Revenue managers must think outside the box
NEW YORK—Revenue management as it has been known in the hotel industry is taking on a new meaning, and revenue managers are now required to look beyond forecasting and pricing to be considered successful.
While some panelists during the inaugural Revenue Strategy Summit at the Affinia Manhattan last week suggested total revenue management is the key to future success, others suggested optimizing channel management is top on the priority list.
Regardless of the new goals, revenue managers must think outside the box to continue driving profit margins that hotel owners are used to.
“There’s a paradigm shift that needs to take place here,” said Kristie Goshow, who is wrapping up her last weeks as VP of marketing for Sabre Hospitality Solutions before taking on a new role with Viceroy Hotels & Resorts.
Goshow is a firm believer in total revenue management. She suggested hoteliers look at their guests as customers of the space who may spend more on retail or food and beverage than room rate.
“Think about everything a hotel has beyond the room, such as the retail,” she said.
Goshow also pointed to the lobby as part of a hotel that is underutilized from a revenue standpoint. Marriott International had undertaken a strategy of making the lobby more liquid by turning part of the traditional lobby into meeting space that can be rented for different periods of time throughout the day, she said.
“A thing like a lobby is expensive real estate and needs to be utilized,” Goshow said.
Once revenue managers begin thinking of guests as consumers, the profitability of a consumer can be measured in “return by square foot,” she said.
“Think about your floors and your walls and the backs of your doors,” Goshow said. “If you as a hotelier can serve up a timely advertisement—use the technology available to you—now everywhere and anywhere has become a point of sale.”
Michelle Russo, president and founder of Hotel Asset Value Enhancement, agreed, saying owners want to see a more total revenue strategy. However, “a lot of times it’s just rates or consumer value,” she said.
OTAs back under the bus
Alise Deeb, senior VP of revenue management for La Quinta Inns & Suites, said many of the problems within the hotel industry today can be credited to poor discount strategies, including giving third-party partners discounted rates or allowing front-desk clerks to drop rate to gain a guest.
“We’ve trained the guest to go to the front desk and ask for a better rate. In the past they knew they could,” she said.
However, Deeb said La Quinta is seven years into a “no discounting and rate strategy stance.” It took about two years to implement, but now property-level employees from sales and marketing to line level are forbidden from discounting.
“We realized some of our customers weren’t going to be our customers anymore,” she said.
Deeb said implementing such a strategy takes time. In the retail space, JC Penney made a similar move but enacted the strategy overnight and “became the poster child for what not to do,” she said.
“You need to talk to sales and marketing and remind them you’re selling pride,” she said. “There’s no confidence. Have pride in the product and be able to discuss that pride with the customer.”
Deeb was equally critical of online travel agencies for selling hotel rooms at too-low prices.
“We talk about the angst of working with the OTAs but we created the monster,” she said. “It’s our inventory but we do all the work. They are marketing companies. For us, explaining that to our owners is important.”
Deeb said no-shows and cancellations have doubled at hotels that have enacted Expedia’s Traveler Preference program where guests can choose to pay at the hotel rather than in advance online.
“That adds a layer of complexity to revenue strategies,” she said. “(Expedia is) taking away the strings attached to booking with a third party and putting more onus back on the hotels.”
That’s not to say OTAs aren’t an important channel in the distribution mix. But it’s key to “properly present our assets to the end users,” said Thomas Botts, executive VP and chief customer officer at Denihan Hospitality Group.
“Think about how all the channels work together to influence the price,” Botts said. “The days of taking rooms at face value are pretty much gone. You have to have all these channels working in concert.”
Drive direct bookings
One way to combat OTA fees is to convince more of those guests to book direct with the hotel or brand, experts said.
Deeb said OTA consumers aren’t brand loyal but, for La Quinta, “it’s about converting them to be brand loyal.”
Botts said he believes the so-called “billboard effect” is real but that hoteliers need to learn how to leverage it.
One example is Kimpton Hotels & Restaurants’ promotion that offers guests who book direct breakfast for $1.
But hoteliers are searching for ways to capture those guests without additional costs. Search-engine optimization and search-engine marketing can be effective, Russo said, but how effective remains up for debate.
“Marriott is reallocating dollars from SEM as they say it doesn’t lead to (return on investment). But Hilton (Worldwide) says bid on your own name and you’ll get 3% more revenue,” she said. “How do you sort through those conflicting data points? Find a wall and bang your head.”