Hotel Contracts - Done Right

I suspect that many readers would concur that perhaps the most frustrating part of hotel sales is enforcing contracts. You see, we often find ourselves caught between taking care of the customer and taking care of the business. It's hard to develop solid relationships and repeat business if your customers don't feel taken care of; and it's hard to maximize revenues if you are taking too good care of your customers. So, I propose a solution: write the contracts well from the onset and be sure your customer understands what they are signing.

In my experience, too many sales managers will send out a contract to a client, without discussing the terms in any detail. I believe they do this because they are (consciously or subconsciously) trying avoid an uncomfortable conversation. True, discussing the details of cancellation and attrition penalties can be a sticky conversation - but it is oh-so-much more sticky when done after the agreement is already signed. What makes the issue even more challenging is the number of clients who sign agreements without a) reading them or b) understanding them. The client, either rushed, confused or both, just signs it and returns it without regard for the details on page 2 thru 5. Newsflash: those pages matter and should be discussed before everyone signs in agreement.

Each group is evaluated differently based on the pattern, program details, market segment, history, season, budget, etc. For some reason though, sales managers often fail to consider the group's realistic ability pay any breach of contract penalties (particularly with SMERF groups). So, I ask the question, what is the point of a cancellation or attrition clause if your group doesn't have the financial means to pay that penalty? Obviously that is pointless, so you need to find another way to protect the hotel within the contract - one that is realistic for all parties. Perhaps you could establish a more strict deposit policy, smaller block, individual reservation cancellation penalty, or move the cutoff date. Maybe you need to avoid the formal contract and just offer a "courtesy block" or in some scenarios you might decide the business isn't a good fit for your hotel/resort. Your negotiating options are only limited by your creativity to make it work, with realistic terms, for all involved.

In my view, the first step of having a solid contract is insuring that a) your expectations are realistic, b) that the customer understands the contract terms, and c) that you mutually agree to them before signing on the dotted line. Renegotiating a contract after it's been signed (whether a couple days or few months later) is a recipe for a frustrating and potentially relationship killing conversation. In the unfortunate circumstance when a client fails to fulfill their obligations, they should not be surprised by the consequences. That's the key - no surprises. And the only way I can think of to insure there are no surprises is to make certain you and the customer are clear on your mutual expectations and each clause of the agreement. After all, the whole point of a contract is to pre-establish terms, conditions, penalties and damages so there is no need for mediator or lawsuit in the event of a performance failure. They are written to protect both the hotel and the customer.

All this being said, yes, there will still be circumstances where you offer after-the-fact concessions or waivers of penalties/damages. However, then it is only being done as good-will, for which you will be praised as your client as a hero! They will have a much greater appreciation of your gesture if they understood the initial agreement, instead of having that "this isn't fair and you should let me out" attitude that comes from an uninformed client.

So, go, sell some rooms and conferences, and be sure to review that contract with your client before they sign it.

Group Rates Follow-Up

Last week in Richmond, the Virginia Association of Hospitality Sales & Marketing Professionals hosted a seminar/panel discussion addressing the group rates crisis. We had a great turnout with a true medley of sales pros, meeting planners, and even a sharp revenue manager to keep things interesting. As you might imagine, there were a variety of opinions, suggestions and best practices that were highlighted, such as:

1) Hoteliers, don't drop your rates. [I know, like that's a rocket science bit of advice!] But seriously, this is the root of the group pricing crisis... for some reason your transient rate is lowered below your group rates on the books. Everyone agreed that by definition group rates are supposed to be below transient/public rates. However, the panelists also agreed that in some scenarios you really need to lower your transient rates. So, in that situation,

2) the hotel sales and revenue management departments need to be in sync, so the rates aren't lowered on dates when group is paying more. For example, your revenue manager may have decided to drop your summer prices for the entire season without discussing it with the sales team. (oops) After a little heart-to-heart in your strategy meeting the team opts to keep certain dates at premium prices because the rock-star sales team already has groups who have booked at the old prices. In the unfortunate circumstance when the team still finds it necessary to drop below those group rates,

3) notify your clients. Simply, group planners don't like to be surprised. It's a much more pleasant conversation if the hotel initiates it, with a game plan/options on the table, versus the client "calling you" on it. At that point the planner has already been chastised or mocked by an attendee and hence their demeanor is a little less empathetic with the sales manager. Among the aforementioned options you might offer, the panel suggested:

3-a) enhancing the group value adds for the client, such as upgrades to premium rooms/suites, golf, spa or beverage credits, etc. Your value-add options will, of course, depend on your property and creativity.

3-b) Lower the group rate to a logical figure relevant to your new transient pricing, or

3-c) stick to your guns on the rate, explaining to the client why. For example, if a conference group rate includes rebates, food and beverage events, conference space or other real cost items, then it is incumbent on the planner to educate their attendees accordingly.

The panel also discussed how to avoid the issue for future groups. First and foremost, hoteliers need to reference bullet #1 above. A couple other options mentioned were:

4) for planners to request a "best rate guarantee" in their group contract. The hoteliers had mixed opinions on this, but if you do agree to it, reference bullet #2. With a complex network of reservations channels, the implementation of rate "guarantees" isn't as simple as it may seem.

5) Both planners and venues should consider dynamic pricing. For example, setting a group rate of 20% off the "rack rate". If negotiating this scenario, a second level of protection for both parties could easily be inserted with "not to exceed $xx or be less than $xx".

Please note that the event was a full hour and a half of non-stop discussion with in depth analysis, logic and explanation from all perspectives. There were many great points and take-aways, not all of which are noted here, so be sure you don't miss the next VAHSMP event. To join the association or become a sponsor, please contact the office at (804) 747-4971.

Group Rates: A Crisis for All

The scenario goes like this: the meeting / conference / reunion / tournament planner, after weeks of research, site visits and negotiations, books their group event the hotel or resort which is best able to meet their needs. They take a sigh of relief, comforted that the space and date is now confirmed, and then begin pondering the other details. They've moved on to setting the agenda, soliciting attendees, and arranging off-site events. Still months away from the arrival date, they haven't talked to the hotel in a while. The planner thinks everything is fine and intends to work out menu and room setup details a few weeks in advance - not yet.

Then, a couple months go by and now we are about 6 to 8 weeks out from arrival and the calls start coming in...one or two, then three or four more, complaints about the group rate being higher than the hotels regular rate. Why?!?

Here's what happened: attendees who are making their travel arrangements have called the host hotel for group rates. But, they are trying to minimize their costs (who isn't these days), so they also go online to check other nearby hotels' rates. They are thinking, "I can find something cheaper, nearby - I'll have a rental car anyway - so why not save a few bucks." A few clicks later, their thought is, "huh? that doesn't make sense?". They've found a room at the same hotel, same dates, for cheaper online. Momentarily they wonder why, but that wonder quickly changes to excitement that they've scored a deal and they quickly confirm that great rate. After the confirmation number pops up, they call the planner and mockingly compliment them on the "group discount" they negotiated. Now the meeting planner is just plain angry and their next call is to, guess who, that hotel sales person they haven't talked to in six months.

What happens next is the million dollar question. The hotel or resort has all sorts of options depending on the nature of the group, history, future potential business opportunities, contractual details and perhaps most unpredictable - the judgment of the sales manager and/or higher ups. Some hotels will quickly fold, reducing the group rate to match or slightly beat the online rate. Others will offer some completely legitimate explanation or completely illegitimate excuse. Nonetheless, at this point the client is ticked, as is the sales person, because there are bumps in the road at a point when the planner wants to be focused on other details and the sales manager wants nothing less than to offer concessions after the contract is inked.

If this sounds like a dilemma you have a faced (from either side of the table) plan on attending the Virginia Association of Hospitality Sales & Marketing Professionals seminar and networking event this Thursday, June 4th, in Richmond. Details and registration form at http://www.vahsmp.org. Or, just follow this blog and I'll post some best practices after the event.