IT HAS BECOME relatively common for corporate procurement departments to get involved with site selection in their role overseeing meeting and event contracting. What's unusual — but becoming less so — is for procurement to drive the entire bid process online. A number of companies, including pharmaceutical firms, are experimenting with online reverse-auction tools such as Procuri, FreeMarkets, and ePASS — the same tools procurement departments use to buy paper, computers, and other products — to purchase meeting services. In a reverse auction, a buyer (rather than a seller) invites online bids from multiple sellers.
Cindy D'Aoust, senior vice president of Consolidation Business Solutions at MaritzMcGettigan in Philadelphia, didn't do any reverse auctions in 2002, but last year had several requests from pharmaceutical clients — including one who put 80 meetings out to bid in one auction, and two others who used reverse auctions to get bids for their preferred vendor agreements. MaritzMcGettigan has had to train staff on the auction tools in order to meet their corporate clients' needs. D'Aoust expects the trend to continue. “Several of our customers have this [reverse auctions] on their task list — their list of goals for 2004.”
But Cost Isn't Everything
During the online reverse auction, sellers have a set period of time to post bids — anywhere from 30 minutes to several hours. Typically, sellers can see the bids but not the bidders' names.
While buyers may or may not be bound to accept the lowest bid, or any bid at all, nevertheless the reverse auction's emphasis on awarding business based on aggressive price competition gives many pause.
“As procurement has gotten more involved in looking at the area of meeting spend, they believe that they can apply the same sorts of principles to procure group meetings that they use to buy other things,” says Christine Duffy, president of MaritzMcGettigan. “There are definitely some concerns on the part of the industry and hoteliers about what the auctions mean and how they are going to be used. Are we really comparing apples to apples? … But we don't see it going away either.”
“There is a concern about the implication that price is the only factor,” says Christie Hicks, senior vice president, Global Sales North America, Starwood Hotels & Resorts in White Plains, N.Y. “That ends up commoditizing the market to a point that we're not comfortable with. If price is the most important thing, chances are the customer will almost always find a hotel that will give them the price that they want. And as long as that phenomenon continues — and I can't imagine that it won't — I think [reverse auctions] will start to take hold. If the department [responsible for meeting purchasing] is measured by cost savings, it is going to be able to demonstrate cost savings. The question then becomes do they get those cost savings by giving up other things that are equally or almost as important.”
On that list of “other things” are the benefits of a strong planner-supplier relationship and the suitability of the property itself: The price may be right but does the property send the right emotional message? Is the service adequate? Does the meeting space flow?
Some hoteliers embrace the reverse auction negotiations only when the meeting on the auction block is extremely well defined. Hilton Hotel Corp.'s Steve Armitage, senior vice president of sales, has been outspoken on the topic in the corporate travel arena. In 2002, he earned a place on the Business Travel News annual list of “25 executives whose efforts made the most significant impact on the business travel industry” for refusing to participate in auctions that didn't meet certain criteria: Hilton insists on knowing specifically how the final decision will be made (is it price alone or other factors?), the room-night volume, the duration of the agreement, and who, in general, it is bidding against (will full-service properties compete against limited service properties?). As a consequence, Hilton has refused to bid in the majority of corporate travel auctions to which it has been invited.
In particular, Armitage says that companies using reverse auctions for bundled meetings frequently don't meet the company's criteria for participation. Often, he says, companies want bids on a package of meeting business but aren't prepared to specify dates or location. “I don't think blind bundling is healthy,” he says.
Take It to the Bank
Bank of America began using the Procuri reverse-auction tool for meetings in June 2003 as an RFP-gathering tool, and bidders understand that from the outset. Armitage says, “Bank of America has done a great job detailing how they weigh services and product.”
“They don't award the program at the end of the auction,” says Trish Boyd,account director in Starwood's Global Sales Office in Charlotte, N.C. “It's getting all the information back from the properties in the exact same format. You might be ranked fourth out of 10 and then they do a site [inspection] and you get the business. It's a strategic tool, but I don't think it's going to replace the buying process altogether.”