Revenue-management best practices have failed
23 MAY 2014 7:28 AM
Revenue managers should rethink traditional best practices in response to changes in the dynamic hotel industry, according to panelists.
REPORT FROM THE U.S.—The traditional revenue-management best practices have failed, leading processes to change from a static to nimble approach, according to panelists on a webinar hosted by the Hospitality Sales and Marketing Association International University, Hotel News Now and STR, HNN’s parent company.
The way in which customers shop has changed, panelists said during the webinar titled “Revenue & yield management ‘best practices’ have failed.” Therefore, best-available-rate pricing is in its final act of the revenue-management play.
Tom Botts, executive VP and chief customer officer for Denihan Hospitality Group, said best-available-rate pricing often offers little value to customers but makes hoteliers “feel good.” Customers today are shopping based on price, he said.
Ash Kapur, VP of hospitality revenue management and distribution for Starwood Capital Group, agreed consumers shop by lowest available rates, but online travel agencies aren’t the ones to blame.
“Why blame them? They’ve created a marketplace,” he said. “Shoppers are used to going to marketplaces. … We cannot change customer-shopping behavior of going to these sites. What we should focus on intrinsically is our own digital booking experience.”
Kapur said the guest experience doesn’t start when guests arrive at the hotel. It starts pre-arrival, when they begin to shop. Hoteliers should be mindful of that when it comes to their own booking processes, he said.
Intermediaries are focusing on a better customer experience when it comes to their websites, and this is an area where hoteliers could be missing the mark, Kapur said.
“We as hoteliers are capping our own investment in technology and questioning (return on investment), but we are happy paying commissions to intermediaries who instead are using those commissions to improve technology,” he said.
Patrick Bosworth, CEO and co-founder of Duetto, said commissions have risen 37% compared to a 20% increase in revenues, citing research commissioned last year by the Hospitality Asset Managers Association. He said intermediaries are able to steal market share due to hoteliers’ mistakes.
However, it’s important hoteliers don’t abandon these types of distribution channels because that would be shutting off some demand, Kapur said.
Panelists said revenue managers can sometimes focus too much on historical data, concentrating on the past instead of looking toward future pace and trends.
“We’re showing graph after graph, trying to justify what we’re doing,” Kapur said.
Botts said historical data can often bear little resemblance to the market. For instance, some markets, such as New York, experience drastic changes, which then makes the historical data a poor representation of the current reality.
Bosworth said revenue managers are not always viewing themselves as marketers.
“Marketing is inseparable from revenue management. It’s not joined at the hip, but it’s in the same silo,” he said.
Budgeting and forecasting also have not evolved as the hotel industry has changed, Botts said.
“Budgets are often created on a sort of, ‘Hey, let’s just keep it within 2% to 3% of last year,’” he said. Short-term budget mentality can sacrifice larger and more profitable goals.
He said revenue managers can sometimes focus on what he refers to as the “wish it so” segmentation and mix changes.
“We sit in a room and say, ‘Gosh, I really want more of this.’ … So we put it in the budget, and we hope it happens,” he said. “One thing we’re starting to learn as an industry is these changes are not free.
“Hope is clearly not a strategy.”
What to do
Panelists said revenue managers have to be nimble.
Kapur suggested implementing dynamic pricing. Rates shouldn’t be restricted to a few levels. Rate plans should also be decoupled, he said, and rooms should be priced based on demand, segment and room type.
Botts said it’s imperative to invest in talent. When a director of revenue management leaves, it can cost a company between $250,000 to $500,000 in revenue.
Beyond the right talent, platforms also need to see some investment, Botts said.
“OTAs will not stop investing in functionality, nor should we,” he said.
Customer relationship management used to be purely within hotels on index cards, he said. Now hoteliers are allowing OTAs and others to enter into the guest relationship.
Failure to adapt will leave hoteliers dependent on OTAs, Botts said. Budgeting and forecasting policies and procedures need to be updated to deal with new realities in the distribution landscape.
For instance, revenue managers should consider measuring the gross-operating-profit impact of projected marketing scenarios by creating a baseline of full-year data by segment and channel. One way to do this is to increase interactive and media online marketing spend based on expected ROI.
Revenue managers can also yield differently, Botts said. He noted several ways to do this:
- offer flexible differentials between room types;
- ensure unique offers are priced close to OTA parity rates;
- compare nonrefundable rates with OTA net rates; and
- ensure the true cost of distribution and marketing is included in every decision.
At the end of the day, “consumers are willing to pay a little more if they perceive it’s a good deal,” Botts said.