Unlocking Asset Potential®

GDS, LNR, RFP  - What Is This 
Alphabet Soup?
Summer  2001
Volume account management may account for big bucks and a large contribution to your revenue line.  Are you managing it or is it managing you?

Base Business, Preferred Business and Locally Negotiate Rates 
require differing management approaches. 
Managing Volume Accounts

Segmentation management is a difficult skill to learn.  Layering in the right amount of discount business at the right rate is more than just a mathematical exercise.  Properly done, it can 

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maximize RevPAR and market penetration.  Improperly executed, it can cost you profitability.  Correctly computing revenue displacement is critical in determining how much volume business to take and what price to charge, especially if the market is dynamic or if elasticity is low.

Many hotels rely on old displacement models or even something as nebulous as intuition in making large revenue-generating sales decisions.  Some hotels fail to participate in the annual Request for Proposal (RFP) process initiated by the large consortia travel agencies.  Some hotels, with large corporate volume business in their own backyard, fail to take advantage of the opportunity to drive room nights into their hotel through a valuable Preferred Customer program.  Some hotels take too much Base business at very low rates that displace more profitable business trying to stay at your hotel.

Let’s see if we can’t help sort it all out.  Volume Accounts fall into four main categories, Base business, Locally Negotiated Rate (LNR) accounts, Preferred accounts sometimes referred to as Secretary’s Club or Business Travel Club and Consortia business.

Base Business

Base business, sometimes referred to as the Contract segment, is any large volume account with flat-pattern arrival and a specific number of guaranteed room blocks.  The most common of this type of business is aircrew stay-overs.  Displacement models in general use today to compute the profitability of this business are often flawed and fail to take into account the correct variable and opportunity costs associated with commitments of this magnitude.  Many hotels are also guilty of relying on this base business while market upswings in transient demand would suggest otherwise.  The "bird in the hand" metaphor may be stopping hotels from shedding base business when it is appropriate to do so after market conditions have changed.

Locally Negotiated Rates

LNR accounts are big business, high volume accounts and unless carefully reviewed and priced, they can cost the hotel money in reduced profit margins and lost revenue opportunities.  Some hotel managers make the mistake of getting caught up in "doing the deal,” rather than determining the practicalities of accepting or denying the account.  It may sound sexy to hear a director of sales say, "We booked a million dollar account today!"  But if that account cost you $1.4MM in other incremental sales and drove your gross operating profit down two points, was it worth it?  Old displacement models are floating around the industry, largely unchanged since the 1980's when this practice grew in popularity.  The most recurring problem with these models is that they look at the account in the aggregate, without determining the account's arrival/departure pattern.  Pattern of business - not just volume - is a key factor in correctly determining whether a LNR account is right for your hotel's strategic plan.

Preferred Accounts

Preferred accounts aren't necessarily discount accounts.  LNR accounts are given a special discount rate in exchange for volume business.  A hotel maintaining that discount is predicated on the account delivering the anticipated volume.  Preferred accounts, on the other hand, might receive a preferred rate (typically at or near the hotel's corporate rate), but the rate is not predicated on volume.  Preferred accounts are for those accounts that produce less than a specific strategic number of room nights.  That specific strategic number depends on the hotel's available rooms, market conditions and overall strategic plan. 

There are other distinctions between LNR accounts and Preferred accounts.

An LNR Account.....  A Preferred Account....
Has BIG volume and receives deep discounts. Has SOME volume and receives a preferred rate.
Tends to displace higher rates business on peak nights, but the volume in off-peak nights more than makes up the difference.  Doesn't displace business because the rate is at or near the hotel's available corporate rate. 
Reservations tend to be booked through corporate implant travel agencies or consortia agencies via Global Distribution System (GDS).  Reservations are booked by the administrators of nearby offices and made directly with the hotel. 
Provides the primary benefit to the account company in the form of reduced lodging costs.  Provides the primary benefit to the booker in the form of perks and redeemable "points."
Will be the only volume account the hotel takes, or may be one of a handful of such accounts.  Rate depends on volume.  Will be one of perhaps a hundred accounts that make up a hotel's Preferred segment.  Rate will be the same for all such accounts, or may be tiered in two or three layers depending on the size of each account.

A well-run Preferred account program needs the following attributes to be successful:

  • Program collateral of high caliber that specifically spells out the features and benefits of the program and serves as a primary sales tool;
  • A direct hotel line, fax system or desktop booking icon through the Internet that allows ease of booking;
  • Preferred room availability (NOT last room availability), i.e., rooms available during peak demand periods;
  • Recognition program that provide “points” for room nights or revenue generated; points should be redeemable for generic and usable gifts, such as American Express gift certificates.  Some hotels make the mistake of allowing points to be redeemed only for guest rooms and/or food and beverage at the host hotel.  While this may be an incentive to a booker once or even twice, such a limited reward mechanism will not sustain the program over time;
  • Additional recognition for bookers in a “club-like” environment, e.g., newsletters which spotlight members and companies; monthly birthday luncheons; periodic appreciation and exposure visits to the hotel such as receptions, an annual holiday dinner event, etc.
  • Recognition and convenience for the end-user:  Front desk recognition and pre-registration; complimentary newspaper and morning coffee; no hassle/no-line or express checkout, etc.;
  • A dedicated sales manager or administrator.  This is a labor-intensive segment and requires the hotel to consider the resource allocation versus the anticipated production of the segment.
Consortia Business 

Neither LNR nor Preferred business should be confused with Consortia accounts, even though these rooms are booked through the GDS like LNR accounts tend to be.  Consortia accounts are those accounts represented by the large consortia travel agencies that annually send hotels a Request For Proposal (RFP).  These largest of these agencies are: American Express, ABC Travel, Carlson, Radius, Rosenbluth, Travelsavers/WIN TQ3 (Formerly Maritz), Thor, Cendant Travel (Formerly CUC), CCRA, Sustom Travel Systems, Sato Travel and BTI Custom Travel Systems.

Hotel rates are not negotiated, per se.  They are either accepted or rejected by the agency representing their corporate client.  The hotel gives that rate regardless of volume and rates are available and booked exclusively through the GDS.  Many hotels are unaware that they can quote season rates during the RFP process or even that they can reduce this rate at any time during the year.  However, they cannot charge more than the published rate.  We have seen the unfortunate consequences of hotels that made poor rate decisions during the RFP process that impacted RevPAR penetrations through the whole year!  Don't allow your hotel operators to make this mistake.

Turn Key Hotel Advisors is a Dallas based consulting group with roots in hotel management and operations.  It offers consulting services and essential business tools for all aspects of hotel operations, lodging asset management, hotel product repositioning, and re-branding. The Dallas group is experienced in hotel operations, revenue management, market positioning and profit engineering. 

Specializing in diagnostics of under-performing assets, Turn Key Hotel Advisors will quickly and accurately assess a hotel's competitive environment and strategic positioning.  Their consultants then provide action plans for both owner and manager that will improve the hotel's RevPAR yield, increasing revenue and drive both profitability and owner cash return.  Turn Key Hotel Advisors guarantees their results.

For hotels undergoing refurbishment, repositioning or re-branding, Turn Key Hotel Advisors created the Delta Process™, which has been successfully used in assets, to date, undergoing $200 million in redevelopment dollars.  The Delta Process™ ensures the hotel's sales and service delivery teams have specific, concrete action plans to deliver on an owner's or lender's return-on-investment expectations.

The company also conducts due diligence exercises for assets undergoing ownership change, market assessment studies for new lodging development, as well as hotel sales training, account management tools and hotel marketing products.  It is affiliated with The Consortium - An Alliance of Hospitality Companies.  Turn Key Hotel Advisors also operates a subsidiary company, Integrated Selling Systems with innovative technologies for the lodging industry, including CD Business Cards, Web Designs and On-Line Customer Reservations Booking Engines.  Turn Key Hotel Advisors is an allied member of the American Hotel and Lodging Association.

Sales Tools | The Delta Process TM | Asset Development and Recovery | Training and Education | Financial Reporting | Integrated Selling Systems |

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Turn Key Hotel Advisors
Dale Turner, President
P.O. Box 701284
Dallas, Texas  75370
Phone: 972-267-9600
Fax: 927-267-1072

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