I magine this: You have a meeting to book. You call a property. Space is available. Your job is done.
Think something is missing? Not if you've got a preferred-supplier agreement with the hotel in question. An increasing number of pharmaceutical companies are negotiating such agreements — which can coverterms and conditions, concessions, even room rates — for the year, for all meetings. Gone is the time wasted shuttling between legal departments and haggling over coffee-break prices for each program.
One catalyst is the increasing government scrutiny of pharmaceutical meetings for healthcare professionals. The Office of Inspector General's pharmaceutical marketing guidance, issued in April 2003, warns that supplying doctors with gifts, recreation, travel, meals, and entertainment could violate fraud, abuse, and anti-kickback laws. The days of taking doctors on junkets are over. To comply with the OIG guidelines, companies are issuing rules about where meetings can be held and how much can be spent. Preferred-vendor agreements work hand-in-hand with those compliance initiatives, says Judi McLaughlin, CMP, director of strategic sourcing at Maritz McGettigan, the meeting and travel giant based in Philadelphia. For example, a preferred-vendor agreement can include guidelines on what type of properties and destinations are acceptable for meetings.
The increasing participation of procurement and purchasing executives in meeting and travel management is another “major catalyst” for the new interest in preferred-vendor agreements, says McLaughlin. She has helped a number of pharmaceutical clients to assess their needs and create a request-for-proposal for preferred hotel suppliers.
“The weak economy forced companies to focus on expense reduction,” McLaughlin says. “They're looking for areas that haven't managed their spend. Travel is one of the largest controllable expenses within a corporation. There was a lot of success in the 1980s managing transient travel spend. Meetings is the logical extension of that.”
The Move Toward Consolidation
Likewise, preferred-supplier agreements are a logical extension of the move toward consolidation of meeting planning and spending. “In many companies, meeting planning is fragmented and decentralized,” McLaughlin says. Over the past few years, large companies have taken steps to consolidate that planning, if not in the hands of one person or department, then in the sourcing and tracking process. “After companies get their arms around their total meeting spending, manage their sourcing, and are able to demonstrate control within their organization, the next step is to narrow the number of suppliers,” she says. “Hotels are a prime target for these initiatives. In many cases, hotel spend accounts for as much as 80 percent of total meeting spend.” Pharmaceutical companies are ahead of the curve when it comes to preferred-vendor agreements, she adds, because they've been trendsetters when it comes to meeting consolidation.
One of McLaughlin's pharmaceutical clients went through the consolidation process and found that it had used 29 different properties in Chicago in one year for some 70 meetings. As part of a national preferred hotel program, the company has named 10 preferred hotels in that city.
“The benefits to the company are guaranteed discounts in pricing, overall agreement to standard contracting terms and conditions, increased efficiencies throughout the planning process, and better-quality meetings,” she continues. “And the preferred properties are certain to see a dramatic increase in their market share of this company's business.”
Time Is Money
Agreements that include guaranteed discounts in exchange for the promise of increased bookings have surfaced only in the past couple of years. But standard contracts that simply cover contract terms and conditions, such as, cancellation, and indemnification, have been negotiated between planners and hoteliers for at least a decade. These, too, are reportedly on the upswing.
“We have a lot of those in place, and we're encouraging a lot more,” says Steve Armitage, senior vice president, sales, at Hilton Hotels Corp. He offers a quick history of the phenomenon: “The tougher business got, the more exposure to attrition, the more concern about safety and terrorism, the more we saw cost containment affecting decisions, the more protection customers wanted in contracts. So buyers and sellers started spending a lot more time working through contract clauses. That slowed down the business process. What had taken a couple of hours now took a couple of weeks.
“But in today's environment, speed is critical,” he continues. “So we agree on a contract, advise hotels that this is the contract to be used, and it saves us both time and money.”
You'd think hoteliers would jump at the chance to be named preferred suppliers. But signing a preferred-vendor agreement that includes guaranteed discounts is “a leap of faith,” says Christie Hicks, senior vice president, global sales, for Starwood Hotels, because there's little recourse for hotels when promised business isn't booked. “We do it really carefully and not very often,” she says.
When it works, it can be huge. After Hicks signed a preferred-supplier agreement with a large company two years ago, Starwood moved from fourth place to first place in its share of that company's meeting business. In return, the company got guaranteed discounts on F&B and AV, attrition allowances, the ability to replace canceled business with other business from the company, and, in Hicks' phrase, “additional complimentaries.”
Likewise, when Hilton signed a preferred-supplier agreement three years ago, the deal called for the client to narrow its global hotel partners from 15 companies to four, according to Hilton's Steve Armitage. “Now, in our class, we're No. 1,” he says.
At Marriott, John Fenton, regional director of sales in Philadelphia, worked out his first preferred-supplier agreement — including terms and conditions and concessions — with a company in 2003. “Implementing the agreement internally was a huge challenge,” says Fenton, who used Marriott's internal Web site to get the message out to the field. “That got them to see the value of this and got a little momentum behind it,” he explains. “And Marriott hopefully will see significant market share increase as a result of all our work.”
That work can be tough. “It's a painful process,” says Starwood's Hicks. “The first one took 10 months to negotiate.” While the chain has 20 preferred agreements in place that cover terms and conditions, Starwood has signed only four preferred agreements that spell out specific discounts — and all of those have come within the past two years. In exchange for the discounts, the client companies have agreed to meet revenue goals. If the goal is surpassed, the company may be eligible for an override. If the company is falling short of the goal, the agreement can be terminated. (See sidebar, page 64.)
In all four cases, she points out, the companies are primarily booking short-term business. That benefits Starwood by filling occupancy gaps and benefits the client company by streamlining the already shortened booking process.
The agreements are valid chainwide, across all of Starwood's brands; however, individual properties decide whether to accept a particular meeting. “But if the property says yes,” Hicks explains, “they agree to it all.”
Keeping Your Options Open
While limiting suppliers clearly increases your efficiency and your buying power, it just as clearly decreases your choices. Because when you call them “preferred,” hotel companies want you to mean it. “There are third parties that have preferred agreements with everyone,” says Starwood's Hicks. “My questions is, ‘Who do you prefer the most?’”
There's also the fact that in some cases you might be giving up the chance to do better negotiating for a specific meeting, given the many factors that affect individual events. Fred Shea, vice president of sales at Hyatt Hotels Corp., recognizes that kind of analysis. “More and more we're seeing purchasing departments controlling things, and they like consistency of pricing,” he says. “Group pricing is dynamic, but nothing drives purchasing crazy like fluctuation. They would rather have an average rate. That's tougher to do on the group side because each piece of business is different, and each date at a hotel is different. So we deal with consistency in other parts of the contract.”
Hyatt created a standard contract in June 2002 that it often uses as a starting point with companies for negotiating terms and conditions that are valid for all meetings at Hyatt properties. “It makes all the sense in the world,” Shea says. “But some customers want too much, and we have to back off. The more you layer in, the more difficult it becomes. There are conditions that we're not willing to force on all of our hotels.”
Still, he adds, “they're great when you can put them together.”
Alison Hall has been writing about the corporate meeting and incentive industry for more than a decade.
You Have to Give to Get
If you want guaranteed discounts as part of a preferred supplier agreement with Starwood, here's what Christie Hicks, senior vice president, global sales, will ask you to agree to:
Revenue and market share increases.
Name Starwood the only preferred chain in the “big-hotel-company space,” as she calls it, i.e., hotel companies with properties from limited service to luxury.
Buy through national sales offices. “If we're negotiating centrally, we want them to buy centrally,” Hicks says.
Send quarterly reports to Starwood on your meetings' locations.
Termination of the agreement if the pace is off and it's clear that your company won't meet its revenue threshold.
Showing Your Cards
So you want to add hotel companies to your preferred supplier program? They might need some convincing. “The bidders' conference is our best-practice recommendation on how to engage hoteliers at the start of the process,” says Judi McLaughlin, CMP, director of strategic sourcing at Maritz McGettigan in Philadelphia.
You'll create a formal RFP to send to all potential partners, of course. But before it goes, McLaughlin advises inviting all bidders to sit down together to hear your objectives and plans for controlling or influencing site selection companywide. “The bidders' conference is an opportunity for the corporation to communicate its goals around a preferred-hotel initiative, provide an overview of its meetings, and its expectations for the program,” McLaughlin says. “The meeting is typically conducted by the corporate contact — in many cases, procurement executives [who are] responsible for meeting spend.”
In McLaughlin's experience, the response from hoteliers is positive. “It gives them an opportunity to hear about the organization's goals and objectives directly. Typically hoteliers will ask questions about what they've heard. This works well, so that all chains hear exactly the same message.”
Steve Armitage, senior vice president, sales, Hilton Hotels Corp, offers some advice from the hotel side: “Approach it as an open discussion, so there is a mutual understanding of each other's objectives. It should never be a take-it-or-leave-it discussion,” he says. “I don't know of many one-sided agreements that lasted for long. Preferred agreements can be very successful for each partner as long as there is a commitment to each other's success.”