Organizational Buyer Behavior of Group Market

1
Organizational Buyer Behavior of Group Market

• The ideal salesperson in the company meetings
  segment isnt a salesperson in the traditional
  sense, but rather the problem solver.
• Robert C. Mackey

2
Objectives

• After reading the chapter, you should be able to
  
• Understand the organizational buying process.
• Identify and discuss the importance of the
  participants in the organizational buying
  process.
• Identify the major influences on organizational
  buyers.
• List the eight stages of the organizational
  buying process.
• Identify and describe the group markets in the
  hospitality industry.

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Organizational Buyers

• In some ways business markets are similar to
  consumer markets.
• Both involve people who assume buying roles and
  make purchase decisions to satisfy wants.
• Nevertheless, business markets differ from
  consumer markets in (a) market structure and
  demand, (b) the nature of the buying unit, (c)
  the types of decisions, and (d) the decision
  process involved.

4
Market Structure and Demand

• The American Marketing Association holds more
  than twenty conferences annually.
• the value of this account approaches 1 million
• a delegate also spends about 850 on
  transportation and 425 on entertainment, plus
  spending in local restaurants
• Hyatt and Marriott share the majority of the
  AMAs conference business, with Marriotts share
  close to three thousand room-nights a year.
• each organizational customer can deliver tens of
  thousands of dollars worth of business to the
  hotel, airlines, and the destinations economy

5
Market Structure and Demand

• Organizational demand is derived demand, or a
  function of the businesses that supply the
  hospitality travel industry with meetings,
  special events, and other functions.
• AMA plans hosts conferences because members,
  marketing managers, suppliers, and educators,
  have attended past conferences on these topics.
• if a particular conference receives poor
  attendance, the AMA drops it from future
  schedules
• Ultimately, demand for association member
  products determines the demand for association
  meetings.

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Market Structure and Demand

• Through good environmental scanning, marketers
  can identify emerging industries, companies, and
  associations, screening for good business
  partners.
• Hotel managers need to understand the financial
  health of the corporations associations they
  serve.
• if clients fall on hard times, managers need to
  look for healthy industries to replace the lost
  business, before it affects the revenue per
  available room (REVPAR)
• Compared with consumer purchases, a business
  purchase usually involves more buyers and a more
  professional purchasing effort.

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Market Structure and Demand

• Corporations that frequently use hotels for
  meetings may hire their own meeting planners.
• Professional meeting planners receive training in
  negotiating skills and belong to associations
  such as Meeting Planners International, which
  educates its members in the latest negotiating
  techniques.
• A corporate travel agents job is to find the
  best airfares, rental car rates, and hotel rates.
  
• hotels must have well-trained salespeople to deal
  with well-trained buyers, creating thousands of
  sales jobs

8
Market Structure and Demand

• Once the meeting is sold, the account is turned
  over to a convention service manager who works
  with the meeting planner to make sure the event
  is produced according to the meeting planners
  expectations.
• Outside the hotel, jobs relating to meetings
  include corporate meeting planners, association
  meeting planners, independent meeting planners,
  and convention and visitor bureau salespersons.

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Types of Decisions and The Decision Process

• Organizational buyers face more complex buying
  decisions than consumer buyers.
• Their purchases often involve large sums of
  money, complex technical features, economic
  considerations, and interactions among many
  people at all levels.
• The organizational buying process tends to be
  more formalized professional purchasing effort.
  
• the more complex the purchase, the more likely it
  is that several people will participate in the
  decision-making
• In the organizational buying process, buyer and
  seller are often very dependent on each other.

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Types of Decisions and The Decision Process

• The decision-making unit of a buying organization
  is sometimes called the buying center
• Users - those who use the product or service
• Influencers - directly influence the buying
  decision butdo not themselves make the final
  decision
• Deciders - select product requirements and
  suppliers
• Approvers - authorize proposed actions of
  deciders or buyers
• Buyers - have formal authority for selecting
  suppliers and arranging the terms of purchase
• Gatekeepers - have the power to prevent sellers
  or information from reaching members of the
  buying center

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The Buying Center

• Buying centers vary by number type of
  participant, so salespersons calling on
  organizational customers must determine
• who are the major decision participants?
• what decisions do they influence?
• what is their level of influence?
• what evaluation criteria does each participant
  use?
• When a buying center has multiple participants,
  the seller may not have time/resources to reach
  them all.
• smaller sellers concentrate on reaching key
  buying influencers and deciders

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The Buying Center

• Most deciders like to feel in control of the
  purchasing decision, so going over a deciders
  head working with the boss will be resented.
• In most cases the boss will leave the decision up
  to the decider, and the ill will created by not
  dealing with the decider directly will result in
  him or her choosing another company.
• Larger sellers use multilevel, in-depth selling
  to reach as many buying participants as possible.
  
• their salespeople virtually live with their
  high-volume customers

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Major Influences on Organizational Buyers

• Organizational buyers are subject to many
  influences as they make buying decisions, and
  some vendors assume the most important influences
  are economic.
• A study of buyers in ten large companies
  concluded that emotions feelings play a part in
  the decision.
• In reality, organizational buyers commonly
  respond to both economic and personal factors.
• where there is substantial similarity in supplier
  offers, price becomes an important determinant
• when competing products differ substantially,
  buyers are faced with many decision variables
  other than price

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Major Influences on Organizational Buyers

• The various influences on organizational buyers
  may be classified into four main groups
• environmental, organizational, interpersonal,
  individual

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Environmental Factors

• Organizational buyers are heavily influenced
  bythe current and expected economic environment.
  
• Factors such as the level of primary demand, the
  economic outlook, and the cost are important.
• In a recession, companies cut their travel
  budgets, whereas in good times, travel budgets
  are usually increased.

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Organizational Factors

• Each organization has specific objectives,
  policies, procedures, organizational structures,
  and systems related to buying.
• The hospitality marketer has to be as familiar
  with them and wants to know
• how many people are involved in the buying
  decision?
• who are they?
• what are the evaluation criteria?
• what are the companys policies constraints on
  the buyers?

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Interpersonal Factors

• The buying center usually includes several
  participants, with differing levels of interest,
  authority, and persuasiveness.
• hospitality marketers are unlikely to know the
  group dynamics taking place during the buying
  decision process
• Salespeople commonly learn the personalities and
  interpersonal factors that shape the
  organizational environment and provide useful
  insight into group dynamics.

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Individual Factors

• Each participant in the buying decision process
  has personal motivations, perceptions, and
  preferences.
• Age, income, education, professional
  identification, personality, and attitudes toward
  risk all influencethe participant in the buying
  process.
• buyers definitely exhibit different buying styles
• Hospitality marketers must know their
  customersand adapt their tactics to known
  environmental, organizational, interpersonal, and
  individual influences.

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Organizational Buying Decisions

• Organizational buyers do not buy goods and
  services for personal consumption.
• they buy hospitality products to provide
  training, reward employees and distributors, and
  to provide lodging for their employees
• Eight stages of the organizational buying process
  have been identified and are called buyphases.
• this model is called the buygrid framework

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The Buygrid Framework

• Stage 1 Problem Recognition
• The buying process begins when someone in the
  company recognizes a problem or need that can be
  met by acquiring a good or a service.
• problem recognition can occur because of
  internalor external stimuli
• Internally, a new product may create the need for
  a series of meetings to explain the product to
  the sales force.
• Externally, the buyer sees an ad or receives a
  call from a hotel sales representative who offers
  a favorable corporate program.

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The Buygrid Framework

• Stage 2 General Need Description
• Having recognized a need, the buyer goes on to
  determine the requirements of the product and to
  formulate a general need description.
• The corporate meeting planner works with others
  to gain insight into the requirements of the
  meeting.
• they determine the importance of the price,
  meeting space, sleeping rooms, food and beverage,
  and other factors
• Alert marketers can help buyers define their
  companies needs and show how their hotelcan
  satisfy them.

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The Buygrid Framework

• Stage 3 Product Specification
• Once the general requirements are determined, the
  specific requirements for the meeting can be
  developed.
• Information often requested includes
  availabilityof water, ceiling heights, door
  widths, security, and procedures for receiving
  and storing materials prior to the event.
• A salesperson must be prepared to answer their
  prospective clients questions about their
  hotels capabilities to fulfill the product
  specification.

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The Buygrid Framework

• Stage 4 Supplier Search
• The buyer now conducts a supplier search to
  identify the most appropriate hotels.
• the buyer can examine trade directories, do a
  computer search, or phone familiar hotels
• Hotels that qualify may receive a site visit from
  the meeting planner, who eventually develops a
  shortlist of qualified suppliers.

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The Buygrid Framework

• Stage 5 Proposal Solicitations
• Once the meeting planner has drawn up a short
  list of suppliers, qualified hotels are invited
  to submit proposals.
• hotel marketers must be skilled in researching,
  writing presenting proposals
• Proposals should be marketing oriented, not
  simply technical documents.
• they should position their companys capabilities
  and resources so that they stand out from the
  competition
• many hotels have developed videos for this
  purpose

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The Buygrid Framework

• Stage 6 Suppliers Selection
• In this stage, members of the buying center
  review the proposals and move toward supplier
  selection.
• they conduct an analysis of the hotel,
  consideringphysical facilities, ability to
  deliver service, andthe professionalism of its
  employees
• In general, meeting planners consider the
  following attributes in making their selection of
  a location
• sleeping rooms meeting rooms
• food beverage
• check-in/checkout billing procedures
• staff

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The Buygrid Framework

• Stage 6 (cont.) Supplier Selection
• The buying center may attempt to negotiate with
  preferred suppliers for better prices terms
  before making the final selection.
• There are several ways the hotel marketer can
  counter the request for a lower price.
• dates can be moved from a high demand period toa
  need period for the hotel
• menus can be changed.
• The marketer can cite the value of the services
  the buyer now receives, especially where services
  are superior to competitors

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The Buygrid Framework

• Stage 7 Order-Routine Specification
• The buyer writes the final order with the chosen
  hotels, listing technical order-routine
  specifications of the meeting.
• the hotel responds by offering the buyer a formal
  contract
• The contract specifies cutoff dates for room
  blocks, date when hotel will release the room
  block for sale to other guests, and minimum
  guarantees for food and beverage functions.
• Many hotels restaurants have turned what should
  have been a profitable banquet into a loss by not
  having or enforcing minimum guarantees.

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The Buygrid Framework

• Stage 8 Performance Review
• The buyer does a postpurchase performance review
  of the product to determine if the product meets
  the buyers specifications and if the buyer will
  purchase from the company again.
• It is important for hotels to have at least daily
  meetings with a meeting planner to make sure
  everything is going well and correct things
  thatdid not go well.
• This manages the buyers perceived service
  helps avoid a negative postpurchase evaluation by
  the buyer.

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Group Business Markets

• One of the most important types of organizational
  business is group business
• it is important for marketing managers to
  understand differences between a group and a
  consumer market
• group business is often more sophisticated and
  requires more technical information than the
  consumer market
• Many group markets book more than a year in
  advance, and during this time, cognitive
  dissonance can develop.
• marketers must keep in contact with the buyer to
  assure them that they made the right decision in
  choosing the sellers hotel

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Group Business Markets

• Categories
• The four main categories of group business are
  conventions, association meetings, corporate
  meetings, and SMERF.
• Social, Military, Educational, Religious, and
  Fraternal organizations
• Conventions attract large numbers, but meetings
  occur much more frequently than conventions.
• there are about ninety-five meetings for each
  convention
• fifteen hundred people attend the average
  convention
• 165 people attend the average association meeting
• 78 people attend the average corporate meeting

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Group Business Markets

• Considerations
• When choosing a hotel, an important consideration
  for a is whether the hotel can house the
  participants.
• most hotels have the potential of attracting
  hundreds of small meetings, where larger hotels
  can attract conventions
• Successful hotels know which groups to attract,
  how to use group business to fill need dates
  how to sell groups on the hotels benefits rather
  than just price.

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Group Business Markets

• Conventions
• Conventions are a specialty market requiring
  extensive meeting facilities.
• usually the annual meeting of an association,
  include general sessions, committee
  special-interest meetings
• Hotels with convention facilities, such as the
  Chicago Hyatt can house small and midsized
  conventions.
• Conventions that use a major facility, such as
  the Jacob Javitts Convention Center in New York,
  often have tens of thousands of delegates.
• called citywide conventions because hotels
  throughout the city house their delegates

33
Group Business Markets

• Conventions (cont.)
• There are almost 14,000 conventions held each
  year in the US, with delegates staying an average
  of 3.6 days spending an average 1,500 per
  event.
• of this amount about 350 is spent on lodging
• Associations usually select convention sites two
  to five years in advance, with some large
  conventions planned ten to fifteen years before
  the event.
• Some associations prefer to have their
  conventions in the same city year after year.
• others move to a different area of the country
  each year

34
Group Business Markets

• Conventions (cont.)
• A convention can be a major source of income for
  the sponsoring organization.
• registration fees from attendees and sales of
  exhibition space in the trade show are major
  sources of revenue
• The price that can be charged for exhibition
  space is related to the number of attendees.
• an association looks for locations that will be
  both accessible and attractive to members

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Group Business Markets

• Conventions (cont.)
• Convention planners listed the following as the
  most important factors in choosing a destination
• availability of hotels facilities
• distance from attendees ease costs of
  transportation
• climate recreation, sights cultural activities
• The most important attributes of the hotel
• meeting rooms sleeping rooms
• food beverage quality
• exhibit space support services
• negotiable rates billing procedures
• check-in/checkout staff assignment previous
  experience

36
Group Business Markets

• Conventions (cont.)
• Food quality is very important to convention
  planners.
• attendees will talk about exceptional banquets,
  out-of-the-ordinary receptions unique coffee
  breaks
• poor food and service can generate negative
  feelings about the convention among the
  participants
• Support services must be available when needed.
• a nonfunctioning DVD player must be
  repaired/replaced quickly to ensure the
  presenters flow is not interrupted
• Billing procedures are important to planners.
• meeting planners want a bill that is
  understandable, accurate, and delivered in a
  timely manner

37
Group Business Markets

• Convention Bureaus
• Convention bureaus are nonprofit marketing
  organizations that help hotels sign conventions
  meetings.
• often supported by a hotel or sales tax run by
  chambers of commerce, visitor bureaus, or
  city/county governments
• A hotel relying on meeting business for a
  significant portion of its occupancy should have
  a good working relationship with the convention
  bureau.
• which includes active membership in the
  organization

38
Group Business Markets

• Association Meetings
• Associations sponsor many types of meetings.
• regional, special-interest, educational, and
  board meetings
• 71,000 associations, 92 of which hold meetings,
  creating 227,000 association meetings annually.
• generating meeting business valued at 70 billion
• Important destination attributes for an
  association meeting planner are availability of
  hotel facilities, ease of transportation,
  distance from attendees, and transportation
  costs.
• unlike conventions, climate, recreation
  cultural activities are not as important as the
  meeting itself is the major draw

39
Group Business Markets

• Associations (cont.)
• In selecting a hotel, the association meeting
  planner looks attributes similar to the
  convention planner.
• except for exhibition space
• For the association meeting planner, food and
  beverage are the most important attributes.
• Membership in the American Society of Association
  Executives (ASAE) is beneficial for hotels
  actively pursuing association business.
• Members attend association meetings
  voluntarily,so the hotel should work with
  meeting planners to make the destination seem as
  attractive as possible.

40
Group Business Markets

• Corporate Meetings
• A corporate meeting is a command performance.
• employees are directed to attend without choice
• Because corporations do not have to develop and
  implement a marketing plan to gain attendees,
  they often plan meetings with a few weeks lead
  time.
• About 800,000 corporate meetings are held with an
  average expenditure exceeding 36,000 per
  meeting.
• corporate meetings are smaller than association
  meetings
• When seeking business from corporations, a hotel
  manager must understand who has the
  responsibility for booking meetings.

41
Group Business Markets

• Corporate Meetings (cont.)
• The corporations major concern is for a
  productive meeting that accomplishes the
  companys objectives.
• types of corporate meetings include training,
  management, planning and the incentive meeting
• To a corporate meeting planner, the most
  important attributes in the choice of a
  destination are the availability of hotels, ease
  of transportation, transportation costs, and
  distance from the attendees.
• Hotels interested in capturing and retaining
  corporate meeting business must make sure that
  meeting rooms are adequate and set up properly.

42
Group Business Markets

• Corporate Meetings (cont.)
• Hotel salespeople must develop an understanding
  of the clients corporate culture to gain insight
  into benefits the hotel can offer.
• some companies feel meetings should be austere,
  rather than lavish
• others view meetings as a time for employees to
  relax enjoy themselves, a well-deserved break
• Companies that believe meetings should educate
  rejuvenate employees, and build enthusiasm toward
  the company are willing to spend more money on
  food beverage, entertainment, and hotel
  facilities.

43
Group Business Markets

• Small Groups
• Although small in terms of number of
  participants, thousands of small meetings are
  held every month.
• Hotels chains have developed special
  packagesfor small meetings, often overlooked by
  large hotels.
• upscale hotels such as the LErmitage in Beverly
  Hills go after executive meetings where expense
  is not a problem
• Sheraton has also developed executive conference
  centers for board meetings, strategic planning
  sessions training

44
Group Business Markets

• Incentive Travel
• Incentive travel, a unique subset of corporate
  group business, is a reward participants receive
  for achieving or exceeding a goal.
• for both individual and team performance
• A hotel salesperson selling incentives must be
  ableto help their client justify the
  expenditure.
• percentage of sales of the attendees is an
  excellent way
• Because travel serves as the reward, participants
  must perceive the destination hotel as special.
• climate, recreational facilities, and sightseeing
  opportunities are high on an incentive planners
  list

45
Group Business Markets

• SMERFs
• SMERF stands for Social, Military, Educational,
  Religious, and Fraternal organizations.
• median 485 nights at a budget of 180,000
• in the US, over 50,000 religious organizations
  have group travel programs
• The individual pays for the majority of the
  functions sponsored by these organizations, and
  sometimes the fees are not tax deductible.
• Participants usually want a low room rate often
  find food beverage within the hotel too
  expensive.
• SMERFs can be flexible to ensure a lower room
  rate

46
Group Business Markets

• SMERFs (cont.)
• Because attendees are price sensitive, a
  challenge is to get them to book within the room
  block.
• due to Internet searching for lower rates at the
  same hotel
• Hotels often provide concessions like free rooms
  ora free or reduced food beverage function
  based on the number of room nights in the groups
  block.
• if the block does not materialize, the meeting
  planner is responsible for extra charges
• SMERFs provide good off-peak filler business.
• those new to hotel sales often start with SMERF
  markets

47
Group Business Markets

• Dealing With Meeting Planners Negotiating
• When negotiating with meeting planners, it is
  important to try to develop a win-win
  relationship.
• meeting planners like to return to the same
  property
• Discussions over price can drive the planner and
  hotel sales executive apart, or bring them
  together
• a negotiating technique is to determine group
  requirements in detail and work out a package
  based on needs budget
• Some planners try to negotiate every item
  separately, starting with the room rate, then
  they choose a 65 banquet and try to negotiate
  the price to 45.
• every line item becomes a point of contention

48
Group Business Markets

• Negotiating
• A consultative approach is much more effective.
• if the hotel knows the planner wants to spend 50
  for dinner, the chef can develop alternatives in
  this range, the hotel can produce the meal at a
  profit and sell it for 50
• the hotel gains a profitable meeting, and the
  meeting stays within the planners budget
• If attendees are able to get work done at the
  conference they will stay longer.
• the hotel can offer a small meeting room with
  business services, including Internet access,
  computers printers
• this can be a low-cost item to the hotel that has
  a high value to the meeting planner

49
Group Business Markets

• Negotiating
• Hotel salespersons must remember that most group
  rates are noncommissionable
• if the rates are to be commissionable, it should
  be determined during the negotiation process
• Meeting planners sometimes turn meetings over to
  travel agents, who book about 5 percent of all
  corporate meetings.
• if the planner does so without understanding the
  rate is noncommissionable, problems can arise
  when the travel agent tries to collect a
  commission

50
Group Business Markets

• Negotiating
• It is also common to give one complimentary
  room-night for every fifty room-nights that the
  group producesanother point of negotiation.
• A smaller meeting room the hotel will not be able
  to sell during a proposed meeting can be used in
  the negotiation process as a boardroom or a space
  for the meeting manager to work.
• The hotel salesperson must look for items that
  will create value for the meeting planner without
  creating costs or sacrificing revenue for the
  hotel.

51
Group Business Markets

• Negotiating
• Many associations have a president, elected from
  the membership, and a professional executive,
  often called the executive vice president.
• the executive vice president usually sets up the
  meeting or supervises a meeting planner
• It is important for the salesperson to find out
  who is involved in the decision-making process,
  officially and unofficially.
• gatekeepers can give useful insights into the
  decision-making process within the organization

52
Group Business Markets

• Negotiating
• When the vice president of sales asks a junior
  salesperson to organize a sales meeting, the
  salesperson is usually unsure of how to proceed.
• Meeting administrators often know the business as
  well as the hotel salesperson.
• salespeople should listen to the administrator
  tounderstand his/her requirements
• Sometimes they know exactly what they want and
  just need a quote according to their
  specifications.
• if this is the case, trying to alter their
  specifications arbitrarily can appear
  unprofessional and lose business

53
Group Business Markets

• Negotiating
• Most meeting planners maintain a history of the
  group for the purpose of planning future
  meetings.
• a salesperson can gain valuable information by
  asking questions about past conferences
• In addition to information volunteered by the
  meeting planner, the salesperson should interview
  hotels that hosted the conference in past years.
• this can provide insight into room pickups,
  banquet attendance, past problems what members
  enjoyed

54
Group Business Markets

• Negotiating
• Meeting planners want their calls returned the
  same day they are received.
• When they ask about availability of meeting
  space, they expect a response the same day and a
  complete proposal in five days.
• Most meeting planners want their bill within one
  week of the event 25 want it within two days.
• Planners feel hotel management should empower the
  convention service manager to solve their
  problems.
• they do not want to wait while the convention
  service manager checks with a superior

55
Group Business Markets

• Prefunction Meetings
• A most important aspects of creating a successful
  function is a prefunction meeting between the
  hotel staff and the meeting planner before the
  function.
• Accounting should be at the meeting to get
  acquainted with the function to make sure billing
  meets expectations
• the Bell Captain should know if a gratuity is
  included
• the concierge needs to know the meeting has open
  nights with no banquets to allow the concierge to
  set aside tables at local restaurants
• hotel staff that will be receiving questions
  about the event and the schedule should be
  briefed
• reservations agents should know the names of the
  groups VIPs and who should get early check-in
  privileges

56
Group Business Markets

• Corporate Rates
• A nongroup form of organizational business is the
  individual business traveler.
• most hotels offer a corporate rate, intended to
  providean incentive for corporations to use the
  hotel
• most hotels offer it now to any businessperson
  who requests the corporate rate
• To provide an incentive system for heavy users,
  hotels developed a second set of corporate rates.
  
• the contract rate is a negotiated rate, usually
  10 to 40 percent below the hotels rack rate
  and often includes benefits besides a discounted
  rate

57
Group Business Markets

• Corporate Rates
• The corporate business traveler is a sought-after
  segment, as while the corporate contract rate is
  a discounted rate, it is higher than the group
  rate.
• the business traveler is also on an expense
  account and makes use of the hotels restaurants
  business facilities
• Companies that would have not considered putting
  their people in an economy brand a few years
  agoare now using budget and economy-brand
  hotels.
• budget/economy hotels now have a 34.5 market
  share
• attributed to upgraded amenities found in economy
  hotels and businesses needing to cut costs to
  remain competitive

58
Group Business Markets

• Corporate Rates
• Larger companies have travel management programs
  run by the company or in-house branches of a
  travel agency that negotiate corporate hotel
  contracts.
• In addition to developing hotel contracts, the
  travel managers set per diem rates, specifying
  the amount a company traveler can spend on food
  beverage.
• often at different levels, with the per diem
  amount increasing as one moves up in the
  corporation
• It is important to find out a companys per diem
  rates to determine if the hotel is in the right
  price range.
• and what level of manager the hotel can expect to
  attract

59
Group Business Markets

• Corporate Rates
• Some corporations use in-house travel agencies,
  or in-plants, that also represent other
  corporations, providing the advantage of
  negotiating leverage.
• A business represented through an in-plant may
  have only 100 room-nights a year in New York.
• the travel agency represented by the in-plant may
  service ten companies with 1,500 room-nights in
  New York
• The agency can negotiate a rate based on the
  1,500 room-nights pass it along to individual
  companies.
• the hotel compensates in-plants by straight
  commissions, monthly fees, or a combination of a
  fee and commission