Top 10 Revenue Management Opportunities for 2010
By the HSMAI Revenue Management Advisory Board
Revenue management professionals have an opportunity to shine in 2010, adding value to their organizations and the economy as the industry recovers its lost momentum. The following strategies and tactics should help position your revenue management efforts for success in 2010.
We will be expanding on these topics and others throughout the year with articles, webinars, the annual strategy conference in June, and supporting tools that will assist you in implementing these strategies and tactics in your organization.
1. Communicate RM Strategies to Key Stakeholders
With high levels of uncertainty inside and outside of our hotels and companies, revenue management professionals have an opportunity and obligation to shift the culture from reactive to proactive and to harness the energy of the organization toward growing revenue. Key stakeholders range from owners and asset managers to executives and line-level employees. Each of these stakeholder groups has its own perspective of the current economic situation, but the successful revenue management professional can clearly articulate a vision for returning the hotel to financial success in a way that everyone can understand and embrace. At a time when hotel foreclosures and financing challenges are rampant, there is an opportunity for revenue management to be transparent with strategies that have been implemented to drive incremental revenue. Perhaps even more important, it is critical that we invite all parties to be a part of the collaboration focused on generating additional revenue. Through social interaction or inclusion in weekly meetings, probe deeply to understand line-level employees' hurdles to closing more business, driving more up-sells, minimizing cancellations, etc. Highlight their important role in keeping our current guests happy, especially in the age of social media. With the line-level associates having a keen understanding of what we are doing to right the ship and being asked for their input, their confidence will increase, and as a result, guest satisfaction should also rise.
Transparency with owners, asset managers and executives is also critical, as we want to highlight what we are doing differently to generate a different result. Value-added analysis, deeper competitive set knowledge, and outside-of-the-box thinking will be cornerstones to building trust with these stakeholders. Again, encourage input from this group as they have experiences and ideas that we can incorporate into the strategies. For those on the cutting edge, engaging customers in this dialogue can also expose you to a new perspective and help them see our business from a different perspective.
2. Run as Fast Uphill as You Did Downhill - Rate Recovery
After the last recession, it took several years for RevPAR to reach pre 9-11 levels. Now, the forecasters are suggesting it will be 2013 or 2014 before rates recover. Certainly, there are many reasons for this pessimism, including the fact that we are all still in the recession mentality. But we need to ask ourselves one basic question: If we had a race to the bottom, why can't we have a race back to the top?
The obvious reason is that the market, in general, is still somewhat soft; but how price elastic are all of our market segments? We know that many of our 2009 customers would have paid higher prices because they have done so for years, but we did not do a good job of fencing our discount rates. As we fought to protect share, we matched some desperate rates and probably all diluted our revenues. We did not generate 50% market growth with 50% discounts. But every time opportunity strikes in 2010 (and our competitors fill), we should move to 2007 rate levels and test the waters. It just may be time for a race to the top.
3. Take Another Look at Segmentation
Segmentation is one of the key elements of revenue management, but what does segmentation really mean? Segmentation can be looked at a number of different ways: by booking channel, customer type, rate type, etc. The importance of segmentation from a revenue management perspective is in gaining an understanding of your business and being able to set forward-looking strategies.
Developing an effective revenue strategy includes understanding which segments have demand, which segments you want, which segments are realistic to capture, and knowing where and how each segment books.
It is also important to be tracking and looking at the right segments. The segments used for reporting and forecasting dictated by ownership, management company, and/or brand may not be the most appropriate in understanding where your business comes from. While continuing to meet the requirements of the aforementioned stakeholders, take another look at how you segment and if it makes sense for your hotel, in your market. Track segmentation in a way that helps you make decisions as to what business levels you can expect to achieve, on what segments you should be focusing, which segments you should de-emphasize, as well as where and to whom you should be marketing.
4. Use Data to Drive Revenue Management Decision Making
It has been said that revenue management is part art and part science. All too often the practice of managing revenues, setting prices, and using rate and inventory controls is done based primarily on intuition, gut instinct, and "knowing" the hotel and market. These methods, the art, have validity but should be backed up with data and facts, the science. With the ever evolving distribution landscape, more dynamic pricing, changes to the competitive environment, and changes in guest behaviors, it is more important than ever to make data-driven, fact-based decisions in the practice of revenue management.
Part of the revenue management professional's role is to use historical and forward looking data to mold and support their strategies and tactics. Data-driven decisions also serve to remove much of the emotion and conflict involved in determining long- and short-term revenue strategies. The use of data around history, demand, booking pace, segmentation, and competitive intelligence will help move revenue management decisions from "I think we should..." to "We need to...."
5. Close the Divide between Revenue Management and Customer Loyalty
Traditional yield management techniques focus on finding the optimal customer mix of business and transient travelers that maximizes room revenues. The need to shift to total revenue maximization is now widely recognized in the industry. It involves taking into account overall customer spend, both transient and group, including ancillary revenues and the profitability of each customer not only in the short term but in the long term, as measured by each customer's life time value. Software vendors are working toward a further integration of Central Reservations Systems (CRS) and Property Management Systems (PMS).
From a strategic point of view, an issue that is not always apparent is that there may be an inherent conflict between Revenue Management (RM) and Customer Relationship Management (CRM). CRM implies that short-term revenues must be sacrificed to gain long-term profits and RM seeks the maximization of short-term profitability.
From a marketing perspective, CRM and Life Time Value (LTV) will be more frequently utilized. Customers that are considered highly valuable will be offered tailored marketing promotions. Market segmentation will also experience a significant transformation in the near future as traditional market segments are being challenged by online shoppers and changing market conditions. Being able to segment markets based on consumer buying behavior and price sensitivity will be necessary to take revenue management to the next level.
6. Shift from Analyst to Strategist
Over the years, the discipline of revenue management has grown from a mostly key stroke function to a much more analytical one. For organizations that have embraced revenue management, this has served them well and has supported the record profits and hotel valuations we experienced in 2007 and 2008. To provide maximum value in this economy, through recovery and eventually in future peaks of the lodging cycle, revenue management needs to continue to grow into an even more strategic discipline.
- Move beyond sharing the 'what' in your meetings and focus on sharing the 'how' and the 'why.'
- Identify need periods and lead brainstorming efforts targeting how the hotel can sell more rooms and collect more ancillary revenue during those periods.
- Shift your thinking toward business development. Scour the Internet, gain a better understanding of who is staying with your competitors, understand your own lost business, and provide additional analysis that will drive revenue generating decisions.
- Look at the same things differently and look at new things, to find a new angle to attack the many opportunities that we face.
7. Grow Your Knowledge of Internet Marketing
Knowledge is power, so it stands to reason that what you don't know can hurt you (or at least your revenues). When it comes to the fast paced world of Internet marketing, this statement is especially true.
Understand that 3rd party Internet channels generally fall into 5 primary business models and define a strategy that leverages the value that each model can deliver:
- Retail (like Booking.com and Quikbook.com)
- Merchant (like Hotels.com, Travelocity and Expedia)
- Opaque (like Hotwire and Priceline)
- Auction (like LuxuryLink)
- Referral (like TravelZoo and TravelTicker)
- Social/Review (like TripAdvisor and IgoUgo)
Do this within the context of your pricing and inventory controls but also consider such things as booking windows, stay patterns, contribution potential, cannibalism, channel conflict, ease of management, ancillary revenue, marketing exposure and seasonality.
For your proprietary Internet presence - in essence, your own website - set time aside to meet regularly with your web developer and/or Internet marketing counterpart. Collaborate on such topics as linkage opportunities, targeted search engine marketing (SEM), search engine optimization (SEO) strategies and key metric analysis. Understand the importance of knowing guest behavior, their experience on your website (from the point of entry onto your site right through the booking process), research and booking windows (there is a difference), event and demand generators, key feeder markets, A/B testing, offline revenue impact, promotional offers, rate and unit type merchandizing.
For more information on this topic, read the white paper "Effective Internet Marketing Strategies for Recessionary Times" published in 2009 by HSMAI's Travel Internet Marketing Advisory Board.
8. Take Advantage of Forward Looking Tools
Gone are the days when there was enough demand to go around. In today's economy, savvy revenue managers have to think about market share more than ever. With the general decline in business in most markets, revenue managers have to steal share from their competitive set to maintain performance and achieve budget targets. To make the right revenue management decisions, a deeper understanding of your competitive position is required.
Luckily for hotel operators, the landscape of competitive intelligence data has evolved significantly. Today there are products that can help you understand the positioning of your hotel both historically and into the future. The breadth of information goes beyond just competitive rate shopping to include online page placement, future share of demand, and user generated comments to name a few. To compete in today's complex and highly competitive market you need this information; however, like any other investment you need to show the ROI.
Watch for a follow up article that will explore in-depth the various options available in the competitive intelligence marketplace. In the interim, the HSMAI Marketplace is a good place to start learning and comparing what is available.
9. Focus on Profit
Phrases like "Flow Through," "Over Leveraged," "Debt Service," "ProfitPAR," and "EBITDA," once considered "finance speak," matter to revenue management today. Revenue management's measure of success is no longer market share, or Revenue Per Available Room. The new measure that counts is Profit Per Available Room.
A dollar is not always equal to another dollar. 2009 saw a dramatic loss in RevPAR. Though the loss came from both Occupancy and Average Daily Rate, the effect of loss from ADR is the most dramatic to the Profit and Loss statement. For every dollar lost in ADR, we lose, without adjusting cost structures, about $0.90 to the EBITDA line.
Revenue managers must understand how a dollar flows, and how to identify the highest profit guests. This is not as simple as looking at rooms revenue as we have in the past. It has to take into account a variety of factors including length of stay vs. rate (discount prices for long LOS?), total spend on the guest folio and off, channel, booking window, long-term value or repeat potential...just to name a few.
10. Selling Value Over Price
Customers want the best price they can get in any economy, but that statement holds particularly true in a downturn. So what can you do to gain customers without discounting? Establish and communicate your value - your key differentiators that will earn your customers' business. If it has been a while since you sat down with other key stakeholders, especially those in sales and marketing, and discussed and solidified these success attributes, now is the time. Make sure that the attributes are tangible and are true points of differentiation. Once you agree, make sure the hotel staff, marketing pieces, website, etc. drive home that message at every possible touch point with your current and potential customers.
If price is one of your advantages, that's great; but you need something that will sustain that advantage and secure your relationships for the future. Your value proposition is key to earning and keeping your customers.
When you discover what sets you apart and you sell it, you can put more focus on competing on your uniqueness rather than on your price. When you have a value proposition that you can sell and that your customer appreciates and sees value in as well, that value can help to sustain you through almost any economic condition.
It appears we have made it through our darkest days and now it is time to embrace and enjoy the new dawn. By thinking about how each of these points plays out in your world, you will begin that process.
The golfer Gary Player once said, "The harder you work, the luckier you get." It is time for revenue management to once again work hard to take our efforts to the next level, becoming stronger and growing our expertise by managing through this difficult economy.
For an in-depth look at some of the topics addressed here, attend the HSMAI Revenue Management and Internet Marketing Strategy Conference on June 21st in Orlando, Florida. Presented by HSMAI's Revenue Management and Travel Internet Marketing Advisory Boards, the conference will feature the latest trends in two of the most important disciplines in sales and marketing today. Revenue optimization, pricing, e-commerce and Internet marketing topics will be explored by industry leaders in the context of today's challenging economic environment. For more information about this conference and other opportunities to focus on driving revenue, visit .
About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board is responsible for providing leadership for HSMAI's Revenue Management Special Interest Group (SIG). The SIG is advancing the revenue management discipline by being its leading source for education, best practices exchange, thought leadership and networking for revenue management professionals, other sales and marketing professionals, and senior management in the hospitality industry.
- Chair: Warren Jahn, Ph.D., Revenue Management Training Consultant, InterContinental Hotels Group
- Vice-Chair: Scott Roby, Vice President, Revenue Management, Tarsadia Hotels
- Immediate Past Chair: Timothy Coleman, CRME, President, The Coleman Company
- Christopher Crenshaw, CRME, Director of Marketing Intelligence, Loews Hotels
- Jack Easdale, Corporate Director of Revenue Management, Gaylord National Harbor Hotels
- Jon Eliot, CHA, CRME, Director, Revenue Optimization, Carlson Hotels Worldwide
- Bernard Ellis, CRME, Managing Director-Americas, IDeaS - A SAS COMPANY
- Tammy Farley, Principal, The Rainmaker Group
- Fred Heintz, CRME, Director of Market Strategy, Metro New York Marriott Hotels
- Jay Hubbs, Director-Hotel Supplier Relations, Hotwire,
- Burl Hutchison, CRME, Manager of Revenue Optimization, SynXis
- Dan Kowalewski, Vice President Revenue Management Services, Wyndham Hotel Group
- Stowe Shoemaker, Associate Dean of Research, University of Houston/Conrad N. Hilton College
- Miguel Solis, CHA, CRME, VP Sr. Director Revenue Management, Hospitality Resource Group
- Trevor Stuart-Hill, CRME, President, Revenue Matters
- Paul Wood, CRME, CHBA, Corp Director of Revenue Management, Richfield Hospitality