AUSTIN, Texas—As the hotel distribution-channel landscape gets more challenging to control, revenue managers find themselves pushing a number of buttons and pulling many levers in an attempt to maximize average daily rate.
Despite representing a relatively small piece of the bookings pie, online travel agencies are posing more of a challenge every day, according to a group of senior revenue managers during an interview held last week in conjunction with HSMAI’s Chief Revenue Officer Executive Roundtable at the Driskill Hotel.
“As a channel, (online distribution) is very visible,” said Chinmai Sharma, VP of revenue management for Wyndham Hotel Group. “As you move away from city centers and from brands to independents and boutiques, the share of that in the (OTA) retail model is exponentially larger. There’s definitely a diminishing rate of return occurring that the industry needs to reverse.”
“Online channels put pressure on pricing and distribution at large,” said Brian Berry, VP of revenue management, Host Hotels & Resorts. “There’s no question it puts a lot of pressure on margins as well.”
But that doesn’t mean it isn’t manageable, according to Neal Fegan, executive director, revenue management for Fairmont Raffles Hotels International.
“We make it seem more chaotic than what it is,” he said. “We’re looking forward to tackling the problem, that’s the good news.”
Tackling the problem includes taking an aggressive approach with pricing strategies when the situation calls for it—especially with the proliferation of websites that specialize in one-off and last-minute rate sales.
“(With) the proliferation of flash sale sites, (hotels) have to be first movers,” said Scott Roby, VP of revenue management for Evolution Hospitality and chairman of HSMAI’s Revenue Management Advisory Board. “(Hotels) must adopt a ‘don’t-be-afraid-to-fail’ mentality.”
Roby said the hotel industry needs to balance being a first mover and testing online pricing strategies to drive incremental revenue with the need to determine whether these flash-sale sites are in the best long-term interest for hotels.
Staying on top of things
Bob Gilbert, president and CEO of HSMAI, said while the distribution landscape is evolving daily, hotel revenue managers must be alert to the online-distribution niche players that have been able to create value and innovate where the hotel industry wasn’t able.
“One new model that has developed is sites trying to sell rates via mobile devices while telling consumers to cancel same-day reservations because they have a have a lower rate,” Gilbert said. “That creates havoc and erodes the value and trust consumers already have in hotels. How do we address reservation policies to counter that? The complexities it creates and challenges it creates are things that must be taken seriously.”
Berry said the increased number of such entities puts pressure points on rate, and that’s where guest-loyalty programs come into play for hotels—but there is a price for those.
“We need to really keep an eye on those guest-acquisition costs spinning out of control,” he said.
Chris Silcock, global head, revenue management for Hilton Worldwide, said the evolution of online hotel distribution channels places an increased importance on advanced analytics needed for rate maximization.
“There is better price optimization today (because of analytics), but it’s an area that will grow exponentially,” he said. “We look at 500,000 data points to help make those decisions.”
“With any pricing mechanism, understanding the value proposition we have to the customer and making sure we live up to that is important,” Berry said. “That’s what gives us the confidence to be aligned in the product position.”
Building the right culture
The executives agreed that while analytics tools have been a great advancement in dealing with revenue optimization, the human element remains a major element in determining proper pricing.
“Even in a hotel that doesn’t have all the variables, there can be a bit of paralysis in what you’re trying to accomplish if you don’t have someone who understands the process,” said Barb Bowden, GM/corporate director of revenue management, The Peabody Orlando/Peabody Hotels. “Making sure there is absolutely a clear-cut strategy is imperative or you do get paralysis and mixed messages.”
The importance of property-level managers having the right tools to correctly implement revenue-management strategies is higher than ever, the executives said.
“Nobody knows their specific market like they do,” Fairmont Raffles’ Fegan said. “We try to provide the resources to tell people the leading indicators they need to look for to see in their market when things are going to happen.
“Regardless of how you get there, you need to institute that sense of revenue-management culture so it’s a cohesive approach.”
“That alignment piece is key—the manager, asset manager and the unit level, too,” Gilbert said.
Roby said the tools provided must be understandable by all parties involved to be effective.
“It can’t be a mystery and a black box,” he said. “Give it in small bites so everyone can understand why you are implementing a certain strategy. That encourages buy-in from everyone.”
“Analytics are part of it and understanding customer behaviors is huge,” Bowden said. “That’s where it comes down to having knowledge to overcome challenges.”
Technology plus people
Silcock said the different aspects of revenue management must include technology, such as a central-reservations system, to make it efficient.
“Without that, it doesn’t matter what decision you want to make because you can’t put them anywhere,” he said. “There has to connectivity … an alignment in availability and inventory. You want to do an unconstrained demand forecast and you want to maximize your pricing.”
“At the minimum you need a great forecasting tool,” Bowden said. “A human can’t analyze all data points (quickly enough) to make an impact—even if you are in the smallest of hotels.”
Sharma said there’s no silver bullet to have a highly efficient revenue-management system, but the process begins at the most basic level.
“Having a culture to drive revenue is important,” he said. “Creating that atmosphere and involving all the software aspects are more critical than actually having the hardware.”
The other executives pointed to the power of having the right people in place as the biggest asset for a property and a brand when it comes to effective revenue management:
- “You’ve got to be able to make decisions on the fly with forecasting tools that look at your norms,” HSMAI’s Gilbert said. “But you have still have to have humans to make decisions and implement plans.”
- “At the end of the day, you have to have some decision-making processes,” Roby said. “It’s a balance of people and tools. You can’t have one without the other.”
- “As long as things perform exactly as they have in the past, technology can handle it,” Silcock said. “Yield management … technology can greatly help you, but you still have to have the human element.”