Improving Negotiating Leverage – BATNA

“Rajeev, we have been given a mandate by our management. Due to the Covid-19 crisis leading to a steep fall in customer demand, you are expected to reduce the price of your cutting tools by 50%,” said Mr. Padmanabhan, (the purchase manager of Shockproof, a shock absorber manufacturing company from Delhi) adding a veiled threat, “else we have no choice but to switch over to the competition.” Rajeev is a technocrat running ‘Techno Enterprises,’ a MSME manufacturing cutting tools enterprise with a turnover of around Rs. 10 crores. When asked about the customer details, he shared his understanding that ‘Shockproof’ is a major supplier of shock absorbers with a turnover of ₹ 1000 crores catering mainly for the two wheeler industry.

One of the questions often asked in our training and consulting assignments is ‘how does one deal with such arm-twisting tactics, especially when the customer is too big compared to the supplier?’

One important concept in Negotiation theory is BATNA, which stands for the Best Alternative To a Negotiated Agreement, a term coined by Roger Fisher and William Ury of the Harvard Program on Negotiation. BATNA is an important tool while preparing for negotiation. Both parties have their BATNA independent of each other. The party having a stronger BATNA has a stronger negotiating leverage. In case the parties are not able to conclude the negotiation, the best option each one has can be called as their BATNA. In the above example, if the negotiations fail, the BATNA for the customer and vendor can be improved as follows:

Customer: Look for other vendors who can give a similar product at the desired price.

Vendor: Develop alternate customers who can provide the requisite amount of volumes at the desired price.

It is not as simple as it looks above. Does the customer have a vendor who can provide deliveries just in time to meet his production targets? Alternatively, does the vendor have alternate customers where his current inventory can be offloaded? Now you will appreciate that BATNA is not only decided by the number of options but also the feasibility and attractiveness of those options.

Whose BATNA is stronger? The conventional answer favours that of the buyer who is much bigger in size. Some points to ponder:

  1. Identify your BATNA: The tool required for cutting/drilling is made with precision which requires tungsten carbide or diamond as the raw material. It also requires a great deal of R&D to develop a tool for a specific application. The vendor has been supplying the tools for the last 15 years. With considerable technical expertise, the production department found the tool useful. The rejection rate was less than 1% and the cost-per-component was low.
  2. Identify the weakness in the other party’s BATNA: The seller knows that the buyer has the option of other vendor but also has the critical information that the rejection rate of the competition’s tool is close to 50%. Also, the shop floor people do not appreciate the tools supplied by the competition.
  3. Spot the customer’s bluff: Even though the Indian two-wheeler volumes fell by 15% in FY 20, the impact on Shockproof was much lesser at around 8.4%. The customer was able to absorb the shock (pun not intended) as it focussed more on improving the content per vehicle. As per a newspaper report, Shockproof had notched up a top-line of ₹ 5000 crores and its EBIDTA rose by 4% to Rs. 800 crores. (Remember the excuse of the Covid -19 crisis the purchase manager articulated earlier?)
  4. Do Proper Homework: Rajeev shared that the customer’s turnover was ₹ 1000 crores, whereas in reality it was 5 times. This can be perceived two ways: conventionally it may produce a feeling of helplessness. Alternatively the helplessness could be transformed into strength as in the end result of a David vs. Goliath fight. The vendor could feel that a supply of ₹ 1 Crore of material is insignificant from the customer’s perspective and there need not be any need for the customer to be so aggressive in reducing the price. Can David stand his ground?
  5. Improve your BATNA: Let us take a different example where both the customer and the vendor are equally strong. For its Power PC, Apple had developed its microprocessor in collaboration with Motorola and IBM. In 2005, Steve Jobs took a call to switch over to Intel, which apart from being a market leader in microprocessors was offering a cutting edge technology in computing. Developing microprocessors needs a huge investment and also technical expertise. Intel had both and was the only vendor for such a high-technology product. With a single vendor, the vulnerability was high for Apple. Three years later, Apple bought over a 150-employee start-up in chip design called PA semi. Most of the team members had worked earlier at Intel, including Johny Srouji who now reports directly to Apple CEO Tim Cook. In 2020 Apple announced that it will use its in-house microprocessors for the new range of Macs. ( International Herald Tribune, Don Clark and Jack Nicas – After 15 years Apple prepares to break up with Intel DH – June 23, 2020)
  6. Risk Mitigation: Apple was giving a business worth $3.4 Billion of microprocessors for Macs to Intel every year according to C.J. Muse an Evercore analyst. For Intel it was like losing a major account which was powering around 20 million Macs shipped by Apple annually. The impact of such a Key Account leaving Intel can be minimized when the figure is perceived not in absolute numbers but by the percentile share. Apple was contributing to 5% of Intel’s annual business and the total no of PCs sold annually are 260 million. While understanding one’s BATNA, apart from the actual value an account produces, the share of the total business also needs to be considered. It is better not to keep too many eggs in too few baskets. An important tool in risk mitigation is the sales funnel which can help in improving your BATNA.
  7. Guard against Pitfalls while analyzing one’s BATNA: There are two mistakes people make while going in for negotiations. Either they are too optimistic or too pessimistic.

Being too Optimistic: There is a tendency to aggregate all the options and assume it to be The BATNA. Consider for example, Rajesh, an unemployed engineer in Bangalore who has applied for a job in IT and feels that he deserves a salary of Rs. 10 lakhs as he has the following options:

  • Has applied for similar jobs in Mumbai and Delhi.
  • Has plans of a start-up in 3-D printing.
  • Is exploring further studies in the US by answering GRE and TOEFL.
  • Is pursuing MBA by giving CAT.
  • Joining the family’s 2-decade old fabrication business which is running well.

It is risky to assume the sum total of all these options as the best alternative because at any moment Rajesh can select only the best one. Contrast this with Gautam who already has a job with a ₹8 lakhs CTC. You will appreciate that Gautam has a better BATNA than Rajesh as a bird in hand is worth two in the bush!

Being excessively Pessimistic: The other mistake in negotiation is being too pessimistic when one is too committed to reaching an agreement without any preparation. There is an assumption that agreeing to all of the customers’ demands will make him happy, giving rise to a long-term business and relationship.

In the cutting tool example, the vendor though small in size vis-à-vis the customer, had a better product quality, a low rejection rate, a lower component cost and a shorter delivery period vis-à-vis the competition, which meant him having a better BATNA than the customer. Does it mean that he should rest on his laurels? Competition will be always trying to catch up with him, which necessitates him having to improve his BATNA all the time so as to keep the competition at bay.

Thus, negotiating strength, rather than being decided by the absolute size of a party or the size of the deal (as in the case of Apple vs. Intel) or the number of back-up options, is decided by your BATNA.

Whether you are a buyer or a seller, starting a new venture or looking out for a new job opportunity, please spend time in identifying and developing your BATNA.

Remember, in life, you do not get what you deserve, but what you negotiate and that is decided by your BATNA, the Best Alternative to a Negotiated Agreement!

Rajan Parulekar – Director, Hospitality Paradigm

 

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Is your hotel following safety standards?

With people beginning to travel albeit warily, hotels needs to seriously look at whether they are following their safety standards widely marketed by them.

Trust in a brand is based on the brand history, the leaders within the brand and the competence exhibited by the brand.

Breaking this trust could be significantly dangerous and have negative implications for the brand.

Inside Edition’, an American TV newsmagazine distributed by CBS TV conducted a sting on a few hotels in New York recently to see how diligent they were being about cleaning during the coronavirus pandemic, and these are the stunning findings.

Using invisible spray and gel on sheets, towels and surfaces, the team checked into the same room under different names on different days to see if they had been cleaned or replaced. All three hotels that the Inside Edition team visited failed to clean and replace everything.

https://youtu.be/ltBrCJC5BNI

Makes you think, does it not? Hoteliers cannot be complacent and their leaders will need to initiate these checks and counterchecks to ensure that they are not left embarrassed as these hotels in the link were.

 

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RFP 2021

Buyers will need to address a few issues specifically related to Covid-19 in negotiations this year, including:

  • Cleanliness standards. All buyers should confirm cleanliness standards as part of the negotiation process. The enforcement of social distancing and cleanliness standards in guest rooms, meeting rooms and other common areas is paramount, and measures will need to be addressed in contracting.
  • Amenities. The need and availability of hotel amenities will be different. For example, what will free breakfast entail? Will “grab and go” replace the buffet? It may not make sense to negotiate in breakfast or even the shuttle service if buyers are not confident that the appropriate social distances measures are in place or if travelers will not be comfortable using the services.
  • Room availability and upgrades. The fact that many hotels will be operating at lower inventory levels, with many operating at 50 percent capacity, make room type negotiations more challenging for some buyers. The likelihood of securing room types beyond standard will decrease, and it will be incumbent on buyers to sharpen their pencils in to obtain upgrades for their travelers.
  • Cancellation policies. While hotels currently are offering flexibility with bookings to spur demand, they might adjust their cancellation policies down the road, given the planning and costs hotels need to apply to spacing out incoming and outgoing guests and having guests placed in every other room and other measures to manage guest flow. With inventory constraints and social distancing measures, cancelations will be more costly for hotels and they will likely need to apply more stringent penalties which could result in increased costs for buyers in the form of fees. Cancellations and penalties are a negotiable item in the RFP process, and buyers should be prepared to address them.

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Inspiring Leadership

My first interaction with Deepak Parab, the CEO of Metrohm India Private Limited (a leading company in Analytical Instruments and Solutions) happened around two years ago when he called me from his Chennai HQ and said that he would like me to conduct a ‘Managerial Effectiveness’ program for his pan-India team of service managers. “Rajan, I shall ask my National Service Manager, Vinod Salunkhe to get in touch with you to discuss the further modalities.” The call hardly lasted five minutes; a client taking a quick decision in finalizing a 2-day training program was a rarity in my training career of 25 years. I could not help recollecting a MNC client who took approximately six months with more than a dozen meetings to finalize a 1-hour keynote address. (See my earlier blog titled ‘A Tale of Two Key Note Addresses’ – https://rajanparulekar.in/2018/03/29/a-tale-of-two-key-note-addresses/

More than the ability to take the right decisions, the leadership traits I admired in Deepak were:

Focus on results: After he took over as CEO and Managing Director, Metrohm India has progressed very well under him and results have been great. They have been able to capture and maintain major market share for their products and increase the turnover and profitability multi-fold. Today, Metrohm India owns all its offices across India and these were bought in the last ten years.

Retaining Talent: His core team of 30 senior managers including the COO, Branch Managers, Service Managers, Application Laboratory Manager and Product Managers are with the company for the last 20 years. The core team has remained the same for the past two decades.

Creating Value through Service: Peter Drucker said that the purpose of business is to attract and retain a customer, which can be restated by the formulae below:

  • Vc > Vp where Vc is the value perceived by the customer and Vp is the value inside your product or service. You get a customer only when the perceived value is more (short and/or long term) than what the customer pays for.
  • Vc = (Q+U+S)/P where Q is the Quality, U the Utility, S the Service and P is the price. Remember that QUS is not what the salesman claims but what the customer perceives. The four ways to increase the perceived value is either to increase the QUS or to reduce the P. Quite often desperate salespeople reduce price to create value which in turn affects profitability.

Deepak took a different approach to create value. To command a premium, he focussed on the numerator (QUS) rather than the denominator (P). Service was given prominence vis-à-vis sales. In a team of 135 executives for each sales person there are 3 service executives. Normally one service engineer is deployed for 100 instruments, with an equal share of warranty and AMC (annual maintenance contract). Today Metrohm India has 12 Offices and 12 Home Offices from where Service is provided. The home office concept for service was used to extend the reach. For example for clients in Goa, service engineers used to travel every week from Mumbai to Goa. With 250 instruments, 2 service engineers were deputed to Goa, which created value in the following ways:

  • The travel fatigue for service engineers was considerably reduced.
  • Improved work-life balance for the Service Engineers who were back to their home in the evening.
  • Cost of resident engineers was lower than with the travel and related costs.
  • Delighted Customers due to an improved response time and a lower down-time. Customer confidence in Metrohm also increased due to the now closer proximity of the Service Engineer.

Having created value for the customer in terms of QUS, Metrohm was now able to command a premium vis-à-vis the competition. There is a general tendency for companies to club sales and service to control costs, especially in the case of executives operating from home offices. However, Deepak resisted this temptation, as with dual responsibilities, executives tend to focus more on sales and ignore service. Now, dedicated service engineers in turn enhanced the perceived value!

Delegation with empowerment: Ganesha Chaturthi is a major festival in Maharashtra. Deepak belongs to a small village called Hiwale in Sindhudurg District from the Konkan region. For this important festival, Deepak used to take leave for 10 days every year. However as a CEO designate, when he applied for leave now, his boss questioned the logic, considering his elevation to the new role with additional responsibilities. The major concern apart from the leave, was in Deepak being incommunicado due to poor network connectivity at his village. Deepak’s thought process was quite clear. He said, “I shall prepare my team in such a way that my help is not needed in those 10 days.” His communication to his team members went on the following lines:

  • “Please take decisions. I am not going to blame you for the consequences, if found negative in posterity.”
  • “Please think of the worst–case scenario. The company is not going to sink from any such decisions.”
  • “All of you can learn from your mistakes and a wrong decision and its consequence can be termed as the cost of learning.”
  • “If in spite of all the above, you still need my advice, please drop me a SMS. In case I go to the village market (which has a better connectivity), I shall respond.”
  • The discounts and pricing are controlled by the respective Managers and all are empowered to take decisions. As a normal practice at Metrohm India the senior management team does not have any extra power to give additional discounts.

Genuine Concern for Employees: Even though a nationwide lockdown was announced on 24 March 2020, Deepak took the call on 20th March to shut down the company’s offices across the country. Most of his team members who were at different locations then, had enough time to go back home.(Contrast this with the 4 hour time frame given by the PM which affected not only the general populace but also the millions of migrant workers!) He announced categorically that there would be no salary deduction, nor would anyone be forced to go on leave. The salary for the full month of March which normally gets paid on the last day of the month was credited on 24th

Creative Problem Solving: Every year the company used to invite its Pan-India sales and service team in May to the Chennai HQ for training. The month-long exercise for a team of 130 executives used to cost around ₹ 70-80 lakhs; the quarterly reviews used to be around ₹ 5-6 lakhs each. During the lockdown, the time was used for online trainings and reviews thereby saving a big cost for the organisation, while at the same time keeping the employees engaged. They also ensured that all employees are engaged and connecting with the customers, so that they feel like they are doing their routine work and no health issues crop up due to no work. In the earlier phases of lockdown, the instruments which needed attention were diagnosed remotely, thereby reducing the down time. For the Pharmaceutical industry which is a major customer (as well as the sector doing well during the pandemic), Metrohm’s service support was crucial. In a few cases, even the installation was carried out with the help of the customer along with support via a video call by the Service Engineer. Digital Platforms have been used by the organisation extensively to connect its employees and customers.

Effective Decision Making: Be it a minor decision of a trainer selection or major ones like shutdown or salary disbursals, an effective leader does not shy away from taking decisions.

Strong Ethics: Deepak shared that a strong sense of ethics and moral values are a sine qua non for effective leadership. Deepak spent his childhood in the IIT Bombay campus. His father, Raghunath Parab was a governing member of the Co-Operative Society and was entrusted the job of supervising the IIT Staff Canteen operated by the IIT Staff Co-Operative Society. As a principle, his father did not prefer his children to visit the canteen; lest it be perceived that they were availing food free. Some years down the line, when Deepak entered the canteen and when his father admonished him, he told him, “Dad, now I am working as a Technical Assistant in the Department of Chemistry and I have come here as an employee and not as your son.” Caesar’s wife must indeed be above suspicion.

Rajan Parulekar – Director, Hospitality Paradigm

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What makes the World’s Oldest Restaurant Tick?

Restaurante Sobrino de Botin

Six months ago, during the Navidad semano (Christmas week) whilst the Covid-19 pandemic was silently creeping its assault around the world, I was fortunate to visit the world’s oldest restaurant in Madrid, while on a holiday to Spain.

Situated in the medieval Austrias area of Madrid, the 295 year old Botín restaurant was founded by Jean Botín in 1725 and has been in the González family since 1930, now for four generations. The restaurant has been visited by people from all over the world, including royalty, politicians, writers and Hollywood stars and features in the Guinness book of records as the oldest restaurant in the world.

The 430 year old cellar

Though the wine cellar originated in 1590, the restaurant above the cellar was founded as ‘Casa Botin’ by a French Chef, Jean Botin in 1725, who moved to Spain and married an Asturian lady. As they did not have children, Mrs. Botin’s nephews took over after Jean Botin and hence the name you see even today, splayed across the external façade: “Restaurante Sobrino de Botin Horno de Asar” which may be translated as ‘Restaurant Botin’s Nephews – Roasting Oven.’ Interestingly, the restaurant has kept the said oven’s flame burning continuously, never to be extinguished.

Suckling pigs heading into the famed oven

2015 apparently was Botin restaurant’s best year on record with an average footfall of 600 guests per day. At an APC (F&B combined) of €72 that works out to a very decent annual turnover of € 15-16 million (equivalent to INR130 crores). Note that the restaurant menu is not at all highly priced… something they have kept as part of their business strategy through all the years.

We were unable to get a reservation online though I kept trying for nearly a month prior to the trip. However when I visited the restaurant personally, I was able to get a booking only for 2300h the subsequent evening, Sunday. Well, who were we to grumble at the reservation time, as the locals begin their evening dinners only post 2100h? Besides, who would want to miss out on eating in this iconic restaurant?

On the said evening, after a tiring tour of Segovia and Toledo (North & South of Spain) for which we had left our hotel at 0530h, we were back in Madrid at 1730h. Since our hotel was located at another area, we had quite a few hours to spend at our disposal. Though we were really tired, we decided to keep going and browsed around in the heart of Madrid and dabbled in a few tapas bars, the best of which we found at ‘Mercado de San Miguel,’ located just outside Plaza Mayor.

Fresh Tapas on display at Mercado de San Miguel

At 2000h, we decided we would take a chance and check if the Botin Restaurant would accept us as early diners. We honestly expected the service team to be ‘hoity-toity’ about their reputation and expect their guests to grovel for a table, especially if they landed up 3 hours early… after all we were so fortunate to be dining in a piece of history, no?

Luís Javier Sánchez Alvarez ~ Deputy Manager

Fortuitously, we were met by the same waiter who had taken our reservation the previous day and he was kind enough to check his register and then check with the restaurant manager, Luís Javier Sánchez Alvarez, who has worked at the restaurant for 41 years. Alvarez was very convivial and welcoming – he immediately asked the host to accommodate us… so up we followed him to their second floor, thoroughly elated at not just being able to dine early, but also at the warm reception. (Something we had honestly never expected!)

The restaurant has four floors, which maintain the quaint atmosphere of a traditional tavern. Alvarez the manager, explains why the Horno de Asar, the restaurants famous oven’s fire has never been extinguished. “It is our jewel. Our crown jewel. The oven has been burning continuously for 295 years,” he says. “We never put it out. It needs to be kept hot at night and be ready to roast in the morning. That’s the reason why we must never put it out. There is a special aroma in there; it’s truly incredible.”

Cochinillo Asado (roast suckling pig)

Our meal consisted of Restaurant Botin’s famous specialties Cochinillo Asado (roast suckling pig) and Sopa de Ajo (an egg, poached in chicken broth, and laced with sherry and garlic) and these were truly delicious and certainly stood up for their reputation!

Sopa de Ajo (garlic soup)

Our experience was truly delightful right from entry to exit that evening and it set me thinking as to what makes a restaurant succeed for three centuries altogether. Giving importance to their local guests who make up 55% of their clientele and keeping their rates fairly reasonable is part of their business strategy; and while their cuisine is delectable, the ambience outstanding and so steeped in tradition and culture, what also stands out is the warm caring service we experienced – right from the manager to the steward – who in spite of servicing over 600 guests that Sunday evening still made us feel special by heeding to our request for an earlier table reservation and thereafter serving us with the same élan or elegancia we noticed around other tables… it seems they have been living and breathing their ethos to posterity… hence the centuries of successful evolution, whilst yet maintaining traditiciones from the past three centuria!

As long as the restaurant ethos breathes for the customer, long live Restaurante Sobrino de Botin Horno de Asar!

This article has appeared in Travel Daily Media February 2021

 

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A Proactive Approach to Negotiated Rates during tough times

Are we on the brink of the demise of the Hotel RFP, if only for the nonce? The market will bear only what it can bear and no one knows what occupancies and ADRs will look like. For sure, market rates will be lower than corporate rates in the foreseeable future.

The Global Business Travel Association recently endorsed a postponement of the 2020 hotel request-for-proposals process until 2021 because of the coronavirus pandemic and in the process encouraged hotels to roll all 2020 rates for 2021. While this announcement is probably premature, given that the typical RFP season doesn’t get going until post August when the hotel landscape might look different, Business Travel News reported that it also ignited a controversy among procurement experts who see rolling hotel rates over possibly eroding the value of the corporate travel program.

Buyers need to be given a choice. Isn’t that what a free economy is all about?

Static negotiated rates will very likely be higher than spot rates in the market going into 2021, thereby putting the program manager and the travel management company in an awkward situation. When corporate travellers see lower rates on the online booking tool, they will begin to distrust the TMC and the RFP program. RFP contracted productivity in Indian city hotels ranges from 08-20% of bookings and if you roll over RFP rates, given the post-pandemic bleak business forecast, there is a very good chance these contracted rates will look high a lot of the time.

In a static RFP rollover there would be a concern about eroding the value of the corporate travel manager who is supposed to be aligned with their duty to their own companies as they get paid to get the best value for their company. If they just let things ride and not get significant discounts, their bosses would ask them to justify their salaries & existence.

What may happen is that those RFP programs which remain static would be switched to use dynamic rates i.e. LAR (Least Available Rate) on GDS.

In a post pandemic scenario, the Market will necessarily be in the Buyer’s favour for quite a while. Nobody wants to hurt the hotel industry while it is down, but business is business. When was the last time a hotel went to a struggling business and offered more sops and discounts on their negotiated rates until their business bounced back?

Hotels would like to sustain their pre-Covid ADR (average daily rate) for as long as possible, because that was the rate point created at the end of a long growth cycle; but a majority of their clients would see an opportunity to negotiate for lower rates and better terms and conditions.

Many companies are already on a hunt with scythes to lower vendor costs realising they see an opportunity, and are being asked internally by not only their Chief Procurement Officers but also their Chief Financial Officers to make use of the market situation for their benefit. They view this as an opportunity to do the right thing for their company and to obtain better terms and conditions based on the current market.

Static rates will be non-competitive, and hotels may see some clients go off-cycle, reduce the size of their hotel programs, and diversify the program by adding more dynamic rates, thereby quitting sourcing rates everywhere and using rate targets.

With over six months remaining of this year, it is within the realms of reality that Companies may call for lower rates on their RFP program for the remainder of the year. Though this is a time consuming process for the procurement division, the value of savings for the company may be significant enough for it to reach out to all its partner hotels asking for these lowered rates.

While it is still the hotel’s prerogative as to whether they would like to offer discounted rates or not; those that do – could get volume and market share in return.

Today’s Proactive Hotel Manager will have to absorb this reality and strategically see their way through turbulent times ahead.

So, should Hotel companies reach out to their Client Companies before these companies get around to calling the hotel for re-negotiation?

With RFP accounts, experts I have spoken to, advise Hotels against doing so. One has to be careful of setting benchmarks when dropping rates, for this can have a rollover effect and take you years to regain ground thereafter. Hence with RFP accounts, it is better to load lower rates as per the forthcoming business troughs as a Least Available Rate (LAR) on GDS which will achieve the purpose anyways, but with the control on pricing and period within your hands.

In the case of companies with a Locally Negotiated Rate (LNR) however, it is possible that once you have realistically seen the near future and realised that RevPAR is going to drop drastically, you approach these companies giving preference to them on the basis of the Pareto principle.

The advantages of reaching out to their procurement heads to possibly offer special post-pandemic rates are numerous.

  • You make their job of approaching you otherwise, easier.
  • You are showing empathy for their situation even though your industry in all probability is worse hit than theirs.
  • Your approach is proactive and hence open – rather than reactive and hence defensive.
  • The expected business from the corporate will anyways plunge due to the market situation but as a first mover you could vie for additional business normally given by the corporate to your competition, hence filling the forecasted contraction.

Festinger’s cognitive dissonance theory (1957) suggests that we have an inner drive to hold all our attitudes and behaviour in harmony and avoid disharmony (or dissonance). When there is an inconsistency between attitudes or behaviours (dissonance), something must change to eliminate the dissonance… A number of hoteliers I have spoken to are apprehensive of reaching out in advance and offering new rates to LNR companies, yet they want their business to return. While I understand their concerns, we must also realise these are unprecedented times and we have no frame to fit to compare these times to; hence we would need to keep re-inventing the wheel and act decisively to resonate our thoughts with our actions.

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Rightsizing Marketing Spends in Crisis

History reveals that brands that actively market during a time of crisis experience higher sales than those going off the radar. Also, can brands now build connection and trust with people instead of brazenly attempting to create a demand for their products and services?

I am reading a lot nowadays of how hotel companies all over the world are putting a freeze on their marketing spends during the current pandemic and it leaves me wondering whether it is the right direction to tread. Pure economics does dictate that if consumers are not spending money on products and services, there is apparently no sense in spending on marketing them. This is why when a crisis hits, the marketing budget is normally amongst the first to go. However, across the board marketing cuts may reflect a short-term view of the ongoing global pandemic’s implications.

Historic data and research have proven time and again that companies that actively market during a time of crisis experience higher sales and net income than those going off the radar. While brands may think that when consumers are ready to purchase again they will begin marketing them, in reality it may take a long time for the crisis to be over, and during this time a customer recall for a brand may have dipped drastically. In the current crisis of the global pandemic we are not in a short-term emergency and hence we need to have a longer term vision and before cutting expenses we need to understand both short-term and long-term revenue implications of such drastic pull back measures.

How much a brand invests in maintaining its relationship with its customers during the crisis really may define its long-term success. Last month, Airbnb was forced to decrease its internal valuation by 16% as a result of a 40% drop in bookings. Airbnb hosts are angry about the company’s recent rescinding of cancellation fees and guests (post lockdown) are also now wary of using Airbnb as Airbnb hosts may back out of commitments and even their relationship with Airbnb, preferring other long-term rentals in the current scenario. If there was ever a time Airbnb needed marketing, it is now to keep both sides of its customer base (the hosts and the renters) going. Instead, it has failed to mitigate the damage of a negative impression amongst guests as well as hosts. The result is that as hosts lose revenue and feel unsupported by the company, they will leave (the exodus has already begun) and may not return.

What would have saved Airbnb from a very public backlash is a shift in how they think about their marketing actions: from creating a demand for their products and services, to maintaining their relationship with both customer groups. 

While one certainly needs to control costs in these war-like days, marketing budget rightsizing must reflect the shift from spurring demand to maintaining customer relationship or else marketers are in danger of losing the connection with their business partners and customers, as the Airbnb ordeal shows. Actions and not words are most effective. Though we are seeing most brands attempting to outdo each other through their creative campaigns as public service announcements, potential customers in quarantine don’t necessarily need a reminder of their dire situation. We are already seeing how entertainment, exercise and any sort of distraction works better than polished imagery and advertising. Whilst everyone is in quarantine, customer oriented gestures work better than being bombarded with promotions. Brands need to think about what would make their customers feel good or how they may bring them joy and distraction, or even what is the task which is required to be done for their brand community right now.

Ideas like recording videos for social media, enhancing digital marketing, making FAQ videos, interviewing guests and employees, using SEO and online marketing as solid avenues to build connection and trust with people or hosting an online video space once a week for people to check in and have a light discussion are already being implemented by some self-starters in the hospitality space and more brands need to ideate on such marketing initiatives to keep up their ‘mojo.’

As rightly said by Brand Gurus, here is an opportunity for brands across the globe and across businesses to capitalize on the shift from products to content, from physical stores to virtual membership, from transactions to inspiration, from buying to socializing and brands must consider this a necessary and holistic business adjustment. Even as hotel companies are adapting and evolving through these extremely trying times, it will be interesting to follow their marketing ethos and its evolution thereof.

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SOPs for future hotel operations

With proper updates to hotel operations and smart marketing tactics, a hotel can possibly succeed in the post-COVID hospitality landscape if they are able to implement new SOPs to reassure their guests.

  • Make sure that housekeeping and public area cleaning SOPs are state of the art, as this is one area where sharing-economy locations may not be able to match you.
  • Promote these new SOPs consistently and repeatedly through all marketing channels so that guests understand you are addressing this issue with the utmost seriousness.
  • Embrace the concept of “cleanliness theatre” whereby it’s no longer just about having your flawless but ordinarily invisible cleaning practices visible to guests (for example, having your front desk associates clean the front desk during peak check-in and check-out times as well as in the middle of the night)
  • Deploying many “people-free” technologies like a self-check-in station dilutes the perception of great service inferred by a smiling front desk associate, but now we need to see this from a new perspective post the Covid-19 situation, and hence consider this as a good distancing tool.
  • See what changes, if any, you can make to the furniture in your public areas so that visitors are more socially distanced from each other
  • Relook at traffic flow within your restaurants and meeting spaces to attain fewer instances of mass groupings through the staggering out of dining covers and conference break periods or by removing corridor-narrowing obstacles.
  • Implement new technologies to enable more work-from-home situations so you can maintain service delivery on a leaner team or so you don’t have to scramble once more if another lockdown occurs in the near future.
  • Again, be prepared to start advertising any new protocols and SOPs directly to customers who nowadays will be keenly receptive to this type of messaging.

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The future of social distancing

COVID-19 is forcing humankind to innovate and change the way we work and live. Individuals and corporations will be more resilient in a post-COVID-19 world. Once we have left this pandemic behind, there is a high possibility of the following disruptors coming into play:

  • More Online Shopping
  • Rise in Esports
  • More Digital Events
  • Increased Reliance on Robots
  • AI-Enabled Drug Development
  • Telemedicine
  • Better Monitoring Using IoT and Big Data
  • Strengthened Digital Infrastructure
  • More Contactless Interfaces and Interactions

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What Hotels could do in a pandemic

Hotels can offer significant value to authorities, whether through government procurement or voluntary offerings during the current pandemic, including:

  • To house quarantined individuals with actual or suspected COVID-19 infections.
  • As hospital facilities to treat COVID-19 patients and others.
  • To house doctors, nurses, and other health care workers, including potentially allowing them to remain close to medical facilities.
  • To house National Guard troops or government workers.
  • To provide food and beverage facilities for overflow meal service for patients, health care workers, and others.
  • As laundry facilities for the overflow of hospital linens.

Hotel owners and their counsel should seek to secure strong indemnification and insurance requirements, including additional insured status, waivers of subrogation, and primary and non-contributory wording. In certain cases, government contracts may not allow for alteration, but private party contracts generally allow for amendments.

Areas of ‘Property Insurance’, ‘Workers Compensation’ and ‘General Liability and Umbrella and Excess’ need to be worked on. The pandemic remains a fluid situation for many businesses, including hotel operators.

The answers to critical risk management questions — along with government policies and support — will continue to evolve as conditions change and potential losses develop. Hotel companies should work with their advisors, including insurance brokers and legal counsel, to manage contractual risk, understand how insurance policies will respond, and seek to ensure seamless operations and risk mitigation while COVID-19 remains a threat.

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Travel Industry response to Coronavirus

The travel industry is responding to reduced bookings, increased anxieties, and extra precautions relating to the coronavirus pandemic. Airlines have slashed ticket prices and the hotel industry as well as Airbnb are detailing cancellation policies and enhanced cleaning procedures.

Marriott International, Wyndham Hotels & Resorts, Hotels by Hilton, and more are waiving cancellation fees for hotel stays through March 31 booked by guests traveling to or from countries such as China, South Korea, and Italy.

Marriott officials said its crews are cleaning and disinfecting more often and focusing on elevator buttons, door handles, front desk counters, public bathrooms, room keys, and “high touch items” in guest rooms. Marriott employees are also attending an “enhanced COVID-19 awareness training,” according to the release.

Travellers booking Airbnb will now have increased flexibility for “more peace of mind when booking,” Airbnb wrote in a press release posted Tuesday.

The company is offering a “More Flexible Reservations” system, which is “a suite of tools and programs we are developing to help hosts and guests navigate uncertainty and meet their needs to cancel or postpone their hosting and travel plans,” according to Airbnb in the release. Here’s what the system will do:

  • Travellers can filter their searches by type of cancellation policy: flexible, moderate, or strict.
  • Airbnb will reward flexible hosts by increasing visibility for those listings and waiving its standard 3 percent host fee on new reservations for those listings through June 1.
  • Guests who book by June 1 and need to cancel who are not due a refund of the Airbnb guest service fee will receive that fee as a travel coupon that can be used on a future trip.

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Death of in-person conferencing?

Globally, 52% of staff have already been working from home at least once per week. The coronavirus outbreak has forced far greater numbers into remote working than otherwise would have been the case. The pandemic has only served to accelerate a transition that was already underway on a global scale. The current circumstances, millennial sensibilities and drastic improvements to cloud-based services combine to create the perfect storm. 

The impact of large-scale events on the environment has also been called into question in recent years. For example, accusations of hypocrisy were levelled at attendees of this year’s World Economic Forum summit in Davos, many of whom travelled to the climate-centric conference via private jet.

The coronavirus pandemic could herald the demise of traditional, in-person conferences. This could absolutely be the start of a trend that sees the world’s largest conferences take a different shape going forward. We are now lucky enough to have workplace apps and online services that allow people to connect regardless of location, so large scale conferences are more feasible than ever before.

Immersive technologies such as virtual reality (VR) have waited patiently in the wings for an opportunity to seize the enterprise stage. Attending conferences via VR headsets could solve a host of challenges associated with public health, but also with travel costs, the environment and engagement.

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Virtual Escapism

While regular travel may be off the cards for the foreseeable future, virtual escapism is open to everyone with an internet connection. Some of the world’s leading galleries, museums and national parks are all just a few clicks away. Here is a selection of the best VR travel experiences to keep you sane during lockdown.

  • Le Musee du Louvre, Paris: The Louvre, the world’s largest art and antiques museum, was forced to close its doors as Paris went into lockdown. While you can no longer waltz into its famous glass exterior, you can learn something of the phenomenal collection via a number of virtual tours, charting everything from Egyptian antiquities to the Galerie d’Apollon… louvre.fr/en/visites-en-ligne 
  • British Museum, London: The UK capital’s famed museum has hooked up with Google Arts & Culture, along with more than 2,000 other leading institutions, to offer an interactive tour. Wander through time and click on different artefacts to see them up close, read up on their history, and hear more information with an audio guide… britishmuseum.withgoogle.com
  • Rijksmuseum, Amsterdam: Stuffed with masterpieces from the Dutch Golden Age, the Rijksmuseum is one of Amsterdam’s most popular attractions. Online, it offers the chance to explore 11 “exhibits”, where you’re able to interact with various works from the museum, read about their history and see close-ups of the pieces. They include Vermeer’s The Milkmaid and a breakdown of the work of Jan Steen… artsandculture.google.com/partner/rijksmuseum
  • Musee d’Orsay, Paris: Housed in the fabulous former Orsay railway station, the Musee d’Orsay displays art dating from 1848 to 1914. An online tour goes through the history of the building, first constructed for the Universal Exhibition of 1900. Viewers can also explore some of the most famous pieces in the collection, including one of Van Gogh’s self-portraits, and take a virtual wander through the galleries… artsandculture.google.com/partner/musee-dorsay-paris
  • Guggenheim, New York: New York City’s iconic gallery has a Google Street View tour where you can “amble” along its winding corridor and view works up close, such as Catherine Opie’s daring Self Portrait/Pervert triptych; Ivan Navarro’s installation Homeless Lamp, the Juice Sucker; and Ovitz’s Library by Jonas Wood. On top of that, you can also simply gaze upon the building’s remarkable architecture… artsandculture.google.com/streetview/solomon-r-guggenheim-museum-interior-streetview
  • Uffizi Gallery, Florence: This gallery houses the art collection of the Medicis inside a 16th-century building. Online, there are four exhibitions that take viewers through various works, explaining their significance and showing close-ups of important details within the paintings. See such works as Piero di Cosimo’s Perseus Freeing Andromeda like never before… artsandculture.google.com/partner/uffizi-gallery
  • Central Park, New York: NYC’s green centrepiece is available to tour online. Not only does it show you the sites, it also comes with a guide who talks you through significant events in Central Park’s history as you “travel” from the West 72nd entrance… youvisit.com/tour/centralpark
  • Grand Canyon, Arizona: There are plenty of pictures of the famed canyon online, but get a little deeper with a VR archaeological tour. This allows armchair travellers to explore and learn more about the history behind the canyon’s formation by clicking on different geological features… nps.gov/features/grca/001/archeology
  • Yosemite National Park, California: Experience this natural wonder in real time by clicking through to its webcams. The views include Yosemite Falls, the view of the Half Dome from the floor of Yosemite Valley, and vistas from the High Sierra captured at 8,000 feet… nps.gov/yose
  • Rocky Mountain National Park, Colorado: One of the best things about being in the great outdoors is the way you experience it with all your senses. Rocky Mountain National Park has allowed virtual visitors to use their ears rather than their eyes, with an online “sound library” that features an array of birds and wildlife found in the park… nps.gov/romo

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Post-pandemic Travel needs

While people will always want to vacation in far-off lands or visit new cities for business trips, the new normal of social distancing will result in many travellers developing a profound and lasting stigma against widely shared spaces including hotel lobbies, packed restaurants, communal office setups and even guest rooms in properties with high turnover.

In the short term, this favours properties of the following characters:

1.     Small or boutique hotels of roughly 75 rooms or less, where the lack of size naturally inscribes fewer human interactions and less crowded spaces

2.     Rural properties within a comfortable driving distance from a major urban centre so they can capitalize upon the staycation renaissance

3.     Resorts where there is a strong feeling of remoteness and less direct contact with the outside world, especially properties that have a natural geographic barrier to provide isolation from neighbors

4.     Cabin-style properties that encompass a collection of fully detached buildings rather than a single structure where guest rooms abut one another

5.     Hotels with large, open restaurants (or other trafficked outlets) where management can afford to remove some tables and increase the gap between dining groups

6.     Home-sharing platforms where the prospect of staying in an apartment or house implies more separation from others due to the lack of contact with staff or other guests

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Travel post Covid-19

Here’s how people will travel after the coronavirus:

  1. They’ll stay in the country. International travel will fall out of favour as people stay closer to the safety of home. 
  2. They won’t travel far from home. “Staycations” and road trips will be favoured over flying or cruising.
  3. They’ll make it quick. A softer economy will mean the traditional two-week summer vacation could turn into a long weekend.

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