How do Hotels Fill Those Last Available Rooms?
By Leora Halpern Lanz, Program Chair, Boston University School of Hospitality Administration and President of LHL Communications
Hoteliers, marketing directors, and revenue managers in particular are continuously learning how to put the pieces of the puzzle together when it comes to creative and effective options for selling out room nights. Numerous challenges arise with the plethora of new distribution technology, which complicate the process of directly reaching the guest, or even controlling a hotel's presence on the variety of brand and third party websites.
Knowing how confusing the digital marketing and distribution landscape can be, how do hotels manage their options to sell inventory, particularly at that eleventh hour?
Contrary to Popular Belief, It's Not All About the OTA'S:
According to Steve Ehrhardt, 2016 Chairman of the IHG Owners Association, and owner/operator of Missouri-based Ehrhardt properties, it is not necessary to utilize OTAs as a long-term booking method in tertiary markets if the hotelier has the right data.
"OTAs are most useful for last minute inventory sales. If they are overused or rooms are discounted too severely the brand risks damage and hoteliers leave money on the table," explains Ehrhardt. "The one thing you can count on is that patterns repeat themselves." Ehrhardt advises that one should know 'the playbook' by looking at historical data, trends, market events, and groups. "The use of revenue management data is an art and a science," Ehrhardt continues. "It's looking at what is best for your market at that time using intuition, and knowing the 'drill' for that time of year using history to maximize revenue. With an effective revenue management strategy and identification of patterns, hoteliers can prevent having to sell inventory last minute, thus avoiding OTAs and their commission fees."
Stephen Field, President of Philadelphia-based Synergy Hospitality, advises that when operating "in primary markets, such as Philadelphia, strategy varies less by exact geographic location, and more by the length of the booking window. For example, airport hotels may have an extremely short booking window, due to flight schedule changes caused by bad weather. Taking this into account, a strategy that places an overdependence on OTAs in these types of markets may displace higher rated last minute bookings."
Field also notes that dependence on OTAs differs with independent versus franchised hotels. "All hotels should minimize OTA use unless there is real distressed inventory in a short-term situation. The challenge with these channels is that they are extremely price sensitive and commoditize guest room inventory. There are too many hotels that rely on OTAs as the sales effort of least resistance, instead of investing in an exceptional sales team. These hotels avoid hiring good salespeople and simply put rooms on the Internet. They think they are saving $50,000-$60,000 in labor costs; failing to realize that one good salesperson can generate many times their salary in incremental business."
Synergy Hospitality prefers to utilize a longer-term sales strategy that is focused on hiring an effective sales team that will build relationships with travel managers, the Convention and Visitors Bureau, local event planners, and corporations. Using this strategy, the sales team generates relationship-based brand exposure. This strategy is based on the assumption that the best solution to distressed inventory is to minimize the amount of it through the use of an effective sales strategy, according to Field.
There are also various platforms and distribution channels emerging as alternatives to OTAs:
Barter offers hotels a lucrative, dual-purpose business strategy - a financial tool that monetizes unsold inventory, while transforming that monetized inventory into marketing buying power. Innovative Travel Marketing (ITM) of Parsippany, New Jersey, uses barter to fund advertising campaigns and increase brand awareness thereby maximizing a hotels' occupancy and average rate. The traded room inventory can generate corporate and leisure guests who are direct consumers; they are not customers from OTAs who are typically more price-sensitive and less likely to produce ancillary revenue.
Jody Merl, founder and President of ITM, explains that, "You can never recover the cost of an unsold room. It's leaving money on the table. Hotels can convert their unsold rooms into significant equity. By using the full value of those rooms via barter, rather than discounting, we help hotels establish and grow a more desirable customer base."
Merl explains, "Once we determine the available inventory, we create a plan to enhance brand presence and recognition in the marketplace and/or devise tactical initiatives focused on target audiences. For instance, we can use the market value of 20 unsold rooms to run a targeted media campaign to reach meeting planners, which in turn, results in a $50,000 event space rental and additional food and beverage revenue."
Merl explains that when a trade arrangement is set, the hotel's inventory is made available and utilized by ITM's corporate media clients, who bring high-level executives to the hotel. The rooms are ultimately booked for senior-level and c-suite leadership and executives with magazines, publishing houses, broadcast companies and individual television stations, or corporate trading partners. These guests spend money in the hotel, spread positive word of mouth, and potentially return as cash guests. Merl said, "the benefits are further multiplied when you contrast the barter-produced end user with the OTA-sourced guest, who is often a discount shopper seeking the lowest price point."
Bartering can also be used as part of the hotel's long-term sales strategy, particularly in anticipation of known occupancy patterns, to address opportunities, dates, and time frames or to create annual brand campaigns tailored to hotels' specific needs.
"For example," shares Merl, "assume a 200-room hotel averages 50% occupancy in May, with an average daily rate of $200. The other 50% of rooms, which do not sell, amount to $20,000 in unsold rooms. If the hotel trades with ITM, it receives a $20,000 ITM advertising budget. The hotel has now monetized empty rooms to pay for media and draw 'profitable' guests." Barter can also be leveraged to monetize unused meeting, banquet and event space, and hotel recreational areas such as a golf course. Whenever a hotel has unsold inventory, it can optimize its equity through barter to:
- Support the sales effort with a cohesive advertising campaign;
- Impact low season business and gap periods with a tactical campaign
- Launch new products;
- Test new markets;
- Test new media.
Often overlooked in favor of OTAs, flash sales can target the luxury guest. According to Amy Finsilver, General Manager of XV Beacon Hotel in Boston, using sites like Jetsetter and Gilt are beneficial in targeting guests who are more likely to contribute to ancillary revenue.
"If you have a contact at, for example, Gilt, the contact will tell the hotelier when there is availability to post a flash sale. The hotelier then sees if Gilt's time of desired promotion matches the hotel's needs. If it is November, and the hotel notices it is pacing behind for January, the hotel can contact the Gilt promoter, who will notify the hotel if there is an opening. If there is an opening, the hotel will give the site a specific number of rooms with a value-added package, which is then included in Gilt's upcoming promotion."
As a result of the transaction with the flash sales coordinator, the site obtains a percentage of the room rate, and the guest obtains a discounted price. The commission cost depends on the type of package and the time of year, ranging between 5%-30%. It is most beneficial to implement this strategy when the sales and revenue management teams notice they are pacing behind.
Maintaining Occupancy Rather Than Lowering Rates
As hoteliers embark on the selling expedition, for some it is better to simply ride out the wave of lower occupancy. For a hotel like XV Beacon, with the value proposition of being a five-star, five-diamond experience, rated the #1 Hotel in the US by Condé Nast Traveler in 2014, significantly discounting the rate on an OTA is not an option. "My mindset is not to sell-out, it is to sell at our high rate to communicate the value of our experience to the guest," Finsilver adds. Since XV Beacon competes with other five-star hotels like the Ritz Carlton and the Mandarin Oriental, she realizes that she cannot afford to offer contract rates as low as these other brands. She instead competes by "trying to see what the guest wants, for example realizing that there are guests who want to bring their pets; thus we welcome dogs of any size and do not charge a pet fee."
Hotels can also take advantage of low-occupancy periods by completing renovations at this time, or by "closing off" specific floors of the hotel. Boudreau says using slow periods "to complete renovations, construction, and necessary back of the house work" can be beneficial. She also limits which floors are in use, which lowers heating and utilities expenses.
There are also cases in which hotels have relationships with local hospitals and can offer available rooms for the families of loved ones who need hospital care away from their own hometowns. Hotels can donate as few as one or two sleeping rooms to a local hospital to accommodate family members who are assisting patients or who are visiting for comfort and support. The humble gesture can prove to be a significant help for a family in need of a comfortable experience.
Donating Rooms for Philanthropy and Social Responsibility
With guidance and historical data from the front office manager, the revenue manager, the sales and marketing directors, or regional distribution advisors, it's both an art and a skill to balance the juggling act of the sales and revenue management challenge.
Execution of last minute public relations, email marketing, or digital marketing campaigns can be daunting, but of course critical. It is up to hotel marketers to remain vigilant and current with distribution and marketing technologies and tactics to properly align occupancy with desired rates. The tactics shared here require their own set of skills and know-how and are certainly not exhaustive. Filling those perishable rooms takes risks, trial and error, stamina and belief that your approaches will work if you stick with them. What steps do you take to prevent those perishable rooms from going unused?
Republished with permission from Hotel Business Review (HotelExecutive.com).
Leora Halpern LanzMore from Leora Halpern Lanz