Chainwide deals represent an integral part of a company’s hotel program. They supplement uniquely negotiated, core hotels as corporations aim to get the best possible savings and coverage while delivering sufficient breadth to support traveler well-being. But are travel managers effectively achieving their goals with chainwide deals?
Buyers typically negotiate with individual, strategic properties in key markets which they regularly and repeatedly travel to. These individual properties offer competitive rates and amenities in exchange for market share and large volumes. Chainwide deals are typically created with an objective to add coverage in all other locations, where no preferred properties have been negotiated. Travel managers negotiate both types of hotel deals, but chainwide deal negotiations are typically managed in a less strategic way, often resulting in too many chains in the company’s program. While the selection of preferred individual properties is often studied carefully, chain properties are often added en-masse.
Focusing on a sample of 25 of CWT RoomIt’s midsized corporate clients (averaging $35 million in annual hotel spending), we counted an average of six chainwide deals per client and a max of 15. Knowing that a single chainwide deal can add thousands of properties to a program, and that on average, such corporations will negotiate about 200 strategic preferred properties for the year, that’s a staggering portfolio. Corporations risk diluting their volume in top markets, thus diminishing their negotiating power with hotels that matter most to their travel programs. That’s because chains will always include many properties located in a client’s strategic markets, which inevitably compete for volume and market share against preferred individual properties.
Among the 25 corporate hotel programs we examined, 67 percent of their spending via chainwide deals in the first quarter of this year was in markets where they had preferred individual properties. As a result, about 21 percent of the volume in those markets was no longer available to preferred properties.
This pattern has fundamental consequences for a company’s bottom line and long-term hotel negotiating power. Across these corporations, we found that travelers booking chainwide deals in markets that also had preferred properties paid on average $10.50 per night more than they would have paid at those individual properties. Typically, preferred properties downgrade underperforming clients to less favorable deals the following year as a result of losing volume to chainwide deals.
In essence, in markets with individual preferred hotels, chainwide deals harm a hotel program by driving extra costs and diminishing buyer’s purchasing power.
In other markets, where no preferred properties have been selected for the hotel program, our data shows that chainwide deals drove only a marginal value, with an average savings per night of $0.40 versus market rates.
While chainwide deals fill an important gap in most corporations’ hotel programs, they bring complications that travel managers have to juggle. And the more chainwide deals within a corporate hotel program, the greater the pressure on travel managers to mitigate the potential saturation in preferred markets. This is why we advise midsized organizations to:
· Have no more than two chainwide deals (with solid relationships and tight deals negotiated around required coverage)
· Include TMC negotiated rates in their hotel program to achieve coverage flexibility with healthy competitive rates
· Regularly monitor rates, ensuring partners always respect the deal
· Ensure your content is displayed in a strategic way, supporting travelers’ needs, your company’s policy and overall savings