Calculating your worth:
Hyatt sales executives (clockwise from left)
Jack Horne, Fred Shea and Ty Helms
Sure, hotels want your business. But just how badly do they want it? How do they determine what mix of rates, dates, space and other variables will make it most worth their while to host your meeting? The answer is a complex one and growing more so, especially as the market strengthens and hoteliers have the luxury of being choosy.
Another increasing challenge to planners seeking rooms: Properties are becoming ever smarter about protecting their own profitability.
“Hotels have gotten very sophisticated about the concept of revenue management,” says Ty Helms, senior vice president of sales for Chicago-based Hyatt Hotels Corp. “Meeting planners need to understand the information available these days that helps determine the value of meetings business and helps hotel sales directors make better revenue decisions.”
Clearly, an understanding of how those decisions are made can be a powerful negotiating tool for planners. To that end, M&C asked the top executives of several hotel chains to divulge how they measure, evaluate and compare one piece of meetings business against another.
Finding the right mix
Three types of business make up a hotel’s customer base: groups, transient business travelers and leisure guests. While groups are vital to profitability, each hotel has a different benchmark for the amount of such business it needs to maximize its total revenue.
At convention hotels, the target for group business can be as high as 75 percent or more. At smaller downtown city hotels that tend to draw more transient business travel, the goal for groups usually is 25 to 30 percent. In the resort market, where the leisure demand is strong from Friday through Sunday, the weekday group business target might be set at 50 to 75 percent.
The best combination of all three types of business is, naturally, the one with the greatest revenue potential. In deciding what mix makes sense for a particular property on any given day or week of the year, hotels turn a sharp eye...backward.
“A hotel’s historical meetings data allows that property’s revenue manager to inform the director of sales of how many business opportunities might exist for future dates, and the average value of those opportunities,” says Helms. “The more years of data collection, the more accurate our ability to predict future demand.”
Past data is the hotel’s internal tool for determining how much group business it wants to sell over particular dates and at what rate, echoes Fred Shea, Hyatt’s Chicago-based vice president of sales. “A ceiling is put in place based on what we think the transient demand will be,” he notes. “But it is constantly being re-evaluated. As we get closer to the group block ceiling, we begin to re-evaluate whether the rate should go up or down, based on the overall demand we are getting.”
However, Shea cautions, it typically holds that when a hotels nears its group ceiling, it is running out of available meeting space.
With increased demand, a hotel has much less risk of having rooms go empty. This allows the property to take a second look at its mix and adjust its profitability, says Kevin Kowalski, vice president, brand marketing, for Atlanta-based Crowne Plaza Hotels & Resorts. “Now we can concentrate more on getting group business that is better value- rated, and less on SMERF [social, military, educational, religious, fraternal] groups, which generate less ancillary revenue,” Kowalski says.
Meeting planners who know a hotel’s target business mix for the days of their meeting can leverage that information in deciding whether to place the business early and be guaranteed the right meeting space, or wait and see if demand falls off and a better rate can be had. How does one find out a hotel’s target mix? Ask the salesperson.
Sales Training: Behind the Scenes
For Beverly Hills, Calif.-based Hilton Hotels Corp., group and meetings business falls to 150 salespeople across the United States who represent the chain’s entire portfolio, including the Doubletree, Embassy Suites, Hampton Inn and Homewood Suites brands. M&C recently spoke with Larry Luteran, right, Hilton’s Washington, D.C.-based vice president, group sales and industry relations, about the evolution of the chain’s sales training program.
M&C: What is different about selling in a seller’s market?
Luteran: We really don’t change our philosophy based on whether it’s a buyer’s or seller’s market, because everything today is event driven. What is different, though, is our training has evolved as the work of sales has changed. We put a premium on having our salespeople be specialists in certain markets the pharmaceutical market is an example of one area of specialization. And with the corporate planner, procurement is now strategically involved. So we need to make sure we are selling where the account warrants. Our salespeople have to do more than just sell event by event. We have to ask how can we work with our strategic accounts to meet their buying needs, which means more multiple-event agreements.
M&C: What other areas of specialization are emerging?
Luteran: Technology, finance. They all have unique needs, to the extent that we have to tailor our approach to selling to those markets. To do that, we have to be aware of what they are looking for, so we can help them achieve it.
M&C: What is new about selling today?
Luteran: I think there is a premium on RFP response. We are designing our technology and training our team to be as fast as they possibly can be. Meeting planners today are pressed for time, and they don’t have enough manpower. They want a fast reply.
M&C: Do relationships still matter?
Luteran: Relationship-building will always be the most important element for any salesperson. But the definition of relationship has changed. Meeting planners still want to do business with people they like, but they are looking for a relationship that brings value to their business and helps them be more productive. They want to be better at the job they do, and they are going to gravitate to the salespeople that help them accomplish that.
Hedging their bets
Long before a meeting planner gets the chance to give a breakdown of a meeting’s budget in the business pitch, the sales director already knows the amount of group revenue he can potentially book for the dates of the meeting, thanks to a concept known as “unconstrained demand.”
Little known outside the inner recesses of hotel management, unconstrained demand is a forecasting tool and the major guideline for sales directors in deciding what business makes the most sense to pursue and accept, and which to reject. It is a simple equation that pits a group’s value against a hotel’s likelihood of generating more revenue from another customer.
For example, if a customer is looking to book a meeting for the first week of October six months out, the sales director will compare that group’s business to the data complied by the hotel’s revenue manager, which tracks the property’s historical group demand over the dates in question.
“Before a meeting planner even picks up the phone to call us, we already know what those dates are worth to us,” says Hyatt’s Shea. “We know what rate we want over those dates, and we know how much group business we want to sell over those dates.”
“If demand is strong,” says Ty Helms, “the sales director might learn he could receive 10 better opportunities in the time between when the customer first asks to book and the actual meeting dates,” which, he adds, suggests “taking a pass on the business, unless relationships or other factors beyond revenue exist.”
Counting on profits
But what determines a “better opportunity” for a property? In hotel terms, a meeting’s overall dollar value is determined by a lot more than the number of rooms and room rate.
In the past several years, the lodging industry has pursued an aggressive economic model that emphasizes maximizing resources to drive potential revenue.
So, while a planner might claim her group was worth $4 million to the last host city in which it held a meeting, a sales manager is interested only in how much the hotel itself stands to earn by selling to the group.
“A large group that takes up all 1,500 rooms at a property but holds all of its events at the convention center is not an attractive piece of business,” says Mike Beardsley, senior vice president of global sales for Washington, D.C.-based Marriott International. “Banquet revenue is the second most profitable revenue stream in a convention center hotel around 35 to 40 percent,” he notes. “If the kitchen is not generating any revenue, that’s not good business.”
Likewise, the group that needs a small room block but requires all of a hotel’s meeting space is not appealing. With no space left to sell, a sales manager will lose the opportunity to book other groups.
Other revenue sources that determine a group’s total value include use of the hotel’s business center, A/V, meeting space, room service, telephones, golf, mini bars, dry cleaning, restaurants, bars, gift shops even spa and fitness facilities not necessarily owned by the property. “In most cases, if any hotel facility is leased out, the hotel still will make money on a revenue share,” says Beardsley.
“We now have the opportunity to look at each piece of group business with a greater amount of intensity and judge its total economic impact,” says Scott Hermes, senior vice president of sales and field marketing, North America, for White Plains, N.Y.-based Starwood Hotels & Resorts Worldwide.
“Now we can concentrate
on getting group business
that is better value-related.”
Kevin Kowalski,
Crowne Plaza Hotels & Resorts
Buying in bulk
The customer who is looking to place several meetings has a leg up on a group offering just one-time business, even if significant. Why? Because when hotels are sizing up a meeting’s overall worth, they are looking at the total potential of meetings business they might be given the opportunity to tap. It will also get meeting planners a better first-time-in rate.
“We are looking not just at the particular piece of business they are shopping, but at how much overall business they can provide,” says Beardsley. “The planner who gives us five meetings over the year will get a better rate.” While group business can be packaged over Marriott’s different properties, Beardsley notes, it is easier to push the business to one hotel, because pricing varies by location.
Customer vs. customer
Rooms are a hotel’s number-one profit generator, responsible for as much as 75 to 80 percent of pretax profit. They also are increasingly in demand; in the high-end sector in particular, meeting planners find themselves competing with business travelers for available beds. According to a March 2005 report released by New York City-based lodging consultancy PricewaterhouseCoopers, weekday business travel demand in the luxury hotel segment grew a strong 17 percent in 2004. (See related story, “Luxe Redux.”)
Hotels love the business traveler on a corporate expense account. Such customers pay the full room rate, keep room service humming, clear out their mini bars, burn up the phone lines and fill the gym. Simply put, they feed all of a hotel’s major revenue streams without placing any additional demands on employee services. Giving up such a lucrative guest for a group paying a negotiated rate with in-house requirements, all of which might not translate into increased revenue, is not an attractive prospect.
“A meeting planner might say, ‘We only need 100 rooms,’” says Marriott’s Beardsley. “But we could potentially lose 50 rooms on the front and back end of their stay. That’s 100 rooms we could have sold at a higher rate to business travelers.”
Pushing the volume of a room block won’t necessarily compensate for room rate discrepancies. “The group that books 25 rooms might not be as profitable as the 12-person board meeting that books all suites at two to three times the room rate,” notes John Harper, vice president of international sales for the Washington, D.C.-based Ritz-Carlton Hotel Co.
In the resort market, groups will find themselves competing with the leisure traveler for space over a Friday or Saturday night. This is especially true for resorts with strong drive-in business. “Weekends take care of themselves,” says Debbie McArthy, director of sales for Denver-based RockResorts. “Meeting planners will have a better chance filling the need dates, which are Sunday through Thursday.”
“The planner who gives us
five meetings over the year
will get the better rate.”
Mike Beardsley, Marriott International
Foiled by contracts
In a constant effort to control and limit the meeting’s financial exposure, planners are pushing to tighten up contracts, but the zeal for a bulletproof deal can prevent them from getting in the door. Why? The uptick in business is allowing hotels to turn down business they view as having excessive contractual demands. “In an up market, we might look at a contract we perceive to be exceptionally one-sided and not agree to those terms,” says Scott Hermes of Starwood.
Still, a tough sellers’ market can bring a silver lining one that plays to planners’ concerns about steep attrition demands by hotels. “In a strong market, the customer can benefit if his block falls apart,” says Hermes. “The likelihood the hotel can resell the rooms increases, which means planners should worry less about attrition.”
Relationships do matter
Sound trite? Not according to hotels. Meeting planners who stayed loyal to certain chains and properties between 2000 and 2004, widely described as the worst period in the lodging industry’s history, will find themselves rewarded in the up cycle ahead.
“The property’s director of sales is the decision maker and can override any of the tools available if they feel a loyal relationship could lead to more business or reward past business,” says Hyatt’s Helms. “Salespeople who don’t think relationships matter will be very disappointed when the buying cycle shifts back. A loyal customer in bad times will weigh out over any final business decision.”
In agreement is Charlotte St. Martin, executive vice president of New York City-based Loews Hotels. “If it’s a good customer, we will throw away the business guidelines,” she says.
Help is out there
Still don’t understand how the process works? Then sit down with a salesperson and have a frank discussion. It’s certainly in the hotel’s best interest that the planner understand why one meeting is more valuable to the property than another. Indeed, it’s precisely this kind of forthright communication that helps build valuable ongoing planner/supplier relationships.
Those new to the industry should take the initiative to make friends at the national sales office nearest their location, St. Martin advises. “Novices hold their cards very close to their chest, which is the exact opposite of what they should be doing,” she notes. “They should seek out an experienced salesperson and ask for his expertise.”