Contracts and the Flexibility FactorAugust 1, 2017

Success Depends on How Well Planners Adapt Negotiating Tactics to the Current Market By
August 1, 2017

Contracts and the Flexibility Factor

Success Depends on How Well Planners Adapt Negotiating Tactics to the Current Market


When it comes to contract negotiation, many planners can feel out of their element, particularly considering that hotel sales executives often have more training and experience as negotiators — and more leverage in a seller’s market. That means that planners must understand broad principles that are always market driven. And ultimately, in any given year, the dynamics of negotiation are driven by the proverbial pendulum that swings back and forth between a seller’s market and a buyer’s market.

Cori Dossett, CMP, CEM, president of Dallas-based independent meeting planning company Conferences Designed, believes that the seller’s market of the last few years has begun to shift toward a buyer’s market. “Based on some of my recent experiences,” she says, “I feel like we as planners are starting to have a little more of a leg up. I wouldn’t say it’s a buyer’s market. But I do feel like we’re on more equal ground than we were over the last several years.”

In particular, Dossett finds that the “That’s our best offer, take it or leave it” stance that major hotels in top destinations adopted over the last several years has begun to subside. In general, she says, hotels are more flexible in terms of overall negotiating tactics.

Mike Kovensky, director of sales and marketing at the InterContinental Miami, stresses a countervailing factor that currently drives negotiations in the hottest destinations — such as Miami. Demand is back to pre-recession levels, and in Miami, it is higher than ever before. That means that for much of the year, a planner has to pay to play. And if the hotel cannot meet its minimal bottom-line business needs, it will walk away from the potential meeting. “It’s simply a business decision,” Kovensky says.

Another factor driving the market is the notoriously shortened booking window, he adds. “From a planner’s perspective, if they have a set desire to be in a particular city or hotel on particular dates, by booking more short-term they are likely diminishing their options in terms of availability, in terms of their budget,” he says. “On the other hand, if the hotel has availability, then the short-term booking can be a home run for both sides. But there is often going to be one of those distinctions or the other driving the negotiation.”

Room Rates

Room rates are not as much of a factor as they once were, Kovensky says. “In today’s market, I think the old adage ‘You get what you pay for’ comes into play,” he says. “When a planner has narrowed down his or her choices to two or three potential options in a destination, the decision is not just going to be about rates. It’s about location, the layout of the hotel, the meeting space and the level of service. There are more factors in play than just rates. And sometimes, the property with the best rate is not the best property for the meeting. And planners today understand that.”

Neha Kowal, head of conference and events marketing at Guardian Life Insurance in New York, concurs with that assessment. “Room rate is important,” Kowal says. “But I don’t want to get a really cheap room rate and then be nickeled and dimed on everything else, like internet costs or service charges.”

Like Dossett, Kowal sees room rates, in general, softening now. “Part of that, I think, is because as planners we’re no longer strapped down, so we have to say, ‘I have this huge event coming up in three years and I need to book it now,’ ” she says. “My group, in general, has been through the ringer over the last two years. We had to relocate six programs in a matter of six or seven months. And although it wasn’t easy, it was doable. Before that, we always thought you had to plan way in advance and send out a hundred RFPs and all that stuff. And that’s not the case anymore. We have a lot more flexibility and leverage now.”

And, planners and hoteliers agree that flexibility on the part of the planner is the No. 1 key to negotiating success.

“Flexibility means everything today,” says Las Vegas-based Michael Dominguez, chief sales officer at MGM Resorts International. “One of the things I stress that is not stressed enough, in my opinion, is that we continue to read that supply in the hotel industry is growing. But if you really look at it, that new supply is mostly limited-service hotels. It is not growth in hotels with a major amount of meeting space. So that means that another factor that is driving the market, just as it drives all markets, is supply and demand. And today, we have demand that is increasing for a supply that is not increasing. And that means that costs are naturally going to rise. That is just the reality.”

Given that reality, Kovensky agrees that flexibility, in terms of dates, is a meeting planner’s best friend. In fact, he says, it has prompted a major trend. “What we’re finding today is that more than 40 percent of meetings are not booked on what were the preferred original dates,” he says. “That means that 40 percent of organizations and planners are now willing to be flexible in order to get the deal they need, but also satisfy the business needs of the hotel. And when both of those things are true, it’s a win-win for both parties.”

Kowal agrees that flexibility is essential to successful negotiation. “I absolutely use flexibility as a negotiating tool,” she says. “As planners, we’re not as tied in anymore to the requirement that a particular meeting has to be in March every year because it’s been in March in the past. It’s understood now that a meeting can be held at a different time if that opens up better options, whether that’s a better rate or a better experience because of the time of year.”

Dossett also agrees that flexibility is essential. But as an independent planner, she is often frustrated by clients who surrender such negotiating leverage because they insist that because the meeting has previously been held during the third week of May, it must be held during that week every year.“ And that is very frustrating when part of my job as an independent planner is to get the best possible deal for my client, and get everything they want done on the budget they have available,” Dossett says. “And on that score, I fail more often than I succeed, which makes it even more frustrating.”

Food and Beverage

The need for flexibility also extends to F&B, Dominguez says. A planner must realize that on the one hand, he or she might not get what is stipulated in initial negotiations, but will get a perfectly acceptable and successful meeting for the budget available. But that often means instead of filet mignon and premium wines, you get chicken and a less expensive wine. “And there are specific issues related to F&B that a hotel cannot ignore,” he says. “For example, a planner needs to understand that because of labor issues and a production slowdown in Mexico, the price of avocados has gone through the roof. So if you want guacamole, you’re going to have to be willing to pay for it.”

Over the years, Dossett has developed an F&B negotiating strategy that she says consistently yields bottom-line benefits for her clients. “Let’s say my minimum is $50,000,” she says. “I go in and say, ‘I can order more food with that $50,000 if you’ll let me do X, Y and Z. For example, your breakfast buffet is $50 a person, and it offers a multitude of options that we don’t need. So if can you simplify it and offer one or two hot items instead of four hot items, and you can drop the price to $40 per person, I can feed more people for the same amount of money. And in general, I find hotels very receptive to that, for anything other than dinner, because from a P&L perspective, it’s the same for them, but better for me and my group.”

However, Dominguez and Kovensky stress, food costs are rising sharply and planners must understand the effect costs have on pricing.

Cancellation and Attrition

In a market now driven by high demand and rising operational costs for hotels, cancellation and attrition clauses become a significant point of negotiation at least 99 percent of the time, Kovensky says. The reason: They cut to the heart of the hotel’s business model, with no room for error in terms of the property’s fiscal health. The cancellation of a major meeting, or its failure in terms of attendance, without strong fiscal protections in place, Kovensky notes, deals a major blow to the hotel’s bottom line for the quarter if not the entire year.

The inherent conflict, he says, lies in the fact that planners also must work hard to limit the financial exposure of their companies in the event of cancellation or unexpectedly low attendance. “And the way we handle that, from our side, is to do a very careful examination of the history of the meeting and the current trends in terms of things like pickup. And then we’ll base our dialogue on that knowledge.”

Cancellation and attrition have always been sensitive issues, and they always will be, Dossett says. And she has seen no change in either direction over the last year. Hotels still drive a hard bargain. “And from a business point of view, I understand that they have to do that,” Dossett says. “But sometimes there is good news. For example, I recently did a meeting for 250 attendees, and we ended up in an attrition situation, which had never happened before with this meeting. We got a $20,000 attrition bill at the end. And the hotel waived the attrition charge because we agreed to bring back the meeting for two more years.”

From the seller’s side, both Kovensky and Dominguez agree that the easiest way for planners to render cancellation and attrition non-toxic is to use future meetings as leverage.

The Role of Procurement

If there is an issue that unites hoteliers and meeting planners in frustration, it is the ever-increasing role of procurement departments in buying decisions and contract negotiations.

“As hoteliers, we don’t often deal with procurement departments directly,” Kovensky says. “We deal with them indirectly, via the planner or the meeting host. But involvement by procurement departments does tend to lengthen the negotiation and contracting process. And the reality is that for most major meetings held by large companies, the involvement of procurement is just a fact of life today. It’s the reality we have to deal with.”

An important factor Kovensky says, is that in the end, negotiations must be based on the business objective of the company holding the meeting and not just costs. “The key for me is open dialogue and negotiation that is conducted in good faith by both sides,” Kovensky says. “And if both sides understand and respect the needs of the other side, there is going to be a good outcome for both sides.”

Dominguez also believes that the role of procurement departments is having a major impact on meeting negotiations today, often without procurement managers understanding how buying hotel rooms and F&B for a meeting is different from buying paper clips or office furniture.

“My wish would be that we had more access to procurement departments to explain our business to them,” Dominguez says. “What I have found in doing educational sessions with procurement people is that there is often a disconnect because they treat our business like they were considering a box of copy paper. They think in terms of how much they can reduce their costs annually by reducing the cost of each box of copy paper. But that does not work in our industry. The point I always make is that if they run out of copy paper, they can always go get more very easily. If I run out of room inventory, I’m done. There is no opportunity for me to go get more. And that is the side of our business that procurement departments need to be educated about. Hotel rooms and ancillary services like F&B are completely different from anything else they purchase.”

The good news, he says, is that he sees procurement managers making the effort to learn more about how meeting services are budgeted, priced and purchased. “But it’s an educational process that needs to continue, because it helps both buyers and sellers.”

Wish Lists

In order to facilitate more productive and satisfying negotiations, both planners and hoteliers have their ideas about what could lead to more success and less frustration.

“Instead of going around and around in negotiations, I’d much rather that a hotel or vendor be upfront with me and say, ‘This is what it’s going to cost for me to give you what you want,’ ” Kowal says. “And I also want them to ask and understand what is most important to me and then to ask how we can make it work. Because of that, I am not fond at all of hotels or vendors who just say, ‘This is our standard contract. Take it or leave it.’ We’re a 157-year-old company. There is no company more conservative than we are. And even we never say, ‘This is our standard contract. Take it or leave it.’ ”

One particularly irksome issue for Kowal is the fact that many hotels still charge a separate fee for Wi-Fi services. “That is a major sticking point for me in every single negotiation we do with hotels ,” she says. “My position is I’ll pay an extra $2 a night per room, or a little more for food and beverage, but I don’t want to see a $20,000 or $30,000 charge for Wi-Fi services. Today, that is a basic business need, and my feeling is that hotel partners have to figure out a way to give us that very basic service at no charge. I just cannot understand why so many hotels want to make it so hard for me to have internet for my attendees.”

She rejects the justification from hotels that they are simply passing along the costs of providing the service. “I don’t buy that argument,” Kowal says. “Air conditioning is expensive to provide. Phone service is expensive to provide. As far as I’m concerned, Wi-Fi is a basic service that they need to supply because it’s the way of the business world now. And I want it everywhere, including in sleeping rooms.”

Such an issue reinforces a broad point from Kovensky — that open dialogue and mutual transparency, from the start, are always required for negotiating success. “Oftentimes, we might not get an opportunity to discuss a particular issue in the initial proposal process,” he says. “And I think that many times, if we had that chance to have more dialogue earlier in the process, we could better position ourselves to meet the customer’s objectives and the customer would have a better chance of getting what they want from us. And that dialogue has to take place with mutual respect. So from my perspective, the single most important factor in the entire process is as much dialogue and transparency as possible, as early as possible.” I&FMM

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