The Direct Booking Dilemma

Do hotel incentives undercut negotiated rates?

Direct Booking Dilemma opener

"Stop clicking around!" commanded Hilton, in a recent media blitz to stress the benefits of booking directly with the hotel company. "It pays to book direct," confirmed Marriott, in a marketing campaign of its own. Shortly thereafter, InterContinental, Hyatt, Wyndham and Choice were promising the lowest guaranteed rates to loyalty-club members who booked directly through hotel company channels.

Such campaigns have become increasingly aggressive and ubiquitous in the marketplace. Hotel companies are vying for more customer data and pushing back against the market leverage of third parties like Expedia, to which they pay commissions as high as 15 percent on rooms booked.

But the promotions, while clearly targeted at individual leisure travelers, have some industry pundits wondering if there could be ramifications for the group and meetings market.

"Simply put, many travel buyers are finding these promotional rates are lower than what they've negotiated elsewhere," says Bjorn Hanson, Ph.D., based on his interviews with corporate travel managers and planners. Hanson, clinical professor at the Jonathan M. Tisch Center for Hospitality and Tourism at the NYU School of Professional Studies, conducts a wealth of interviews every year for his annual report on the state of corporate hotel negotiations. He's careful to point out that his observations thus far are more anecdotal than statistically significant; still, he sees growing levels of concern in the marketplace.

"Travel buyers want to be shown via pricing that they still represent important business," Hanson says. "This concern is among the more significant changes I'm seeing in all the research."


Undoing the deal?
Of course, hotel companies do value meetings business, concur executives from every lodging provider who responded to queries. "From the beginning of the planning process, Hilton collaborates with meeting and event professionals to identify specific needs and requests, including negotiated group rates, and works to ensure their attendees receive the best value for the collective group's needs," says Andrew Flack, vice president of marketing and e-commerce for the Americas at Hilton Worldwide.

Still, Flack doesn't guarantee that planners' rates won't be undercut. "The Hilton HHonors member discount is similar to other individual promotions or packages offered, in that the group rates could be higher or lower," he says. "Those who book with the group will receive the negotiated group rate, and those who book directly will get the Hilton HHonors individual member discount."

Flack emphasizes that Hilton works with planners to ensure HHonors members receive their benefits whether they book directly or not, and the direct-booking promotion is "no different than other individual promotions or packages." Bookings made directly with the hotel, however, would not necessarily be counted toward fulfillment of the contracted group room block.

 

Seasoned meeting professionals understand that negotiations involve a wide range of logistics and concessions beyond room rate, but they are equally sensitive to the bottom-line perceptions of attendees and clients who might focus solely on rate.

"It all comes down to the rate that is being offered, and what the restrictions are," says Marty Balogh, associate executive director of the meetings and travel group at the Chicago-based American Bar Association. "If the group rate is lower, then I don't think many planners will have a problem with hotels trying to change the buyer pattern from sources such as the online travel agencies and other third parties. If they are going to undercut the group rate, then yes, it is a problem and planners will, at minimum, demand credit for every room sold outside of their official channel. It also devalues what meeting planners do in the eyes of their registrants and organizations," notes Balogh.

If direct-booking rates are lower but carry with them a number of restrictions -- steep cancellation fees, for instance, or full payment in advance -- that may or may not create friction with planners. "In that case it will depend on the type of group that's meeting and whether their attendees require flexibility," Balogh adds.

Owning the customer
The desire to build customer loyalty is a key force driving direct-booking campaigns, notes Matthew Lew, Dallas-based senior manager/sector specialist in the travel, hospitality and leisure sector at Deloitte. "Hotel executives have made it very clear that the only way to build true loyalty is through differentiated experiences, which ultimately are enabled by understanding the customer," he says. "And the only way to truly understand customers is to build a direct relationship with them. How it may affect the corporate customer relationship is really a byproduct of that."

Lew anticipates concern from travel buyers and planners over the next year but notes that it's dependent on the success of hotel direct-booking promotions. "If they see enough penetration from the incentives they offer, then you might not see those rates get that low," he says. "Direct-booking rates will be at a level where they're happy with them, and still sufficiently higher than negotiated rates."

However, he adds, if hotels get increasingly aggressive with direct-booking rates, that will become a major point of contention at the negotiating table. "I'm not saying that hotels are looking to abandon corporate relationships," he says. "I'm just saying that they're so far down this path of understanding the guest better, that at some point they have to make a choice of where they're going to prioritize. Right now it looks like they're prioritizing building a relationship with you the customer maybe more so than with you the company."


Different markets, different needs
Restrictive rates, often prepaid and nonrefundable, are increasingly common among the web-only deals offered by online travel agencies, third parties like Hotels.com and the hotel websites themselves. In most cases, such restrictions do not appeal to the corporate traveler or people traveling for meetings, believes Kathy Maher, senior vice president of global sales and revenue management for the Wyndham Hotel Group in Parsippany, N.J.

"That pricing is more directed toward leisure stays or people who are willing to commit in advance," Maher says, "and those restrictions aren't necessarily hurdles that people traveling on group business want to deal with. These really aren't the people we're targeting with that pricing."

While her hotel company considers the markets to be very different from one another, Maher says the focus on Wyndham Rewards is by no means lost on the group and business traveler. "Attendees who book with the room blocks still get all of the benefits appropriate to their status level," she notes. "They get that regardless." Plus, she adds, planners also get the uncapped points associated with the Go Meet loyalty program. "We want everybody to want to do business with us and to feel the goodness and the magic, so to speak, of the things that are Wyndham Rewards."

 

Brian King
Global Brand and Sales Officer
Marriott International
Brian King Global Brand and Sales Officer Marriott International

Brian King, global brand and sales officer at Marriott International in Bethesda, Md., quickly dismisses the likelihood of direct-booking campaign conflicts. "I can't imagine a time when the group block would not be discounted more than the Rewards-member transient rate," he says. "That would be extremely unlikely. Our member discounts are 2 percent during the week and 5 percent on the weekends. Typically, if someone is coming to us with a big block that's booked months in advance, the discounts are much steeper,  because you're committing to business up front, and you're signing a contract. Most planners would probably not take a 2 percent discount if they're going to bring you 500 rooms for four nights."

Likewise, Marriott would not want to incentivize attendees to book outside of a block, says King. "We fundamentally want the right guest in the right block in the right hotel at the right price that the planner has negotiated. Our objective is not to work around the planner -- they are partners of ours. When they sign a contract with us, it is in our and their interest that the block gets filled."

King doesn't believe Marriott Rewards direct-booking rates would pose a conflict for smaller groups either, although he allows that small accounts typically are negotiated at the hotel level rather than with global sales. "But those properties work closely with the planner to maintain a relationship," he says. "I personally have received no feedback about the discount being problematic. Rather, most folks say, 'Great, when my people travel on the weekends with their families and can't get the corporate rate, they can get the Marriott Rewards discount rate.'"

Many corporate negotiated rates can't be used on the weekends, and negotiated group rates often don't apply to the shoulder weekend dates either. In those cases, notes Wyndham's Maher, many business travelers or meeting attendees traveling with their families do take advantage of direct-booking rates to enjoy extra leisure time -- an increasingly common situation, given the "bleisure" travel trend.


Occupancy matters
While hotel companies have been offering direct-booking incentives to loyalty members for some time, the initiatives that promise exclusive rates haven't been on the market very long. For now, it's too soon to know what effect they could have, if any, on group business. The fact some planners and travel managers are concerned, however, makes logical sense, according to Jan Freitag, senior vice president of lodging insights for lodging data provider STR. "I think that's fair," he says. "Whenever you hear somebody say 'I have a lower rate,' of course your first thought will be 'Wait: How does this affect me?' But I think that concern has little bearing in today's market just because occupancy is so high."

Occupancy was in the mid- to high 70s, percentage wise, for the 12-month average through June, Freitag points out. That's still a record high. "I have the distinct sense that the high level of occupancy means room blocks are well utilized," he says. "In a downtown location, in big meeting hotels, occupancies are so high that I would be surprised if the revenue managers let the last available room go at less than the group rate. So the room block now does what it's supposed to do, which is to force people to book in the block."

That could change, however, if average rates begin to deteriorate significantly. "If we see a slowdown where the rates drop, I would think then we'd have a need for the conversation [about direct-booking promotions]," says Freitag. "Then it's going to be very interesting to hear what the hotels say vs. what travel and meeting planners say."