During the past decade and a half, the discipline of revenue management has grown from primarily a key-stroke function to a much more analytical one. This has served organizations well that embraced revenue management and has supported the record profits and hotel valuations we experienced in 2007 and 2008. During the past two years though, there have been some interesting questions thrown around. What does revenue management do in a down economy, when there is no reason to cap low-rated discounts or place minimum stay restrictions? Is revenue management to blame for the unprecedented drop in average daily rate during the past two years?
At first, these questions were frustrating. Of course, revenue management is not completely responsible for the rate drops of the past two years. In most organizations, these kinds of decisions were not left to one individual. How could leaders in our industry be asking these kinds of questions? The frustration grew into anger until I realized that the issue may not be the people asking the questions, but the state of the discipline in which we make our living.
In my mind, there are two ways to look at this: 1) we need to do a better job effectively communicating what we do or 2) we need to seriously consider reinventing the discipline to change with the times. This article focuses on the latter.
It is difficult to believe that it has been two years since the Lehman bankruptcy, the largest filing in U.S. history. A not-so-fun fact: Lehman’s prebankruptcy assets were US$639 billion. The second biggest bankruptcy was WorldCom in 2002 with prebankruptcy assets of US$104 billion. It is difficult to get one’s head around that figure: US$639,000,000,000.
How different are your revenue-management efforts today compared to two years ago? To provide maximum value in this economy, through recovery and eventually in future peaks of the lodging cycle, revenue management needs to continue to evolve into an even more strategic discipline. Not to be too dramatic, but the Random House dictionary describes strategy this way: In military usage, a distinction is made between STRATEGY and tactics. STRATEGY IS the utilization, during both peace and war, of all of a nation's forces, through large-scale, long-range planning and development, to ensure security or victory. TACTICS deals with the use and deployment of troops in actual combat. Having a clear understanding of the difference between tactics and strategy will enable us to take this discipline to another level.
Other departments have shown a variety of tactical and strategic approaches when times get tough. When sales are down, good sales managers increase their prospecting efforts. When occupancy is low, operational managers adjust hourly staffing and minimize expenses. When profitability targets are not met, controllers put in place additional measures to ensure that every dollar being spent is meaningful and necessary. Unfortunately, in many hotels, when demand declined, revenue-management professionals dropped rates and continued their normal routine until they dropped rates again whether as a reaction to the competition or as a “proactive” move.
This is not true in every situation and I can point to specific people both inside and outside of our organization that took a very proactive, strategic approach to the new paradigm we have had to operate in these past couple of years. These leaders took it upon themselves to reinvent the revenue-management discipline for their hotels or companies.
There are many different avenues we can pursue in the quest to move revenue management forward. The first major shift that we can make in our discipline is the depth of analysis that we provide. Whether it is in meetings or written reports, a common mistake is to just reiterate the numbers using words. This is focused on the “what” and is not very strategic. A positive change would be to focus on the “how” and “why” that will explain the numbers and more importantly, provide clarity on how we can repeat or avoid repeating those results. What tends to happen is that through the quest to answer “why” and “how” questions, the onion gets peeled back another layer and deeper understanding is reached. Especially after finishing a written document, we push the team to read it as if they were just taking over the hotel and see if the document provides actionable information that would be helpful in formulating future strategies.
Once the analysis is more in-depth and provides some actionable takeaways, the management team is more prepared to identify and do something about need periods. A structural change that needs to occur in many revenue-management meetings is altering the percentage of the meeting that is spent looking in the rearview mirror versus how much time is spent looking forward. Shifting the focus of the meetings toward brainstorming ways to create demand will naturally move the focus away from reactive efforts (capping low-rated discounts and placing minimum stay restrictions). It will also shift the focus away from following the competition when they make less than strategic rate changes. This new-found proactive focus will create energy among the team and will certainly begin to minimize questions about revenue management’s contribution in a down economy. More importantly, occupancy, revenue per available room, ancillary revenues and, most importantly to an owner, net operating income will increase.
Brainstorming and leading efforts in the area of fabricating demand is one level of advancing revenue management. The next level would be shifting the revenue management role toward business development. Imagine a world where the primary interaction with sales is in providing actionable information to help them book more business, rather than as a gatekeeper that is running displacement analysis to make sure their business is in the best interest of the hotel. With a revenue management mind-set, the internet or in-market research would be based on business that is staying during our need periods and potentially already is staying at the competition. Revenue-management professionals also can leverage their analytical abilities to understand the hotel’s own lost business and provide actionable and strategic takeaways that will drive revenue generating decisions.
One of my favorite approaches recently is as applicable to business as it is outside of work. Look at the same things differently and look at new things, to find a new angle to attack the many opportunities that we face. One example of this is taking a deeper look at the existing demand that has already gotten deep enough in the buying funnel that they have contacted the hotel through the website or call center. Especially in a time when generating additional demand is extremely difficult, make sure your hotel is maximizing its existing opportunities. Determine what one incremental point of conversion represents in dollars for your hotel(s) annually. Set a goal and go after increasing conversion on these existing prospects.
At the 2010 Hotel Data Conference, STR’s Mark Lomanno lamented that this is the first time that there has been such a significant increase in demand without a correlating increase in ADR. It is imperative that we raise the bar for revenue management as we come out of this economic collapse to position our hotels to take advantage of such opportunities. The strategies discussed above can be implemented now and hopefully will become additional building blocks as we continue to collectively enhance the impact and results the revenue management discipline provides to this industry.
Scott Roby, VP of revenue management at Tarsadia Hotels, leads the revenue management department’s efforts in driving top-line revenue and increasing market share for Tarsadia Hotels’ portfolio. Using a collaborative approach, the team leverages proprietary technology to provide world-class analysis, utilizes brand systems and resources to maximize franchise contribution, and maximizes in-depth market knowledge to generate proactive strategies. Prior to joining Tarsadia Hotels in 2005, Mr. Roby held revenue management positions with Hilton Hotels in San Diego and La Costa Resort & Spa. He earned his bachelor’s degree in Hotel Administration from Cornell University. Mr. Roby also currently serves as Vice-Chair on the Advisory Board of HSMAI's Revenue management Special Interest Group. He is the father of three girls and enjoys sports and outdoor activities, including camping and hiking.
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. www.revmanagement.org
• Chair: Warren Jahn, Ph.D., Revenue Management Training Consultant, InterContinental Hotels Group
• Vice-Chair: Scott Roby, CRME, 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 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 Group Strategy, Marriott & Renaissance Hotels of New York City
• Jay Hubbs, Director-Hotel Supplier Relations, Hotwire
• Burl Hutchison, CRME, Manager of Revenue Optimization, Sabre Hospitality Solutions
• 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, Senior Account Director, Sceptre Hospitality
Want to Learn More?
Topics like this one will be addressed as part of the 10-part Revenue Management Webinar Series produced by the HSMAI University, HotelNewsNow.com, and STR. Begun February 23, 2010, and going through December, each month a webinar will cover various aspects of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you’re not able to attend a live program or the date has passed, archives are available. Also, these and other timely revenue management and Internet marketing topics will be the focus of the HSMAI Revenue Management& Internet Marketing Strategy Conference, co-located with HITEC, June 21 in Orlando, FL.