CWT’s Pauline Robin on the pitfalls of chain-wide hotel deals
Chain-wide offerings are an integral part of a company’s hotel program. They complement basic negotiated hotels in unique ways, as companies aim to achieve the best possible savings and coverage while providing sufficient breadth to support traveler well-being. But are travel managers effectively achieving their goals with chain-wide offerings?
Buyers typically trade with individual strategic properties in key markets they visit regularly and repeatedly. These individual properties offer competitive rates and amenities in exchange for significant market share and volumes. Chain-wide offers are typically created to add coverage in all other locations, where no preferred properties have been traded. Travel managers negotiate both types of hotel deals, but chain-wide deal negotiations are typically handled less strategically, often resulting in too many chains on the company’s agenda. While the selection of preferred individual properties is often carefully considered, chain properties are often added in bulk.
Focusing on a sample of 25 mid-sized CWT RoomIt corporate customers (average $35 million in annual hotel spend), we counted an average of six chain-wide transactions per customer and a maximum of 15 Knowing that a single chain-wide transaction can add thousands of properties to a program, and that on average these companies will trade around 200 strategic preferred properties for the year, that’s a staggering portfolio. Companies risk diluting their volume in major markets, diminishing their bargaining power with the hotels that matter most to their travel programs. Indeed, chains will always include many properties located in a client’s strategic markets, which inevitably compete for volume and market share with preferred individual properties.
Of the 25 corporate hotel programs we looked at, 67% of their spend through chain-wide deals in the first quarter of this year was in markets where they preferred individual properties. As a result, approximately 21% of the volume of these markets was no longer available for preferred properties.
This model has fundamental implications for a company’s bottom line and the long-term bargaining power of hotels. Across these companies, we found that travelers booking chain-wide deals in markets that also had preferred properties paid an average of $10.50 more per night than they would. paid into these individual properties. Typically, Preferred Properties demote underperforming customers to less favorable offers the following year due to loss of volume to chain-wide offers.
Essentially, in markets with individual preferred hotels, chain-wide deals hurt a hotel program by driving up additional costs and diminishing buyer purchasing power.
In other markets, where no preferred property was selected for the hotel program, our data shows that chain-wide offers generated only marginal value, with an average saving per night of $0.40 over market rates.
While chain-wide offerings fill a significant gap in most companies’ hotel programs, they come with complications that travel managers must juggle. And the more chain-wide offerings there are within a corporate hotel program, the greater the pressure on travel managers to mitigate potential saturation in preferred markets. That’s why we advise medium-sized organizations to:
Have no more than two chain-wide deals (with strong relationships and tight deals negotiated around the required coverage)
Include TMC’s negotiated rates in their hotel program to achieve coverage flexibility with healthy competitive rates
Regularly monitor rates, ensuring that partners are still adhering to the agreement
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