At the outset of the COVID-19 pandemic, occupancy rates and average daily rates (ADRs) at hotels around the world significantly declined due to remote work and travel restrictions. Since then, hotels have been able to increase occupancy rates and ADRs. In the US, for example, ADR has increased 10% per year between 2020 and 2023, alongside relatively slower room-night growth (according to our analysis of the largest hotel brands), to return hotels to profitability.

However, real estate market research firm CoStar predicts that US ADR hikes will normalize to 3% per year from 2023 to 2026 (Exhibit 1). With ADR increases tightening, coupled with continual cost pressures such as labor, technology, and energy, near-term profitable growth is likely to be suppressed unless hotels seek out additional avenues. A key opportunity is growth in B2B sales, predominantly through locally negotiated rates (LNRs).

LNRs can be a lever for hotels to increase profitability

Locally negotiated rates are a type of B2B deal that hotels can offer to companies with employees and affiliates who frequently travel to one location. The contracts can be negotiated with individual properties. For the customer, this deal structure can unlock discounted rates, more advantageous perks, and greater customization. These benefits are particularly relevant for small and medium-sized enterprises that do not have the resources or scale to negotiate rates at the corporate level, but still offer substantial business. For the hotel, LNRs can increase its competitiveness in its local market by establishing recurring revenue through greater customer reach, improved retention, and increased room-night volume for each customer.

However, hotels currently cite several challenges with the existing LNR account prospecting process. First, prospecting a new LNR can require significant resources and effort because of data acquisition difficulty and a lack of streamlined tools that inform decision-making. Second, sales teams are often small, with individual salespeople handling weddings and MICE (meetings, incentives, conferences, and exhibitions) in addition to their LNR business, which may be a lower priority. Finally, leadership has limited visibility into the existing demand for LNRs and potential target areas, hindering its ability to steer the local teams.

Ultimately, resource-constrained hotels will need to find a way to “do more with less” to effectively capture additional LNR opportunities. The solution does not require growing sales teams — rather, it lies in employing methods to allow the existing sales staff to operate more efficiently. 

Evaluating LNR account value and customer fit with rigorous processes

Hotels that overcome these challenges and successfully grow their LNR business will need to perform three key activities. First, they will need to collect and clean both internal data (such as booking data at the rate code level) and external data (such as area businesses, demand, and pricing). Second, they will need to apply sophisticated analytical capabilities to those data sources to assess the viability of potential customers through prospect KPIs. For example, a hotel can determine prospects’ lifetime value by measuring their purchase frequency and customer segment history, as well as their “fit” with the hotel, by analyzing their demographics and market conditions. Third, hotels will need to visualize the analysis takeaways alongside competitor information to better prioritize pursuits.

These three activities ensure sales teams’ efforts are focused on accounts that have the highest likelihood of signing an LNR and staying at the hotel frequently. Ultimately, analytical tools should be able to recommend a course of action (for example, “focus” or “pursue opportunistically”) that teams can execute via simple point-and-click actions, ensuring time and resources are allocated optimally across prospects (Exhibit 2).

Designing tools with leadership priorities in mind

While the sales teams will benefit from automated data collection, improved analytical capabilities, and enhanced visualizations to inform prospecting priorities, leaders must receive insights as well. Leadership should be able to see the gaps between current and potential LNR business, understand addressable market by location, and identify hotels that need incremental support to improve LNR performance. Combined with their salespeople’s knowledge of their areas, leadership can then steer teams appropriately to improve prospect interactions.

Advantages of focusing on LNR accounts

By improving the efficiency of sales organizations, hotels can increase LNR conversion rates, room-nights per contract per year, and LNR customer retention rates, ultimately realizing roughly ~10-12% room-night uplift per year on total LNR business (based on Oliver Wyman's benchmarks and insights from clients across several B2B industries). To realize this potential impact for our clients, OW has developed Prospector, a platform that drives rapid margin and revenue growth by putting AI-driven insights into hotel sales teams’ and leadership’s hands. Its use across clients in various industries has proven its customizability and effectiveness in making sales teams more efficient.

Hotels will benefit significantly from leveraging Prospector to increase the efficiency of their sales teams, thereby growing their LNR business — an impactful avenue to room-night and profitability growth. 

Additional contributor: Nick Bolger.