Room for Savings: Optimizing Hotel Spend - Carlson

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Key findings in brief The research highlights three key findings: 1. Hotel spend is often underestimated although it represents nearly 40 percent of the total travel budget on average. To arrive at this figure, CWT used three different methodologies, including case studies that reveal companies can spend as much as 46 percent on hotels, nearly as much as on air transportation. This finding may surprise travel managers, who estimate their hotel spend at just 28 percent of the travel budget on average. Nevertheless, travel managers acknowledge the importance of optimizing hotel spend, making it a higher priority in their travel programs. 2. Companies can save 21 percent of hotel spend by adopting best practices in hotel spend management. These savings are found in four main areas: traveler compliance (9 percent), policy and program (8 percent), negotiations (6 percent) and performance tracking (1 percent), taking into account an estimated overlap of 3 percent. Client transaction data and case studies were used to calculate companies’ room for improvement (moving from average performance to best-inclass performance). 3. Seven steps enable companies to optimize hotel spend. These are described below. Consolidate spend data. to leverage maximum volumes during negotiations, check that travelers are being charged the correct rate at preferred hotels, and monitor policy compliance. Yet the required data is notoriously difficult to gather and companies usually need to “cleanse” data from several sources (e.g., by harmonizing different coding systems and eliminating duplicate entries), which can be challenging. This partly explains why 39 percent of travel managers believe they capture at most 75 percent of their hotel spend data. Nevertheless, it is possible to obtain all the necessary data from reports on TMC transactions and payments made by corporate credit card, and consolidate it with the help of specialists such as the TMC. Ideally, travel managers also ask chain hotels to provide e-folios (itemized electronic invoices), where available, for a better understanding of spend on amenities. Understand traveler needs and behavior. Needs vary among four segments identified by CWT (“comfort seekers,” “demanding customers,” “easygoing guests” and “pragmatic travelers”) and travel managers should take these into account when designing their hotel programs. As a general rule, travelers place practical considerations before comfort. Surveyed travelers say a hotel’s proximity to business locations is critical, far ahead of the next most important feature, hotel category. Comprehensive data is essential for buyers
Key findings in brief Although travelers tend to choose highercategory hotels for longer stays, the category does not appear to be a direct driver of satisfaction. Similarly, travelers take a “no frills” approach to booking, ranking features such as photos and traveler feedback low in importance compared to speed and convenience. Contrary to popular belief, travelers tend not to shop around when booking a hotel and just 14 percent surf the Internet for this purpose. Thirty-five percent of travelers know where they want to stay before booking, which could explain why travelers place fairly low importance on having a wide choice of hotels and advice provided by the travel management company. Design an effective hotel policy. Mandates should be used, as travelers are more likely to comply with policy requirements than simple recommendations. In particular, companies should mandate the use of preferred hotels whenever available. This said, some companies authorize nonpreferred alternatives if they are significantly cheaper, at the risk of diluting the volumes spent at preferred hotels and decreasing related savings. In this case, CWT recommends stipulating that the room rate must be at least 20 percent lower. At the same time, companies should provide clear guidelines on what to do when preferred properties are unavailable, including using a preferred chain, respecting a city cap, and following recommendations made by the TMC or online booking tool. Another important rule is booking through TMC channels, which enables travelers to access significantly lower prices both at preferred and non-preferred hotels. (CWT research shows that TMC-booked rates are on average 18-21 percent lower.) In addition, TMC booking enables travelers to be tracked in the event of an emergency, as well as save time when booking. An effective hotel policy also mandates booking at least two weeks in advance whenever possible and paying by corporate credit card. Finally, reimbursable/ non-reimbursable amenity charges should be addressed in the hotel policy. Optimize the preferred hotel program. A methodical approach can help companies select the right hotels in the right locations. First, they should consider any property or location that accounts for at least US$10,000 in spend, bearing in mind that this threshold can vary between markets and companies. As volume discounts are at stake, buyers should concentrate spend on the smallest number of properties that meet the company’s needs. Moreover, significant savings can be achieved by reviewing the hotel categories included in the program. With an average rate difference of 21-25 percent between categories, it is worth considering a multi-tier program, providing a range of properties for different populations of travelers or different destinations (e.g., lower categories for domestic travelers or specific business units). Another important decision is whether to retain current providers or work with competitor hotels. Although the latter often offer savings, CWT research indicates that companies that retain at least 80 percent of their preferred hotels from year to year tend to be more effective at limiting rate increases than companies that introduce more 9
Page 1: Room for Savings: Optimizing Hotel
Page 4 and 5: Contents Introduction Overview ....
Page 6 and 7: Research objectives This CWT resear
Page 8 and 9: Figure 1: Breakdown of surveyed com
Page 12 and 13: changes. In addition to providing t
Page 14 and 15: A complex market The complexity of
Page 16 and 17: A lack of global standards to defin
Page 18 and 19: Complex pricing Hoteliers use diffe
Page 20 and 21: Figure 10: Rates remain fairly cons
Page 22 and 23: Figure 12: Most corporate hotel boo
Page 24 and 25: Data on hotel spend is however, not
Page 26 and 27: How to calculate your company’s t
Page 28 and 29: 2. Twenty-one percent savings throu
Page 30 and 31: Many organizations have yet to opti
Page 32 and 33: GDS auditing It is important to ens
Page 34 and 35: 1. Consolidate data Travel managers
Page 36 and 37: Figure 27: Combined TMC and credit
Page 38 and 39: Figure 28: Recommended data fields
Page 40 and 41: Hotel category: not the most import
Page 42 and 43: “No-frills” booking When it com
Page 44 and 45: In fact, travelers often draw on th
Page 46 and 47: A number of differences between the
Page 48 and 49: SUMMARY Understanding traveler need
Page 50 and 51: 2. Ask travelers to use serviced ap
Page 52 and 53: Figure 41: Recommended rules for bo
Page 54 and 55: Figure 43: Rates are on average 18-
Page 56 and 57: Figure 46: In a rate benchmarking e
Page 58 and 59: 5. Mandate booking at least two wee
Page 60 and 61:
6. Address extra charges Travelers
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SUMMARY An optimal hotel policy cov
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4. Optimize the preferred hotel pro
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Identifying properties and location
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Considering local market conditions
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Figure 59: One company could save 6
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Figure 61(continued): The share of
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Figure 63: Hotel stays of at least
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Deciding between existing preferred
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Figure 69: Companies that retain at
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SUMMARY Key points for optimizing a
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5. Negotiate effectively Negotiatio
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Chain-wide agreements, as the name
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Chain-wide deals tend to offer smal
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There is, however, a risk associate
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Despite this reticence, 40 percent
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Figure 83: Another company’s ARR
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Last-room availability A last-room
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LRA is common in corporate contract
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Benchmark rates. Companies commonly
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Companies can consolidate volumes i
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Leverage city caps. Experience sugg
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Consider renegotiating flat rates d
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Buyers should use the full range of
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Hoteliers’ performance. A hotelie
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Ensure your travel management team
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6. Improve traveler compliance The
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Understanding why travelers book ou
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The survey also indicates that trav
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Explain the stakes. Price-conscious
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Figure 112 shows how an OBT can be
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Require travelers to book their hot
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Investigate the reasons for noncomp
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To ensure that the agreed condition
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GDS rate squatting. Regular GDS aud
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Rate audits pay A rate audit conduc
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Tracking traveler compliance Compan
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SUMMARY Tracking performance: Compa
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Appendices Glossary The following i
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For more information about how CWT
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