ORLANDO—Getting heads in beds is one thing, but just as important is getting those heads to your spa, food-and-beverage outlets and other amenities.
The concept of total revenue management, or total RM, has been picking up steam in the industry—and with good reason. It’s a critical measure for optimizing revenues, according to panelists during a breakout session at last month’s HSMAI Revenue Management & Internet Marketing Strategy Conference.
“(Total RM) is a critical measure. We are in the business of driving profits and growing our business,” said Dave Roberts, senior VP of revenue management for Marriott International.
Dave Roberts, senior VP of revenue management, Marriott International
Revenue managers track room revenue because it’s consistent and meaningful, but it doesn’t tell the whole story; it just tells room rate premiums, he added.
“(Total RM) is a more meaningful metric than room revenue,” Roberts said.
“It’s a heads-in-beds deal for me,” said Ken Gifford, VP of revenue management and distribution for Kerzner International Resorts, which operates the Atlantis, One&Only, and Mazagan Beach resorts. “You just fill that place up, and it churns out (earnings before interest, taxes, depreciation and amortization) in the end.”
But how do you yield total RM and what issues arise in the process? The speakers answered such questions during their fast-paced, 50-minute panel:
Q: What type of data do you use to establish group pricing?
Roberts uses two factors at Marriott: response to rate and profit contribution to a hotel.
To examine response to rate, you need only examine groups’ historical response to rate.
Profit contribution to the hotel is a matter of opportunity cost.
“A big cost that is often overlooked is opportunity cost,” Roberts said. “We measure displacement as an opportunity cost. … It’s every bit as real as the kind of cost as where you’re stroking a check.”
Communicating both of those considerations is key, he added. Marriott uses a term called RACI to ask who is responsible, accountable, consulted and informed in a given revenue-management initiative.
“You need to have alignment in advance between stakeholders,” Roberts said. “… This is not just revenue management trying to drive prices up.”
Q: How has the “resort” label changed the way you price to groups?
Gifford has seen a significant drop-off in the amount of incentive travel booked at the Atlantis Paradise Island in the Bahamas—a stinging reminder of the post-AIG era.
“Everybody’s afraid to make decisions to get back to rewarding salespeople and incentive travel,” he said.
To combat that trend, Gifford and his team are working to rethink and repackage offerings to meet cost-conscious travelers’ budgets.
The use of packages in general increased at each of the companies represented on the panel, including Denihan Hospitality Group, a New York-based full-service hotel management and development company.
Robert Van Bremen, assistant VP of revenue management and distribution, Denihan Hospitality Group
Promotions that include tickets to Broadway plays and musicals, for example have been incredibly successful, according to Robert Van Bremen, the company’s assistant VP of revenue management and distribution.
Q: How has the Internet changed the way you do business?
Meeting planners are shopping around like never before, so it’s up to revenue managers to justify their price points, Van Bremen said.
If you’re charging US$20 more per room than the hotel across the street, why? What services and ancillary services explain that premium?
Q: How do you use up-sell programs?
Given the nature of Kerzner’s fly-to, luxury resorts, travelers often book further out than an ordinary hotel—which means Gifford and his team have more time to up-sell.
“We have a standard process in place where we actually (send e-mails to) the database when we get closer to the arrival date depending on how far out you’ve booked,” he said.
Such communications attempt to push future guests to upgrade their room, purchase a spa treatment or make dinner reservations. But they don’t stop there. The effort continues at the front desk upon check-in.
The challenge is making sure up-sell opportunities are effectively managed. There’s only a certain number of oceanfront rooms, and not every guest can purchase that same upgrade, Van Bremen said.
Q: How do you measure the value of space?
When pricing an area of function space, it’s all about opportunity cost, Roberts said. “What other options do we have to sell that space (and at what price)?”
The other key aspect is reference pricing.
“When you have a customer that comes in and buys a room and they walk away, the value of that room in their head is what they just paid,” Roberts said.
If the guest paid US$150, that room—and the reference price associated with it—is worth US$150. That guest might balk if you then try to charge them US$250 or US$200 the next time they book a stay at your hotel.
Therefore, you should never undervalue your space. Even if the hotel is near-empty, you shouldn’t charge bargain-basement pricing; your break-even rate is low, so offering a cut-rate pricing only stands to undermine your reference price and value of that space.
Q: What factors should be considered when leasing retail space within a property?
Retail space within your hotel is a valuable revenue generator that shouldn’t be overlooked, Roberts said.
“For us, it’s to make sure we’re doing everything we can for them to make sure that they, too, are profitable,” he said. “At the end of the day, if they are not, that space is going to end up going empty and the leases we have in effect are going to be obsolete.”
Renters should be viewed as valuable partners that can enhance the brand. As such, the services they provide should be within alignment with what the hotel brand stands for and the overall services the hotel wants to provide, Roberts said.