Saturday, April 29, 2017

What tool can businesses use to negotiate rates for their company at hotels?

Both Priceline and Hotwire have opaque booking capability, if all you're looking to do is book a cheap room from time to time. In order to get the cheap-cheap rates they occasionally have available, you have to take the room they give you, at the hotel they give you. Opaque is what Hotwire is all about, and Priceline still has its 'name your price' feature that's a standby for bad inventory planning on the part of the hotel, or for new hotels trying to assemble a critical mass of customers in a hurry.

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When negotiating a corporate or group account with one or more hotels for your company, you need to be thinking 'high-touch', not 'high-tech'. I'm not aware of any software that will do it for you. It's a service, not a product. There's skill and even a little human instinct involved: it can't be reduced to an algorithm that can be processed by a computer.

There are still storefront travel agencies that specialize in this sort of thing; but like the online travel agencies, GDS commissions are high. (I'm not paying them. If a commission must be paid and I have to agree to it in order to get the business, then someone else is going to end up actually paying it - it's going to be reflected in your room rate.) So, if you're only planning to put people in a few locations, you can perhaps negotiate a better rate with the hotel by negotiating with the hotel directly.

Rates for hotels will vary from city to city, town to town, anyway (see Hotel Management: What is a healthy ratio of food & beverage revenue to room revenue? - I got off on a tangent on that subject with that question, but quite covered the subject . . .). You'll want to check rates for the hotel you wish your company to use, then check rates at comparable hotels in the area, to know what their regular rates are, and what can be reasonably asked of you.

Whatever rate (and any extraordinary services - billing, recordkeeping, special check-in/check-out arrangements such as early arrival or late stay, having the hotel receive any mail or deliveries for you) that you will be able to negotiate will depend much upon the hotel's occupancy rate, cash flow situation (a tip: many U. S. hotels are overleveraged), and ability and willingness to provide whatever extraordinary services you ask.

The higher the hotel's profit margin, the more flexible they can be. It costs a minimum of about $45 per room rented at an economy motel, exclusive of debt service (and debts have to be serviced), so don't count on a deep discount at a Super 8 Motel or Econo Lodge. The minimum cost at a more upscale hotel will, of course, be higher; but the Best Available Rate will be even more so. So they'll have a little more negotiating room.

Your own leverage? How many rooms will you rent per month? For lots and lots of room-nights (a 'room-night' is one room rented for one night: fifty room-nights is fifty room-nights whether you bring 50 friends and rent fifty rooms over one night, or your company has two people each rent a room at the hotel for a total of 25 nights each), we'll give up quite a bit, particularly if we can count on you to cover a good portion of our fixed costs without adding too much to our variable costs.

Or if you do require extraordinary services, the rate will be a little higher, enough to cover the cost of providing them divided by however many rooms we can count on you for, but still less than the 'Best Available' rack rate. (I'm in this business, today, because of a contract one older hotel in Durham, N. C., some 25 years ago had with the local Military Entrance Processing Station. The rate they were paying for the 150-200 room-nights per week that the local Armed Forces center rented to house the new recruits through the series of examinations, physicals and processing wasn't bad, but this was the government that the hotel was dealing with: the recordkeeping and paperwork requirements that the hotel had to take on in order to fulfill their end of the contract with MEPS required putting a second person on the night audit shift - me. I was fresh out of college, no one was hiring drafters, and it was my first hotel front-office job.)

Airlines use hotels extensively - at least some rooms at every destination - and an airline have people on their staff people who are capable of making the management (or sales department, but ultimately the management is, or should be, responsible) of the hotel dance like a trained bear to get and keep a contract with the airline. Quite frequently, a contract with an airline will provide a room rate not altogether generous to the hotel, check-in/out at any time of the day or night, and even a requirement that the hotel set aside so many rooms per night for the airline - not that the airline will necessarily be required to pay for the rooms if the flight crews for whom they're reserved don't show up. (I've never had occasion to pursue airline business, but I'm aware of one hotel in a city not too far away that might, if I were running it, consider it. It has 130 rooms in a market where the occupancy rate is so low - around 50-55% - that such a deal would work for the hotel. But it would have to be a place like that; where I'm resigned to the fact that for the duration of that contract, I'm always going to have a lot of rooms I'm not going to rent, anyway, no matter what I do. Unfortunately, in such a market, the same is true of most every other competing hotel nearby, which is why the rate the airline ends up paying isn't very generous to the hotel.)

I have my differences with 'entitlement' rates and organizations that demand them, but in your own negotiations of corporate rates with hotels, remember, AAA and AARP is your friend. Thanks to such organizations and their entitlement rates, just about everyone who walks in the door at most chain hotels - see What is and why do hotels have a rack rate? - is entitled to ten percent off the 'Best Available' rate. (Don't try it at any of the hotels of the new low-cost, mid-market brand that we're launching: that one won't be 'taking' AAA or AARP - but if we give you a discount, it really is a discount, and it's from the heart: we really want you to have it . . .).

So, in negotiating contract and group rates for your company, keep in mind: if they're not giving you more than ten percent off their regular rates (if I were working for you, booking rooms for your people, I'd go for at least fifteen - and remember, as I said, check their rates online before you begin talking to them? . . .), they're giving you nothing. If all they're giving you is a ten percent discount for your sales rep or technician that you send to their town every other week, and if they're providing no more by way of extra services, or direct billing (a once-common extra service that's over the last ten years become as deprecated as check cashing); you're getting nothing from them that your people can't already have for the asking just by asking for the AAA rate, and you should talk to a few more hotels in that area before considering a relationship.

You can negotiate directly with hotel chains, but keep in mind if you go that route that you have to be good for lots of room-nights, and that your demands for extraordinary services have to be something that can be communicated very simply to the individual hotel and carried out on a one-size-fits-all basis. (Usually, whatever you get will be in the form of some pre-packaged 'program' that you 'qualify' for based upon their evaluation of your needs.) Also, the incentive that many chains have to even talk with you is limited: most 'chains' are entities that sell franchises to independently-owned-and-operated properties, and participation will vary. You're better off negotiating with the individual hotels in most cases. I'm sure that if you're good for about 50 or more room-nights a month, someone at Marriott, Hilton or Carlson will be happy to talk with you. But in order to try for an even better rate, or see what other services can be included, you're going to be negotiating with individual hotels, anyway. So, keep Marriott, Hilton, and Carlson honest: don't just take the first deal they offer you, shop it around and compare.

Negotiating corporate accounts at hotels has as many facets and nuances as there are hotels, hotel needs, customers, and customer needs. I tried here to be helpful - anyone can do it with a little know-how - but it's really not something that a 'tool' can do . . .

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