept in the field of hotel procurement; only a handful of travel managers (about one tenth) currently use it. However, ACTE Executive Director Greely Koch is certain that it will catch on. "As the concept of continuous sourcing cuts hotel costs, improves traveller satisfaction and increases programme flexibility, travel managers should exploit these benefits," he says.
What other better way is there to keep an eye on fluctuating hotel rates than through continuous tendering in markets that are relevant to companies? Or "redefining the RFP process", as Marco D’Ilario, Vice President Sourcing Solutions at HRS, enthuses. What other better way is there for travel managers to stay informed than through regular discussions with their preferred hotel operators and through the use of comparative tariffs, early booker data and other local factors to obtain the best rates for satisfied travellers?
Naturally, no one is going to turn their hotel programme upside down overnight. In view of the cost savings and other advantages that those 51 per cent of the surveyed companies that had made changes to their hotel sourcing process were able to achieve, ACTE is calling on the remaining 49 per cent to "consider a change, because financial performance and traveller satisfaction are becoming more and more important."