Sweetening the deal
It may seem logical to seek out the cheapest rate, but as Catherine Chetwynd discovers, it's quite often the extras that create best value for money
As economic conditions improve, the dynamic between buyers and suppliers becomes tenser. But buyers are not all trying to get rates slashed - many are aiming for added value, giving suppliers the opportunity to stand out from their peers in both creativity and willingness to negotiate.
"Clever suppliers are trying to think differently about what they can bring to the negotiation process," says chief executive officer of the Institute of Travel & Meetings (ITM), Paul Tilstone. "They want to demonstrate to the buyer that you cannot keep going down in price if you want to provide value to travellers but, at the same time, you have to be competitive.
"The clever ones are creating symbiotic relationships. Suppliers are always going to trade on being lowest-cost, although lots of them recognise that it is better to demonstrate increased productivity or reduced cost at the destination."
Recent research undertaken by the ITM showed that 38 per cent of respondents measure traveller satisfaction with supplier products, and the same percentage again would like to do so. Tilstone says traveller feedback is playing an increasing role in negotiations. "It is all very well a supplier offering the same deal as last year, 10 per cent below published rates, but if travellers are not happy with rooms, how about an automatic upgrade?"
Fall-out from the ash cloud has inspired a change of attitude, too. "Some corporates are renegotiating contracts with TMCs to build in emergency stuff," Tilstone says. What with the ash cloud, health scares and terrorist activity, risk management has become an even greater imperative and, with that, the need for incisive management information (MI).
"The ash cloud had such an impact on the way corporate clients think about suppliers," says director of client services for HRG (Hogg Robinson Group), Stewart Harvey. "When they ask if you can supply core services, one of these is being able to locate people in a crisis and service unprecedented demand on travel."
As a result, pre-trip approval and data capture are becoming more important, not only in larger companies but also in small and medium enterprises (SMEs). "We are seeing smaller companies changing their behaviour," says Harvey. "They are starting to behave less nationally and more regionally. If they're spending £1 million to £2 million in every country, they are pulling that [spend] together."
And larger companies are using data more strategically in negotiations. When a supplier enters into a contract and all agreements are fulfilled, it gets more business - and if it works in Europe, why not in the Middle East and Asia? Conversely, inflexible suppliers are being dropped from programmes.
Harvey highlights another trend. "Companies are reviewing the deal they have struck, to make sure it is on course and in line with what was agreed," he says. "They are doing this with a new focus. Reviews are taking place three or four months down the line, rather than a year later, and terms and conditions [T&Cs] are scrutinised more than ever.
"Some airlines are changing T&Cs and managing yield more and, as a result, we are asking clients: how far in advance do you book? What days of the week are you staying? Can you change that to take advantage of more complex pricing structures?"
Pressure on prices and negotiations has also led to a more straightforward approach, with less positioning and juggling. "There is a new form of negotiation, with so much more directness and clarity," says Stewart Harvey. "Corporates had to say to suppliers, let me share my condition: business may be in decline but I will come through it. Look after me now and we will look after you when things get better."
And now that business is picking up and people are starting to travel again, companies' main concern is keeping control of costs, which necessitates more pre-trip approval. But corporates are not necessarily making greater demands of suppliers. "They are saying let's stick to the script we wrote last year," says Harvey.
Often responsibility for this falls on travellers, who are asked to be more aware of the value in what they buy: don't pay for speedy boarding, don't order wireless internet access if you are not going to use it, and so on. The latter is a salient point: unbundling may get mixed reviews but at least it is abundantly clear what buyers are paying for - all-inclusive deals are only good value if what is included is used.
This applies particularly to hotels, which have always applied ancillary charges. If all your travellers are leaving on an 06.30 flight, they are not going to have time for breakfast before they go. If they are construction workers, for example, they are unlikely to need wi-fi.
Airlines are trying to differentiate their product with unbundling, to show that there are value items in the process, and that can work in the buyers' favour. If your organisation uses a lot of short-haul trips with little or no baggage and similarly low demand for meals on board, that removes cost.
Where they are offering limousine transfer or lounge access, that can be worth building into negotiations, as it is a visible benefit to travellers and buyers alike. However, upgrades are a double-edged sword because two people travelling on the same flight might not both benefit, causing dissent in the ranks.
New products, such as flatbeds, are often heavily promoted but initially introduced on a few routes only, and then rolled out across the network. Check when you book. Airlines are arguably the most difficult suppliers to negotiate with, partly because they have no way of identifying passengers as working for a particular company.
"Some would argue that this is divisive: they want access to the traveller and are clearly trying to encourage people to fly, when we are trying to reduce flying," says head of business services for PricewaterhouseCoopers (PwC), Mark Avery. "We recognise travel is an essential part of the business but the way some suppliers operate is more in their interest than ours, not in our joint interest. There is fair tension in the relationship but there is a balance to strike."
Airlines are now also differentiating themselves via joint ventures and alliances. The latest to be sprung upon us is British Airways/American Airlines/Iberia, primarily applicable to the North Atlantic. This provides an opportunity for companies to approach airlines differently. "Instead of having to negotiate with each airline, they can have one deal across the joint venture, and that reduces duplication, complexity and, potentially, cost," says Adrian Woodward, director of supplier and industry relations for HRG. He admits there are potential issues regarding differences in product and price, though the latter will be ironed out. He also sees more flights per day, possibly up to one per hour - greater choice is what corporates are looking for, he says.
Car hire also offers opportunities for adding value. Satnav is largely included as more vehicles arrive with it already installed, so drivers do not have to order it when booking; however, an automatic vehicle upgrade would be a visible benefit.
PwC's Mark Avery recently secured as good a rate as possible for car rental. "But we recently negotiated access to leisure rates, which is a good way of promoting the supplier and provides personal benefit for staff, too. It has been well taken up," he adds.
And with hoteliers now trying to push up tariffs, buyers are looking more closely at what they can get for their money. "If you have to accept an increase in rate, you can negotiate around free wi-fi, breakfast or parking," Avery says. "But sometimes people get so fixated on rate, they do not focus on whether ancillary services are used. It is about communicating the message as to what is included in the rates. Cancellation times, minimum stay and early check-out fees can all be negotiated away - that is our strategy now that hotels are starting to look for early check-out fees.
"With a mature programme there are two choices: you accept some give and take, with a higher rate but added value; or you go the other way, and say we're simply not going to stay there - and then you have the upheaval of managing travellers and leakage, to make sure people don't stay in properties you don't want them to.
"It is also about listening to travellers. A hotel we were using had a refurbished floor and the rest still needed work. When we were negotiating the contract, we were guaranteed that people would only be staying in the refurbished rooms, but that was not the case and we had complaints. We monitored it and pulled them from the programme. In the location we needed, they were the only choice. Now we put travellers elsewhere and they travel a bit. Quality and price don't always go hand in hand." A point to remember.
Director of group sales for De Vere, Ian Jones, whose expertise is predominantly the meetings and events sector, says: "We aim to find a different way of looking at things, to do things other people won't do, can't do or haven't thought of yet. We are really good with customers with big national requirements and look to adapt our properties to respond to their specific needs. At the top end of the scale, we built Wokefield Park in West Berkshire as a multi-million pound training academy three or four years ago and BMW leases it."
Wokefield Park has 357 bedrooms in three buildings, 18 meeting rooms and 36 syndicate rooms, 250 acres of grounds with a ropes course, 18-hole championship golf course and fishing, plus plenty of space for team building.
"Some clients have bespoke, branded training space throughout a property, so that it looks like their office," Jones says. "For one supermarket client, we stock their products, so when delegates have a cup of tea from the hospitality tray in the room, they are drinking their own brand of tea.
"Clients have a contract with us at a given price and volume, and we manage it on their behalf. In all organisations, there are times when they do not have much activity and during the trough, we re-sell the spare space on the open market and the benefit goes to the client.
"It is a hugely flexible business model. We are talking to a number of clients as to how we can help them with their meeting requirements. We are a world apart from a traditional hotel. Our being flexible and amenable is a huge bonus for customers and we have won business on the back of other people's stubbornness."
PwC has one of these arrangements, paying a contractual sum for use of the site from Sunday to Friday. "De Vere sells publicly the excess space we are not using," says Mark Avery. "We get a better deal and pay a lower rate, and the external income acts as a balance. It breaks even."
It is not, however, failsafe. "When the market turned in 2009, we ended up with more risk than De Vere but when the market is strong, we do very well out of it. Internally, the contract breaks even and we make significant savings on the market rate. We put 16,000 people through every year on 24-hour events, and 8,000 as day delegates."
Robert Daykin, senior partner at The Corporate Travel Partnership, a team of specialist consultants that helps organisations improve their strategic and operational effectiveness in the field of travel purchasing and management, has some thoughts on the bottom line: "When looking at a travel agency, people have to realise that if they are paring away the transaction fee - the cost of making a booking - the supplier is not going to have the right resources in the quality of people, technology or time, to work at reducing the product cost."
There are strong principles of negotiation behind this snippet of wisdom. First, define your requirements and those of your travellers. Decide what extras are worth paying for and which ones are dispensable - these may differ according to the profile of the travellers. And listen to your travellers: they are having to wrestle with the vagaries of travel, so they know what is going on. Balance savings with comfort.
And, having identified what you need and what you are prepared to pay for it, enter the fray bearing in mind that if you beat down suppliers to the final ha'penny, they will not be able to offer you anything other than a basic service. Negotiate on a give-and-take basis and you may be surprised how much give there is in your direction.