Parkinson's Law

Timing is everything. As in love and in life,  this is also true when negotiating hotel contracts.

As the business climate for meetings and events continues to show improvement in 1Q2011, the long-range meetings marketplace has also begun to restore equilibrium between Buyers (meeting planners) and Sellers (hotels and resorts).

New convention hotel construction nosedived in 2009, and the booking pace for meetings has ramped up in 2010 and 1Q2011 to gradually fill the available inventory of meeting space in major destinations. With few new hotels slated to open in 2011 and 2012, larger meeting hotels have begun to absorb the demand for meetings in the last half of 2011 and are now filling dates for 1Q-2Q 2012.

Although Average Group Rates (AGR) still lag 2006-2007 levels in most markets, AGR appears to have bottomed out and slow rate growth is forecast for most conference hotels and resorts for 2012.

But what about those short-term meetings? What about the meeting request that appeared in your email inbox for dates six weeks from now? What sort of pricing should you expect to obtain for those pop-up events that comprise 70% of all meetings booked? Hotel statistics point to a surge in short-term business and social event bookings sourced and contracted within 90 days of group operation.

It is an article of faith for many Buyers that the larger their event and the farther into the future that their meeting is booked, the greater the discount their event should enjoy. This thinking is tied to the Buyer’s evaluation of the marketplace availability for their own event at the time it is sourced, and is often validated by hotel assurances that their meeting is receiving “the hotel’s very best offer.”

Timing is everything. A hotel’s assurance of its “very best offer” should include the caveat “at the time the booking is booked.” All hotel pricing is time-sensitive and reflects the dynamic between marketplace supply, demand, event pattern, spending patterns, perceived booking pace, volume of business, and space utilization. For each hotel, the urgency and balance of these factors is different. For each point in time prior to the booking of an event, the dynamic of these factors between Buyer and Seller is fluid.

Differences in marketplace pricing between long-term and short-term group bookings  arise from many factors that influence the Buyer’s demand for each type of group or meeting. The major factor for most Buyers is the suitability of available hotel resources that are required to fulfill the meeting planner’s mission.  By ‘suitability’ we do not mean to imply the quality rating of the hotel, but rather the Buyer’s expectation of the most desirable facilities to be obtained for the organization’s meeting. Suitability could be based on the relative importance to the meeting planner of location, dates, meeting space, service level, and hotel or brand familiarity.

Notice the factor that is missing for most short-term Buyers? Price.

Pricing is generally a secondary factor to the Buyer during the first-level screening process. Although it may grow in importance later in the negotiation, pricing usually becomes a factor only after several offers have been received and evaluated with the meeting planner.

And here again, timing is everything. Buyers will frequently wait until the very last moment possible to execute a contract, even when all factors have been negotiated as far as they can go. This is called Parkinson’s Law, based on the work of C. Northcote Parkinson, the British Naval Officer and naval historian who became a best-selling author. Parkinson's Law states 

"Work expands so as to fill the time available for its completion."

As applied to the meetings industry, we could add Tim’s Corollary:

The time taken by an Organization to arrive at a decision and sign a Hotel contract will expand into the time allotted by the Hotel, plus two weeks.

Market Timing and Decision Drivers

The decision drivers for Buyers and Seller are frequently very different for the long-term meetings market versus the short-term meetings market.  Let’s compare some of the different factors that influence the short-term and long-term markets:

Short Term factors … less than 60 days to Operation for Hotels, or within 90 days to Operation for Resorts:

• Available space remaining for short-term bookers may be fragmented and require Planner flexibility.
• Preferred patterns may not be available in many locations.
• Available locations may not be ideal. Location flexibility usually greater than date flexibility.
• Short-term meetings tend to be 2-3 nights in duration and generally require less costly internal hotel and planner resources to produce.
• Demand cycle is past its peak and most new RFP’s are for groups 90-180 days in the future.
• Inside of 30 days, the First Best Offer frequently wins the Business.

Long Term factors … 120 days to 18 months prior to Operation for Hotels, or 180+ days prior to Operation for Resorts

• Preferred patterns may bear a pricing premium due to the significance of the meeting to the planner and the organization.
• Currency exchange fluctuation risks for international meetings priced in host nation currency (risk for Buyers) or in a different currency (risk for Hotels).
• Long-term meetings tend to be 3-5 nights in duration and involve more costly internal hotel and planner resources to produce.
• Greater number of viable location options available to Buyer entails longer time needed to evaluate, negotiate, and commit…in the absence of other buyers for the dates or incentives/disincentives originated by the hotel

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Comparative Motivations of the Buyer and Seller

• How long is the hotel willing to let its unsold inventory and resources remain on the market? 
• How applicable are historic or future projections of group demand cycles? The demand cycle of 2007 was of no help whatsoever for comparable dates in 2009, and the recent uptick in meetings demand might be most comparable to 2002. Or not.
• How long is a Buyer willing to wait until they are certain of the meeting’s destiny?
• How long can a Buyer wait to purchase the meeting facilities and still successfully manage all details that are entailed in the production and management of the event? Are internal resources sufficient or is the hotel able to collaborate effectively to produce the meeting successfully?
• How long is each party willing to wait until it believes that it has attained the maximum possible value for the agreement?
• For long-term meetings, what is the Risk Premium of contracting far in advance of operation for the Seller and the Buyer? We are talking about Cancellation Risk and Attrition Risk for both parties.

Regarding the latter points about Buyer/Seller motivations - meetings are expensive, infrequent transactions for many planners and this fact creates conditions where all the potential buyers for a given date and destination may not be “in the market” at the time when the hotel’s resources are in peak demand.  This is one of the reasons why auction models for buying and selling meetings have proven difficult to implement in practice. 

Another reason that auctions are not employed is the private nature of group and meetings contracts, wherein neither party wishes to disclose the organization, operation or pricing of the contract to other bidders or Sellers, due to either reasons of corporate privacy (Buyer) or price transparency (Hotel).  The reverse of this situation is viable, however, as all of the potential Sellers (Hotels) are always in the market, subject to availability.

In place of an auction style marketplace, what we have instead is a private marketplace engaged in constant price discovery, with what economists call "Information Asymetry."  In the meetings marketplace, Sellers (Hotels) maintain vast databases of pricing information on customer spending behavior and competitor pricing. Buyers are generally far less sophisticated, and their access to relevant data and pricing analytics is far more limited. 

In the end, however, all negotiations for group contracts are situational and depend upon the facts known and assumptions made by the parties to the contract.

While hotels desire to maximize revenue from the sale of their resources, there are also powerful internal incentives that lead them to want to clear unsold inventory off their books as soon as possible.  This desire to obtain a transaction quickly can often result in a lower price offered from one hotel than from another hotel that is willing to wait for the “right buyer.”  The mysterious gray area in this waiting game is variable from market to market, but is generally an overriding Seller concern for contracts operating within 75-120 days from the inception of earnest negotiations. 

Outside of 120 days, many urban hotels are still in position to wait for other potential Buyers to materialize. 

Inside of 75 days, most urban and larger convention hotels begin to lower their pricing in order to capture any remaining sales opportunities from diminishing inquiries. 

For destination resort properties, add 60-90 days to each of these intervals and also add the challenge of finding low season customers, meaning the booking cycle and pricing/timing variables will be skewed. 

And for airport and office park hotels, the long term vs. short term dichotomy is even closer to group operation, on the order of 90+ days constituting long term bookings and less than 30 days prior to operation  – and as close as 7 days prior  - for short-term pricing.

Knowing how to manage the different variables that influence each marketplace, long-term and short-term, is essential to Hotel sales success. 

Knowing the value of your own group business and how it suits a Hotel is essential to becoming a great Buyer or Sourcing professional.

And timing is everything for both.

Bringing It All Together

Like many other businesses, hotels are trying to keep up with changes in customer behavior brought on by a new business environment, modified customer behavior, and the new technologies that are empowering consumers like never before. The Great Recession of 2008-2010 caused many hotels to adapt their notions about pricing, customer retention, and accessibility to a new business paradigm. Those hotels that execute successful customer outreach and acquisition strategies will find themselves surviving and even thriving in the Age of Information.

The Good News is that robust and profitable customer outreach is easier, faster, and cheaper than ever before. The Bad News is that the same low cost threshold exists for your competitors. In this race, size matters less than speed, and speed matters only slightly less than quality of content. Agility, intense customer focus, and open content that reflects hotel values and brand identity will win every time over lower pricing, mass email delivery, and old school opaque pricing strategies. In the new paradigm, information wants to be free, and generally is not only free but is everywhere all the time.

In the mind of the modern consumer, your hotel exists as much online as it does in brick and mortar. What you do through every technological customer experience – from customer search, selection, prior to booking, purchasing, to pre-arrival, then onsite, in-room, and after departure - must reflect your guest experience as much as the Concierge, Bell staff, or Lobby décor convey your niche in the marketplace.

Traditionally - and in this case ‘tradition’ dates back only 12-15 years - hotels have separated their Marketing functions from their Information Technology functions.  Similarly, the roles of Catering banquet event orders, Banquet-AV setup, and Rooms management for conferences was once divided among two or sometimes three competing offices. The position of Conference Service Manager evolved as a reaction to customer demands for one authoritative source of pre-conference planning, thus replacing the old model of separate Catering, Banquet-AV, and Rooms contacts prior to group arrival.

Likewise, a Chief Marketing Technologist (CMT) is now needed by multi-property hotel companies to coordinate the many aspects of customer acquisition, customer retention, brand identity, messaging, distribution channel management, and the myriad technologies available by which to accomplish social media outreach, SEO/SEM maximization, special selling strategies for market segments, and drive property revenue growth.

The wall between IT and Marketing needs to come down, and as the function responsible for revenue, Marketing needs to lead this effort. Decisions need to be made quickly, the customer and the Internet are accessed 24/7/365, and so committees are not an answer. IT departments are protective of information and traditionally are very savvy about hardware and software, but less well equipped to handle customer outreach, market trend analysis, and craft successful selling strategies.

What is needed is a position at hotel companies that is similar to what many successful online retailers have created. At agile companies such as Backcountry.com, Zappos, American Eagle, Jetsetter, RueLaLa.com, where online sales are a high percentage or 100% of their business activity, these companies all have multi-layered customer outreach and selling strategies that are executed and adapted every day, every hour, based on the continual feedback of data mining-business intelligence-customer response-buying activity-customer feedback and repeat, repeat, repeat.

This means more than having a Facebook page and sending a Tweet to a couple of hundred followers. This means a continually updated process of customer engagement managed via the best technology available to accomplish the hotel’s goals.

The role of a CMT can be defined as being responsible for all of the following efforts as they relate to hotel marketing and the resources (human, technological, and budget) needed to deliver more revenue to hotels:

• Part 1: Develop and Execute Marketing Strategy together with CMO and local hotels
• Part 2: Conduct Market Research and establish Data Mining/Business Intelligence gathering
• Part 3: Online Advertising
• Part 4: Website and Strategies to maximize sales via the website
• Part 5: Search Engine Marketing and SEO maximization
• Part 6: Online Reputation Management and Customer Forums, Monitoring, and Rapid Response processes
• Part 7: Social Media and Special Markets, Promotions, or PR
• Part 8: Press and Media…dovetails with PR, Operations, and Marketing
• Part 9: Metrics and Measurement for Distribution Channels, RM interface, Customer Acquisition, and Online Revenue maximization
• Part 10: Service and Customer Response Management
• Part 11: Integration of Hotel property Guest Experience with data mining, business intelligence, and cross-selling.

Many hotels now perform some of these functions, nearly none of them perform all of them, and most of them do so via local efforts that are fragmented, that use different technologies that often are incompatible, and that are either outsourced or are dependent upon the presence of local employees who are quick to migrate to other opportunities.

The rapid growth of mobile devices also provides new opportunities to market to customers who are now tied to their tiny screens more than they are to their laptops or desktops. There are multiple recent studies of online travel buying behavior that point to mobile devices as the fastest growing portal into the hotel guest’s wallet. Developing and executing strategies to capture the mobile customer is no longer an option. It is a necessity if a hotel wants to gain market share or preserve its existing customer base.

So back to the Good News/Bad News. The cost barrier to developing and executing successful strategies is low, and some very efficient means of accessing and retaining customers are available to hotels. The speed with which a program can be implemented is also very rapid, a matter of weeks rather than months. Finding the right solution that integrates well with a hotel’s other systems and processes is the job of the CMT.

The reality is that it is extremely easy for you or your competitor to get started and get to market with the beginnings of either an SEM. SEO, or social media campaign. But it is more challenging to maximize the potential benefits of a successful SEO, SEM, or social media by bringing them into a hotel’s culture, technology systems, data mining-marketing systems, revenue management practices and revenue-generating mentality.

This is the critical mission for a CMT – to leverage the democratization and 24/7 accessibility of information to the hotel’s advantage in an ever-changing and complex ecosystem of multiple sales channels, hotels with different needs, rapidly evolving technology, and super-empowered yet fickle customers.

Ask yourself some of these questions:

·       Do you think your IT department can handle the marketing outreach to your customers?

·       How are your current marketing resources deployed?

·       Does your online marketing ROI generate growth in revenue or guest counts that can be traced to your online efforts?

·       What is your most effective marketing spend: online, traditional media, social media, special events, advertising, direct selling efforts?

·       Are your online marketing and business intelligence efforts focused on the customer, or merely on maintaining and updating your website?

·       Do you have committee meetings to decide how to attack the marketplace and review the best technology to use? Who is empowered to negotiate and purchase the technology or vendor or new hires to make your efforts effective?

·       Do you have an ongoing program of systems, training, and monitoring/metrics in place to determine if your efforts are successful?

·       Do you know which metrics you should use to determine success?

·       Who responds to online and searchable customer reviews such as those posted on Yelp, TripAdvisor, or in other online networks and communities? How do they respond? Do you have local property processes in place to react to negative customer reviews?

·       Do your online communities have a real-time booking functionality tied into your reservations system?

·       Can your small group or SMERF customers book their short-term business online in real-time, or do you force them to email you and continue to shop the competition?

·       And finally, who is in charge of all of this, and are they the right fit for the job?

The Chief Marketing Technologist should know the answers to these questions. Your CMT should provide the strategy and manage the vendors critical to online marketing efforts, and take responsibility for the leadership and consensus-building required to move forward among a group of hotels with differing markets and needs.

Importantly, the CMT should report to the CMO or in the absence of a CMO, the CEO or COO of the hotel company to define brand strategies and to have the credibility within the organization to effectively provide the necessary leadership of all online and technology marketing efforts.

The CMT needs to be technology-savvy, not in the sense of writing code but in being literate and up-to-date on all available technologies that could assist the hotels in business intelligence, data management and data mining, social networking communities, SEM/SEO strategies that work, and Intellectual Property (IP) issues and laws that impact guest information, privacy, and the hotels’ ability to use this data to obtain more revenue.

The CMT needs to comfortable with analysis, financial and marketing metrics, market research, budgetary management, revenue management, and business plan development.

At the same time, a CMT for Hotels needs to be intimately familiar with the operational challenges and tempo of busy hotels, the sales and marketing needs of the hotels, revenue management principles, advertising channels and the metrics for successful online advertising, and the financial drivers from both the hotel management and from ownership perspectives.

The successful CMT also needs to have strong relationship and negotiating skills for vendor management, excellent presentation and selling skills, the ability to distill complex concepts into simple value propositions for stakeholders, and the charisma and drive to lead teams of colleagues and third party vendors to success.

With so much at stake in the fast-changing online travel world, with so many viable technology solutions to choose from, and with great rewards achievable for the Quickest Quality Content to market, we have just one more question:

What are you waiting for?

posted by Tim Brooks, Founder & CEO of MeetingTrader