Breaking Down Silos and Building Up Profit on the Quest for Total Revenue Management
By Paul Van Meerendonk, Director - Advisory Services at IDeaS Revenue Optimization
Booby traps and secret passages, solving puzzles and venturing into the unknown. The greater the goal, the harder the journey will be, and the pitfalls are aplenty as we chase the things everybody wants, but few can find. Whether our quests are personal or professional, aren't we all seeking a holy grail of sorts?
How many years has this been the "hot topic" of the hotel industry? Professor Sherri Kimes of Cornell, ever the adventurer blazing a trail for hospitality revenue management, was pushing studies on restaurant revenue management and total revenue management dating back to 2004 and even earlier. 10 years later, IDeaS Revenue Solutions launched its Function Space Revenue Management Solution to help hotels expand their revenue management strategies beyond guest rooms. Yet, here we are in 2018, and total revenue management is still an enigma, wrapped in a puzzle, hidden away somewhere in a dark back office at a few select hotels or in the minds of quirky innovators at the corporate offices.
Few hotel companies have achieved a successful holistic revenue management strategy. Most hotels still manage revenue generating business units in isolation. The good news is that, as silos come down, total revenue performance comes into view. Hotels must adopt the tools and best practices that bring together key business stakeholders from marketing, sales, meetings & events, food & beverage, revenue management and operations to unify goals and profit potential.
Indiana Jones always faced three main obstacles on his quests: traps & puzzles, other adventure seekers, and team members with other agendas. Despite being in a wildly different line of work, leaders at hotels and resorts often face these same challenges in trying to implement total revenue management.
Traps & Puzzles
A key component of effective revenue management is the ability to collect and analyze data. For rooms revenue management, that data sits predominantly in the property management system and, most of the time, is fairly accurate. But, when we start venturing outside of the core rooms business, we find the challenge of accurate access to data becomes a critical issue that prevents us from effectively applying revenue management techniques to other revenue streams. I am often shocked when visiting hotels and meeting with local teams to discover that, despite having many meeting and event spaces, they do not have a sales & catering management system.
When meeting with a spa management team, they might look surprised if I ask them what systems they use to make reservations and maintain schedules of treatments. Then they point me to their colorful Excel workbook. Golf tee times? Where's that trusty pencil so they can record them in a big book that sits on the desk in the pro shop. Surely, in the hotel restaurant this will be different with advanced, point-of-sale systems in place? And yes, there are generally better systems found in restaurants, but the data quality does not always meet expectations. Moreover, integrating these systems to give a cohesive and clear picture of demand across outlets is still a widespread challenge.
To find our way through this problem, the industry needs to align on technology. Integration challenges do not only occur across the various rooms reservation systems-they permeate down to the property level where local or homegrown systems are prevalent, and features and functionality can vary wildly. In order to navigate this minefield, it is time for technology companies to sit around the table and develop industry minimums and standards when it comes to non-rooms systems. Data integrity and integration will be the key to unlocking some of the doors blocking the way to the treasures within. There is light at the end of the tunnel here, with indications that hotel owners across the world are finally taking their technology investments more seriously with increased funding.
Total revenue performance requires sophisticated analytics technology integrations to aggregate and transform large, disparate data sets into actionable intelligence. That means all those complex numbers in databases stop collecting virtual dust and start creating a real competitive edge. Advanced software systems can be enabled to analyze data through powerful algorithms to make more accurate demand forecasts and strategic pricing decisions for all streams of revenue across entire properties.
Other Adventure Seekers
Why is total revenue management not higher on the priority list? I believe it is mainly due to competition. Not from the hotel down the road, but from the industry's obsession with room revenue management and distribution techniques and channels. Attend any industry event or google the latest news on hospitality revenue management, and 9 out of 10 times, the topics you come across will speak of the battles with the OTAs, the opportunities that lie in new technologies for distribution, the latest channel insights, or new algorithms and machine learning to improve room optimization. And not without reason. Rooms still generally are, after all, where the biggest revenues and profits are to be found.
Hoteliers have always put the focus on rooms because they knew they could make an impact there on both the top and bottom line. This has often left other departments to fend for themselves and try to make do with limited funding and focus. But as many hotels and hotel groups have run out of new ways to maximize rooms revenue management, they are increasingly looking to other areas of the hotel to bring in additional gains.
There is a significant opportunity to improve overall performance of an asset by focusing on the other operating departments in a hotel. For resorts and all-inclusives, the opportunity for ancillary revenue is even greater with spa, golf, resort facilities, beachfront activities and more often forming considerable revenue streams that have the possibility to be optimized and deliver real returns for both owners and operators.
To maximize profits and blow past today's fierce competition, it's important to consider all revenue streams in relation to one another. This shift toward a more holistic revenue management strategy represents an evolution in the hotel industry.
While we may often be reticent to admit it, the ultimate barrier to total revenue success is gaining the support and cooperation of your own team members. As is often said, culture eats strategy for breakfast. Well, if we want to optimize those breakfast revenues, we will need more than strategy to change the culture within the operating departments.
Hospitality has always been the pinnacle of the service industry, and nowhere more so than in the restaurants, spas or other facilities of the hotel. Turning away unprofitable diners or changing menu prices on the fly is often seen as blasphemy by many service-oriented hoteliers. And rightly so-guests, diners and experience-seekers are the bread-and-butter of loyalty in the industry and need to be treasured and appreciated accordingly.
But this is not a black-and-white situation, where the choice is between hospitality or profit. Data analysis, technology, and analytics can go hand in hand in optimizing the guest journey. By ensuring product, price, and availability are matched to demand and client expectations, hotels can optimize revenues and profit while maximizing the guest experience. The human touch that is essential within non-room departments can become even more effective when supported (not replaced) by technology. It is this understanding that needs to lay the foundation of the change in culture that needs to happen in hotels.
When you take a holistic approach to managing hotel revenue, you might have to experiment with different levers to find the perfect profitability balance. After all, total revenue performance cannot occur in a vacuum. With the right data in hand, you can shift prices in a variety of hotel areas to optimize revenue streams. For example: lowering room prices on a given weekend may boost spa and restaurant reservations. While each stream is adjusted individually, they all affect the big picture. Think about these adjustments as using the right pulleys and levers to keep the hotel running like a finely tuned machine.
As hotels move toward total revenue performance, it's also necessary to rethink how teams interact and realign business processes. This becomes the right time to implement new educational approaches and evaluate job roles and scope. And while it can be a complex undertaking, the reward is worth the effort. Building a long-term total revenue performance culture gives hotels an undeniable competitive edge, which means less stress and climbing growth charts.
And this is ultimately what will lead us to that holy grail. Only when all departments work together with the common goal of revenue, profit, and guest-experience optimization will success be achieved. Surely this is the start of the next epic journey and our continuing pursuit of unknown treasures and riches in the world of hospitality revenue management. Let's get the boulder rolling.
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IDeaS, a SAS company, is the world's leading provider of revenue management software and services. With over 30 years of expertise, IDeaS delivers revenue science to more than 15,000 clients in 143 countries. Combining industry knowledge with innovative, data-analytics technology, IDeaS creates sophisticated yet simple ways to empower revenue leaders with precise, automated decisions they can trust. Results delivered. Revenue transformed. Discover greater profitability at ideas.com