Travel managers can close savings gaps with dynamic sourcing and performance management based on ongoing data analysis
When it comes to hotel sourcing, the yearly set-it-and-forget-it mentality will soon be a thing of the past. Companies gain the greatest mileage from their hotel travel spend through ongoing data analytics and processes that reflect the industry and market developments and a company’s changing travel pattern, while keeping spend in check.
A deeper look at data uncovers opportunities for improvement and helps travel managers take action long before the traditional sourcing season comes along.
What does the data say?
One uncomfortable discussion that comes up too often for travel managers is the difference between identified savings and actual savings. Company stakeholders want increased travel programme savings year on year; they’re looking at the data and they don’t like it.
Travel managers are in a tough spot. They’re doing what they’ve always done and are masters of negotiation, but stakeholders are demanding more and travel managers are frustrated. One such stakeholder is travellers; they’re more vocal and clear about what they want and don’t want from a travel programme whether it is better rates or better amenities and experiences.
As humans, we too often rely on what we know and stick closely to the way we’ve always done things.
However, in a world where technology touches every part of our lives, data shows us that if we redirect our processes, we will reap rewards.
What this means for travel managers is tossing out time-honoured traditions such as measuring success with fixed rate KPIs and programme coverage with preferred properties. Instead, travel managers should move toward making data-driven decisions that truly affect the bottom line and add to a programme’s value. Travel managers can use readily-available information to keep a better pulse on the market and their own travel pattern as they fluctuate. Real-time data adds value to their hotel programmes by giving companies a better understanding of market conditions, leveraging points for negotiations and savings throughout the year.
Take a hard look at company and third-party data and you will see you’re leaving money on the table. But there’s good news: the data will help you reclaim it.
Were the rooms available?
With traditional hotel sourcing, travel managers lock in a rate that promises savings once a year but there are many problems with this process. The first is that those discounted hotel rooms were passed by for rooms elsewhere. Why?
A rate availability audit usually shows that the gap between identified and actual realised savings can be tied to room unavailability. Simply put, the hotel rooms at the negotiated rates are not always available. Data reveals that in some regions, hotel rooms with negotiated rates were not available to travellers 30% of the time. And for some hotels, it could be as high as more than 50%.
A low rate will only take you so far. You may think you have a great deal in place but if you’re not able to book it, what’s the value of the deal?
Did you get the best rate?
Travel managers often hear from travellers that they can find cheaper rates themselves. Taking a good look at this data can give travel managers insight into the real value of the negotiated programme.
A study of third-party sources against company data shows that hotel negotiated fixed rates are better some of the time. In cases where it’s not, a company likely has some volume but not enough to get the best rates. And in other cases, the best available rate (BAR) on the general market beats the negotiated rate due to seasonal dips and market trends.
The data shows room for improvement on rates throughout the year. And, once again, it reveals the error or pitfall of the industry’s once-a-year hotel sourcing cycle.
Looking at the BAR and room availability are just two examples how data can provide key insights about missed opportunities.
Data drives sourcing cycle change
Forward-thinking companies are leveraging data like this to move away from the annual sourcing cycle and adopt a year-round approach. Dynamic performance management allows for a diverse mix of opportunities, fluid negotiations and realised savings.
An ongoing view of monthly data will help travel managers see if there’s a one-off or a trend – something to act on. Essentially, data reflects the market in real-time and that’s when to act, not months later during the traditional sourcing season after opportunities have come and gone. Companies who have transitioned to this model realised 1-2% savings on hotel spend in the last year.
Fixed rates vs. dynamic rates
Traditional hotel sourcing fixes a rate for a year or sometimes two. To protect themselves from the unknown, hotels will often shoot for a fixed number slightly higher than the best rate they can offer that moment. Hotels and companies protect themselves from long-term risk at a cost of getting the best deal. It follows that when companies step away from long-term fixed-rate contracts with hotels, the risk is lower for hotels to offer the best rate and the opportunity for companies to save is greater. Dynamic pricing is truly a win-win for everyone involved once there is buy-in on all levels.
With the dynamic pricing model a percentage of savings is negotiated on the BAR at any given time. That way, companies can still enjoy preferred rates, even when BARs dip due to seasonal or market-related trends.
There’s a possibility of a BAR shooting up due to big events in a city or natural disaster. That’s when a cap based on solid data helps keep costs in check. Data should look at seasonal increases and company travel patterns to set the caps but they should be realistic. Extraordinary spikes from events like the Geneva International Motor Show or Paris’ Fashion Week cause prices go through the roof and shouldn’t weigh averages that will influence caps.
More fluid contracts
While dynamic pricing doesn’t focus as much on fixed rates, contracts still come into play and it’s possible to have even more long-term contracts with this model. But that doesn’t mean there’s no room for adjustments. If a company’s rates are not performing as they should be, dynamic performance management provides the opportunity to renegotiate the rates as needed.
As an example, let’s say your company is negotiating rates for 2019. In June, the data says rates are doing what you want them to be doing. But a few months later, they are too high. That’s an opportunity to revisit those hotels and renegotiate. This is a way the sourcing cycle becomes more dynamic; once the negotiations are set, they begin a new contract that is good for another contract term.
Another scenario where dynamic sourcing can help is when a company notices that its rooms at preferred rates are unavailable to travellers. That could be an opportunity to add another hotel in that market to cover the overflow.
Reduce and diversify hotel mix
It’s important not to treat all travel markets the same; every company is different and a travel programme should reflect that. Companies with a high hotel stay volume in a market have strong leverage for negotiations but many don’t take advantage of that power. They offer travellers too many choices and get fewer savings. This is where it makes sense to leverage a company’s volume in a market at fewer hotels for greater savings.
Some companies can also realise savings by noticing length-of-stay in a given market. When travellers stay for multiple nights, companies have more negotiation leverage. Chain-wide negotiations can help companies with lower volume markets where their travellers stay.
Additionally, in the cases of low-volume markets, companies may benefit from spot rates as opposed to negotiated fixed rates. In these cases, a cap can help keep costs from hitting the ceiling.
Transition to a new process
It’s no secret in our industry that the annual hotel sourcing process is broken. Travel programmes are missing the mark because of fluctuations, trends and market situations. In a world where information is available to us minute-by-minute, why should companies get locked into hotel contracts that go stale?
In a technological world, the industry is headed toward dynamic management, a data-driven process that flexes accordingly. As an industry, we’re not there yet but the process has begun and tools are in place to manage all of this data. No matter where you are in your sourcing cycle, you can begin to integrate dynamic performance management now.
As companies adopt this new way of thinking, it’s important to get buy-in across stakeholders from company headquarters, travel managers and travellers to independent hotels and hotel chains. If there’s an understanding of how the new approach helps everyone, the transition will be smoother on all counts.
The yearly hotel sourcing cycle will fade as buy-in extends throughout the company, data is analysed regularly and negotiations happen dynamically. With a dynamic model driven by data, companies will be more efficient with higher value and travel managers will save money and time. Ongoing analysis of data will show you the way.