Revenue Management Challenges for 2013 A Top-Five List
By Gabor Forgacs, Associate Prof. Ted Rogers School of Management, Ryerson University
It is fair to say that Revenue Management in the hotel industry has arrived. It has become part of the mainstream over the years: we see more and more articles written about the various aspects of Revenue Management both in the print and electronic media; it became a standard agenda item at association meetings, conferences, symposiums and presentations at trade shows; colleges and universities are rolling out courses on it and hotel executives don't have to be persuaded any longer that Revenue Management adds value to their business– it is accepted as evident by now.
1. Local or centralized
There is a school of thought that Revenue Management is best applied if a number of individual operators of smaller hotels under the same management /ownership / brand set up a centralized regional structure where strategy decisions will be made and where data can be processed. In this scenario system outputs e.g. rate fences can be pushed out to the property-level managers.
According to this argument, resources are used most efficiently this way. Local expertise can be scarce but centralized structures can utilize trained specialists to manage multiple units. Remote-control can be exercised well as a result of real-time access to information and sufficient bandwidth coupled with lightning fast processing speed. The numbers can be crunched anywhere, the decisions are instantly communicated, so it doesn't matter if the nerve center is down the hallway or a time zone away.
One can also propose an argument for decentralization just as well. Provided there is qualified local expertise, all the data can be analyzed and managed locally, even on a portable device today with sufficient computing power. There is no need for a center to call the play from a distance: locals may have better product knowledge and they can be more nimble if some tweaking is required when it comes to last-minute dynamic pricing and inventory allocation decisions (e.g . instead of posting a super-saver rate on hotels.com, why don't we dump 30 rooms on priceline.com for tonight?).
There is no silver bullet. Each hotel will have to determine what works best under a given set of circumstances. The issue is still very much a subject of discussions in the years to come.
2. Too much data
Technology Improvements over the years have enabled operators to amass an ever growing database of transactional data. We digitized practically all important aspects of hotel operations. We can gather valuable information not just about those guests who stay at our hotels and leave traces in the form of data at each swipe or tap of a card, let it be an entry to the fitness room or the purchase of a drink at the lounge bar. We also collect data on those potential guests who never even booked a room yet but visited our home page. We have analytics on traffic sources to a landing page, time spent, rate of abandon and much else that may help us convert the lookers to bookers one fine day. There are terabytes of data to analyze.
It was discussed at the Revenue Optimization Conference in Baltimore in 2012 that the technology has outpaced the talent base. There is so much data to analyze and make sense of, while there is a shortage of well-educated revenue analysts, revenue managers and directors of revenue to leverage the wealth of data and build strategy on that. This leads to the next item of emerging issues:
3. Elevate to Strategic from Tactical and Embrace Total Revenue Management
Revenue Management is past its infancy now. It is closing in on the end of its teenage years. There is an evident need to moving beyond the tactical approach that narrows down Revenue Management to price manipulation only. Leaders in the field embrace a much more strategic approach.
Practicing strategic Revenue Management will separate the men from the boys this year. Moving from the management of room revenue only to the management of different revenue streams including function space and food and beverage at the minimum, will move operators to Total Revenue Management. Smart strategist will align Total Revenue Management and the fast-paced field of Distribution Channel Management based on the logical conclusion that each revenue stream requires a different distribution strategy. There is an understanding that future growth will be built on strategy. One of the most fundamental issues of strategy development in 2013 will be the question whether it provides any strategic advantage for a hotel to compete on rate at all?
4. Monetize Social Media
There are numerous ongoing discussions on the topic of measuring the effectiveness of the resources dedicated to social media. Revenue managers are a responsible bunch with an analytic mind. They know how important it is to quantify the outcome of strategic decisions. The approaches to "return on engagement" and other soft measures don't seem to provide a good enough answer to owners and Asset Managers watching over the shoulders of Directors of Revenue. A higher ranking on organic searches is wonderful to claim, especially if all a guest would do is organic search only… More and more travelers consult a variety of social media sites in the planning phase of a trip.
There seems to be a consensus that no responsible operator in a competitive market could justify a refusal to be part of the scene on social media. No business is truly dark on social media; even those hotels can be discussed which themselves stay mum. Participation in it is not an option any more: it is a part of the curb appeal. However, it is such a fast-paced environment that even a solid understanding of the rules of the game may not necessarily be rewarded with success.
How can one best justify marketing budgets when allocations to broadcast or print media compared to online are determined for 2013? Online is a whole universe in its own right. Marketing spend can become quick-sand as the media consumption habits of target demographics can shift relatively fast. The approach to awareness creation through marketing and then hoping to close a sale when the moment of decision to book arrives, seems so 20th -century.
Revenue managers see the need to be at least part of the discussion at each step on the way through the "purchase funnel" as guests negotiate their way through. New challenges will continue to unfold in 2013.
5. Harness the Power of Mobile
The battle of the screens is over. The battle between television and computer is history. The winning screen is none of the two but a third one that has emerged right from our pocket (or purse) that does more than tv and computer combined. We call it smart phone for the time being, which slightly baffles one as talk is often the last thing it is used for.
Hoteliers understand that the mobile environment has slightly different dynamics than the other screens. The differences are beyond the pixel count: simplicity, speed and functionality rule. In 2013 more and more hoteliers will harness the power of location based marketing, maximizing revenue through the mobile access to current and potential customers. The learning will continue in terms of a whole new arsenal being at the disposal of revenue managers. Quick response e-coupons or flash sales help maximize revenue at a spa or a bar for a hotel and tweets can be sent to a guest who requested adjoining rooms on arrival day. How to do that without being intrusive and disruptive, will have to be mastered. The learning continues in 2013. Enjoy the ride!
Associate Professor | Ted Rogers School of Hospitality and Tourism Management