Owners drawn to revenue management’s ‘sizzle’
10 NOVEMBER 2014 8:21 AM
Owners might not understand revenue management, but they understand its importance in driving revenue. That interest is helping spur changes in the discipline.
PHOENIX—Whether they understand the intricacies of the discipline or not, owners now appreciate the importance of revenue management and are asking questions to speed along its evolution, according to a recent panel at The Lodging Conference.
“It’s become the sizzle, that revenue management piece, with our ownership for the most part” and has driven the “lion’s share” of the conversation with management, said Brad Rahinsky, president and COO of management and development company Hotel Equities.
Much of that conversation is centered around understanding revenue management and what it can and cannot influence, speakers agreed during a panel titled “Yield management to maximize profits.”
Chuck Pinkowski, owner of consultancy Pinkowski & Company, stuck to the literal definition: “a variable pricing strategy based on understanding and anticipating … your consumer behavior in order to maximize the revenue or the profits from a fixed or perishable product.”
Rahinsky turned to a more colloquial characterization: “selling the right room to the right person at the right price at the right time on the right channel, which is becoming more and more important.”
Different descriptions notwithstanding, panelists agreed revenue management is often too focused on rooms revenue.
“I think a lot of people do look at it that way. We don’t,” said Geoff Toffetti, president of revenue optimization firm Frontline Performance Group.
Ancillary spend on property is just as important, he said. “It informs your strategy. As long as the strategy is coming from one outlet or another, you can feel good about it. It’s when the revenue is not coming at all that you need to be concerned.”
Uninformed owners often drive that rooms-centric approach. So, too, does a lack of technology, said Jerry Cataldo, president and CEO of management and development company Hostmark Hospitality Group.
“That’s changing,” he said. “We have more data available to us now. We have more data about what people like and don’t like about our properties and about our competitors’ properties.”
Another data point driving revenue management is reputation management, Cataldo said.
There is a direct correlation with online review rankings and the ability to drive rate, Rahinsky added.
Panel moderator Mike Cahill of Hospitality Real Estate Counselors asked if owners have an appetite to replace RevPAR (revenue per available room) with ProPAR (profit per available room) as the key benchmarking metric.
“RevPAR has been kind of the benchmark against which we all measure our profitability and yield management … but ProPAR, you don’t deposit percentages; you deposit dollars,” Pinkowski said. “I think the industry needs to move more toward that ProPAR number. As the industry business has been increasing … operating expenses are going up at double-digit numbers. You raise that revenue, but you’ve still got to be able to control those operating costs.”
Toffetti agreed, adding, “The most advanced industries in the world run on a margin kind of mindset, not on a revenue mindset. … If you’re focused on margins, you’re going to be making a different set of decisions than you would if you’re focused on revenue.”
Simply put, ProPAR guides better decision making on the yield management front, he said. One example: sacrificing a few points of occupancy to fill a hotel with a more profitable base of demand.
“Everyone’s hunting to get people to come into their property,” Toffetti said. “There’s shockingly little attention to the spend of the guest on the property. Revenue management might get you a couple more points of occupancy … but if you’re not putting as much effort and discipline into optimizing every touch point then you’re missing the boat on a huge revenue opportunity overall.”
It’s the difference between thinking offensively and defensively, Cataldo said. Revenue decisions in the past often where driven by a fear of being left behind.
“The people that do the best job now,” he said, “are the people who look at it the other way around (and think) ‘I could be that much better.’”