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Travel 14th August 2018 - 6 min read

Reinventing the RFP

By Joni Lindes

We are approaching Hotel season – a season that, according to a 2017 survey conducted by GBTA, causes frustration to 33% of travel managers. The question is, why are a third of travel programmes so demotivated by this process? The GBTA survey narrowed the pain points down to four major issues: lengthy line-by-line negotiations, poor data visibility, a lack of tangible benefits and a lack of resources to support the process itself.

The need for innovation in a hotel strategy

We believe that further innovation in the hotel sourcing process can change this. Many other industry leaders support this view. “I’ve been in the travel industry for a little over 20 years, and it feels like we talk about the same issues for decades,” said Yapta CEO James Filsinger. “We are continuing to rely on systems and processes that have been in place for decades that worked effectively and efficiently 20 or 30 years ago. We have not brought or adopted innovation into the process.”

The first pain point that can easily be addressed through technological innovation is the data problem.

What is the data problem?

Hotel data is not only sometimes inaccurate, but is often incomplete. Travel managers who use TMCs reported a satisfaction level of 70% with their hotel programme. However, even when satisfied, managers often discover missing data as the TMC does not take into account separate bookings made outside of TMC systems.

In fact, our analysis discovered that TMC data misses around 41% of spend in the lodging category.

There is only one thing more ominous than no data at all and that is incomplete data. Incomplete data lulls managers into a state of false security as they believe that the data they have on hand is enough yet discover mid-negotiation that they have no visibility into what spend occurs across each hotel supplier.

The Hotel RFP negotiation process is often highly involved with strict line-by-line negotiations, yet real-life contract performance visibility remains to be an issue. Managers cannot see which amenities from which hotels are actually being used as well as whether hotels are honouring the terms of their contracts in practice.

‘What percentage of your travellers eat breakfast at the hotel?'” asked HRS head of corporate sourcing for the Americas, Jeff Hillenmayer. “Everyone said, ‘I don’t know.’ If we don’t know than why are we negotiating it?”

The missing data may not stop at 41%. New data sources like Tripbam and Yapta are finding that revenue management processes were blocking negotiated rates – leaving the debate on contracted last room availability completely redundant.

The relief is that new technology can be used to answer these problems. PredictX uses artificial intelligence models and advanced data analytics to fuse TMC, Card, Expense and Hierarchy data to provide a Total Trip Cost view. The Total Trip Cost view examines all areas of spend within a hotel programme. Travel Managers will no longer be subject to a 41% gap in the data they get on their lodging.

Additionally data can be used to monitor contract performance in near-real-time. Using customisable workflow automation, contract data is stored in the platform. It is then linked to a supplier profile and risk data along with spend data, plus wider market price benchmarks. Travel managers can now check if their contracts are being honoured in near-real-time as well as what hotels or amenities their travellers actually use.

Switching up RFP

Now we have the data we still need to re-examine how we manage the programme itself. Despite the hotel process being so traditional, demands of business travellers are changing as we approach each new hotel season. Travellers have a diverse set of priorities when booking hotels for business. Convenience tends to trump cost and it is no surprise that hotel chain loyalty is still a major factor when it comes to the hotels travellers choose, according to Travel Services, Meetings and Events leader, Karen Hutchings. Hutchings manages $1.8 billion in travel spend for EY and is finding new ways to make the RFP process more flexible:

“We want to give our travellers choice. We want them to be engaged within the travel programme,” said Hutchings. “An engaged workforce will feel better about the programme which can improve the retention of talent.”

It is high time we reinvent the RFP process. Hutchings is using dynamic pricing – an alternative RFP model for hotel sourcing – yet there are many more ways in which we can approach the RFP process from a different angle. Here are four alternative RFP models to watch out for:

1. The Off-Cycle Model

Travel managers shift their negotiations from the typical July/September/August start dates to January/February with the contracts beginning in the April to March fiscal year. – allowing for better benchmarking data, service and initial bids in a quieter season. Hilton Executive Director of Business Travel Sales Maria Chevalier said clients have had great success going off cycle, and it’s a practice Hilton is encouraging more buyers to adopt.

2. The Dynamic Rate Model

The dynamic rate model calls for multi-year agreements in which almost all dynamic discounts are calculated as a percentage off the best available rate (BAR). Dynamic rates would mean throwing out the annual RFP process and moving towards longer agreements while hotels will be able able to negotiate rates reflecting real-time market conditions. This approach can take a lot of the hassle out the RFP process but strict examination needs to take place to ensure programmes are getting the same value and market-picture that they would get if they applied a fixed rate model. Read more tips on how to introduce dynamic pricing.

3. The hybrid model

An annual process where buyers use data to identify their top markets based on spend or volume. Fixed rates, dynamic rates and chainwide agreements are used together. Through this they can secure static, negotiated rates at top hotels in the market. In secondary and tertiary markets, buyers mix chainwide discounts, agency rates and rates found through hotel rate shopping tools. This approach, while well-used, limits the number of hotel negotiations resulting in a shorter hotel season. It also protects the programme from rate spikes during high levels of occupancy.

4. The long-term service-level agreement model

This process puts a stop to year-over-year negotiations. It makes sense as the need to reset and negotiate every agreement annually is made redundant, especially as only a maximum of 10-15% of the hotels move in or out of the programme. The contracts are instead tracked and measured monthly – allowing for re-negotiation or termination of contract by either party.

In order to make this process work, buyers need to make use of external providers to measure savings against market-share metrics. Again, this ties it back to how improved access to complete and accurate data can revolutionise hotel negotiations.

One size does not fit all

Any of these approaches could work. It all comes down to individual programme goals. Although hotel supplier negotiations have remained a static process for the last couple of years, we believe that an immediate access to quality data can be the driving force behind each of these four models. Immediate access to data can allow for an easier transition to an off-cycle model as managers will not have to wait on reports delivered after month-end. New metrics – like city-wide benchmarks – need to be added to measure savings and performance in a hybrid and dynamic approach. A long-term service-level agreement model needs ongoing and immediate measurement of contract performance with each hotel supplier.

No matter which approach is best for your programme, two things are certain: innovation needs to take place and quality data needs to be the driving force behind it.

Joni Lindes
By Joni Lindes
6 min read

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