Video 2/3-Event Room Blocks: 5 Must Ask Questions for Planners
Welcome back to my 3-part series on Event Room Blocks, where I talk about the five should-ask-questions planners need to get their head around to help with future room block strategies. In the previous post, I introduced a simple framework and talked about the first two should ask questions: (1) Why you need a room block in the first place, (2) How to determine your event’s value. If you missed my first video post, click on this link.
In this video post, Part 2 of 3, I will address the third should ask question: (3) how do market conditions affect my room block?
While it may be difficult to DO anything about market conditions, awareness and understanding of what is going on will go a long way in helping you manage the conversations and negotiations around your room block. The elements, which comprise the market conditions, do change over time and are quite cyclical.
You’ll hear colleagues generally talk about being in a sellers market or a buyers market, but as you move your meeting from destination to destination, the market could be different and it will behoove you to understand the local conditions.
Here are the three aspects of the market that I think are important to planners:
- Economics (Supply and Demand)
- Market Mix
- Room Supply
While I was never personally fond of studying economics, one of the fundamental concepts of economics we all understand is supply and demand. But thank goodness there are experts in our industry who provide us with a deeper understanding of this important data.
STR Global is a company that specializes in the key performance measures of the hotel industry and they teamed up with Tourism Economics, an Oxford Economics Company, who specializes in the travel sector, to give us a look ahead.
For our interests, supply represents how many hotel guest rooms the hotel industry can offer. While demand refers to how many hotel guest rooms are desired by the various hotel guests. Generally, the occupancy and room rate or average daily rate ADR, is a reflection of supply and demand.
The question you have to ask yourself is whether you are in a sellers or buyers market? When we’re in a buyers market, hotel rooms or venue space (supply) is outpacing demand. This is favorable to planners who are negotiating their room blocks because of the competition; hotels, facilities and destinations tend to be more flexible or competitive.
Conversely, when we’re in a sellers market, the opposite is true. The demand for hotel rooms and space out pace the supply growth. As The STR slide indicates, this would describe our current marketplace in November 2015.
Note, the 2016 Supply is forecasted to increase 1.4% compared to Demand Growth at 2.2%—therefore demand is again outpacing supply!
However, the growth of new hotels or the slowing demand is affecting some markets in different ways. Therefore, it is important to understand the specific market where you are interested in holding your meeting, as the economic conditions may vary from destination to destination.
Take note that in a sellers market, there is much more scrutiny placed on the factors surrounding the value of your business. As I described in Part 1, these factors are interrelated.
The second aspect of market conditions is what we refer to as the Market Mix of the hotel or destination.
The hotel or destination has a mix of business they are optimizing for, thus you will lose negotiation leverage with your room block if your event jeopardizes or impacts another business opportunity. For example, if you want to meet in a location that enjoys a fair amount of highly-rated business transient (which is weekday), and your event has an arrival/departure pattern of Tuesday-Thursday, this will negatively impact the flow of transient demand and other meeting events.
However, conversely, if your event occurs over a weekend, then meeting in this hotel with a high business transient mix will likely provide you more negotiating leverage. Please note, that the market mix could change depending on the destination’s seasonality.
The third factor in market conditions to be aware of is the overall room supply or hotel room inventory. This third element applies whether you’re looking at a meeting contained in a single hotel or a citywide convention.
The room supply is the total number of rooms available, whether included in your room block or not. So the observation here is if your event is a big fish in a small pond or a small fish in a big pond. Both of these scenarios will impact your room block negotiations in different ways.
If you are a big event relative to the rooms available, your event will be the primary driver of revenue. In addition, the supply community is going to DEPEND upon your event as the primary source of sales, which comes with a lot of responsibility. Being “big” doesn’t mean you’re a better business opportunity. Unwillingness to agree to attrition clauses to hedge against potential risk, or pay the type of room rates that would have otherwise been realized through other markets like business transient, will not make your “big” meeting better!
In addition, you need to understand how your move-in and move-out days may displace other event business. Some factors that will work in your favor involve a strong history or track record and repeating the facility or destination. These factors contribute to stronger business relationships and thus can be key to your leverage.
If you are a smaller fish in a large pond, then booking windows may be an important consideration. For example, say your event needs 150 rooms and you’re sourcing large hotels with over 800 rooms 5 years out. In this case, the hotels booking guidelines will prevent offering you first-option availability that would potentially displace larger business opportunities if they have not already been secured. And similar booking guidelines exist for citywide conventions.
Ask the right questions to understand local market conditions and how your event fits in with the sales strategy of the hotel or destination. And of course, seek the advice of your local CVB sales professionals, who will cut down on the back and forth questioning with hotels as they try to better understand your business.
Look for my next video post where I’ll talk about the last two questions in this series: attendee behavior and results. Thanks for watching and be sure to leave me a comment, question or suggestion.