Mistakes to Avoid When Renegotiating Corporate Hotel Rates

Nobody has a crystal ball — although many travel buyers probably wish they did right now. One question on their minds will be what is the hospitality sector’s playbook for recovery exactly?

In Italy, one of the hardest hit countries so far, procurement teams are already renegotiating corporate rates with hotels. Skift talked to industry experts, including one in Florence, about what’s on the horizon once travel gets the all-clear, and what  procurement teams and hotel revenue managers should try to avoid as they return to the negotiation table.

It won’t be PLEASURE BEFORE BUSINESS

Hotels are being urged to realize the corporate market will probably be the customer segment that will be the first to check back in.

“Once you get the green light, business is going to return in a series of steps. First the independent business traveller, then second is some leisure travel recovery. Then group business pick-up,” said Mike Chuma, vice president, global marketing, enablement at engagement at IDeaS. “You’ll see a negotiation of those rates and contracts, a shrinking of groups, and hotels will need to offset some of that shrinking of group business with leisure. There’s going to be vast renegotiation of those contracted rates. Hotels may see a bit of change in their segment mix.”

“Leisure will see a longer booking horizon, but business travelers will be the first to bounce back because business has to keep moving,” added Raj Sachdave, managing partner at Black Box Partnerships. “I hope suppliers in the supply chain respect that and don’t abuse that.”

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Do not ASSUMe CORPORATES HAVE THE SAME BUDGET as before

“We need to be honest with ourselves. Organizations will most likely not travel as much, so that account [with the hotel] may go down. Once corporates are strapped for cash, the first thing they typically cut is travel and marketing,” said Chuma.

SETTING ROOM RATES TOO HIGH — OR TOO LOW

With heavy losses to recoup, logic dictates hotels should go for higher room rates to claw back revenue. But there’s a catch. Hotels that do this will be seen as opportunistic, but by lowering rates drastically to drive bookings they risk setting a precedent that will impact their recovery – as many hotels found out after the 9/11 attacks.

“There will be some hotels that will abuse loyalty, but they’ll stand out like a sore thumb,” warned Sachdave. “If they want to have a short-term win, then fine, good luck to them. But there will be other hotels out there that will strategically play the long game, and try to win loyalty. There is an opportunity for brands here: how can I come back stronger and win more demand by staying honest.”

FAILING TO ADD VALUE

“If the company’s goal is to reduce what they pay per room night, they’ll try to renegotiate those rates. However, buyers and hotels need to find ways to embed more value into the room night, and that price, rather than whittle down the average daily rate on the contract, so think about extra ancillaries like breakfast, or enhanced Wi-Fi,” said Chuma. “Create a better experience and not have to worry about artificially holding those rates low to stimulate demand,” said Chuma.

Procurement teams should also consider this process as opportunity to drive employee satisfaction. As well as the extras, hotels can consider automatic upgrades, and for wary travelers prone to anxiety even features such as contactless entry to the room.

“Hotels should play around with value, but it should also be on the hands of the travel buyer. If they are looking for a reduced rate, then they will probably launch a request for proposal, or go to the competitor for lower rates. Loyalty in this sense counts a lot. Figure out ways to drive profit optimization, rather than focus on sheer rate,” added Zennaro, director, global advisory services at IDeaS.

“I’ve talked to a couple of domestic chains, and they’re talking about what they can actually do to incentivize or accelerate a greater comeback. Let’s wait and see,” said Sachdave.

AN OVER-RELIANCE ON TECHNOLOGY TO FIX THINGS

There are many sophisticated revenue optimization platforms on the market, but hotels should be receptive to what’s happening in the immediate vicinity. Switching on a platform and hoping for the best won’t cut it.

“The power of an automated system isn’t just all about algorithms and predictive [technology], it’s the rationality of it that allows the revenue managers to make more rational decisions,” said Chuma. “It’s what we saw coming out of the Sars and HN1 crises – if you don’t appropriately work with your positioning and reference pricing against your competitor set, you will have brand erosion if you continue to drop price.”

Remember to bear in mind local markets

Revenue managers need to look again at the area their hotel operates in. If they’re in a financial district, business is likely to return at a faster pace than a tourist hotspot that has suffered from the Covid-10 pandemic.

Zennaro added: “Hospitality has been through many crises. You always get the panic, then the business traveller will come back, but it could be at a completely different pace. You’ll get the local markets starting quickly, but international travel will take longer.”

He said IDeaS will help its hotel clients by giving them data, but ultimately local factors should come into play. “It’s down to the hotel, and where it’s located. We’re advising on rates, but this is an unprecedented situation for everybody. There is a big opportunity today to review price strategies that maybe they’ve never done before,” he said.