As the end of 2016 draws near, it’s time for hoteliers to ready their strategies to take on all of the challenges facing the industry.
Yes, it is the time for 2017 business plans. A written business plan is paramount to all entrepreneurs and businesses regardless of the economy. It is not only a place to put ideas into tangible next steps but it also serves as a communication mechanism for employees, lenders and investors. It provides your entire team with the knowledge of how to exploit your company’s competitive advantages. But before we write those plans, let’s realize that revenue is only as good as our ability to keep costs down while earning it. Acquiring the right kind of revenue is as important as achieving growth in the segment.
Before we put on that marketing and sales thinking cap and write a business plan and budget, let’s identify the right pieces of business, the right market segments and the right price first. Perhaps one who has described some of this well is Larry Hall, former CEO of Springer-Miller Systems. Hall said in essence, “The hotel industry should focus on three technology things—distribution, pricing and the customer.”
Booking direct seems to be the mantra of many hotel executives today. It makes sense, so long as we hold our rates when we do that. There are those who believe that distribution costs are rising as online travel agencies (OTAs) continue to spend marketing dollars to “steal” our guests. Let’s remember that during bad times, these OTAs have saved some hotels. Currently, we remain in the good times. But let’s look at the playing field. Airbnb is in the distribution business at 3% commission. The problem is that they are selling new product that competes with us. But if we were Airbnb, would we continue to fight with every major city and deal with hosts who don’t understand hospitality? Or would we encourage hotels to use us as an alternative to OTAs today, such as Expedia, Booking.com and others? Either way, they are a part of the equation, and that fact is here to stay.
There is no doubt that the best piece of business is one that is booked directly with the hotel or through brand.com. But at the end of the day, we need to be more granular and look at the actual cost of each piece of business and do more with our own data. There is more to be done rather than just promoting the book-direct channel. Third-party business, whether from OTAs, the global distribution systems (GDS) or via metasearch are all important components of an overall plan.
It is important to understand and communicate with your guest. According to Kalibri Labs, each piece of business has a COPE, or contribution to operating profit and expenses. Further, the net average rate based on their research is 93.2% via direct channel versus 82.7% via OTAs. Coupled with the ability to communicate with “your” own guest, selling additional services becomes easier as well as communicating with the guest before arrival. This ability to establish a relationship with the guest reduces your ongoing cost of retaining customers, especially when compared to the cost of obtaining a new customer.
Keys to creating more direct distribution include controlling the search phase by purchasing key words and playing in the metasearch world. Moreover, the OTAs not only dominate these two areas (check to see what hotels come up when you put some key words into Google), but they have great content, with multi-lingual web sites, great photos, better mobile web sites and much more. They also own companies in the shared economy space, have strong conversion skills and way more marketing dollars than all of us hoteliers put together.
Google takes good care of these OTAs as they pay to play and organic search is no longer what it used to be. There are ways to compete for this direct business, but it requires a much more scientific approach to marketing. All of those details will not fit into this article, but a digital marketing professional with some good knowledge of key words and search engine marketing can be of help.
Revenue management is critical all the time, but as we enter the final peak revenue period of this economic cycle, we must arm ourselves with better data. Those of us who have been through multiple economic cycles know how challenging it can be to hold average rates through a downturn.
Simply put, revenue management is the set of techniques that collectively determine which reservation requests to accept or reject to optimize revenue. The principles of revenue management had their origin in the airline industry, but the concepts are equally applicable to hotels. A revenue management system optimizes revenue and profit, but it has become much more scientific in recent years.
Business intelligence (market data) is one of the most critical applications for revenue management. Better decisions can be made on daily pricing tactics when we have aggregated meaningful data that includes historic travel patterns, length and dates of stay and booking channels combined with key external information, such as competitive and market performance. With the right business intelligence applications, we have the ability to “slice and dice” information to yield flexible, ad-hoc reports as conditions change. This is particularly important when it comes to shifting market mix to optimize profitable revenues.
Revenue management should never be on the back burner as strategies need to constantly be looked at and questioned so that they can evolve with the market. Pay attention to your rates daily and check them multiple times a day during peak demand periods. Schedule weekly revenue meetings with your hotel’s key managers so everyone involved is staying engaged and is on the same page with your current strategies. The “set it and forget it” mentality needs to be removed from your thinking to achieve revenue success. It may require lots of dedication from your entire team, but the results are extremely rewarding in good times and life-saving in downturns. Naturally, in a full-service hotel, every department needs to be revenue managed. And comments relative to customer type from above content on distribution channels remain in effect.
Market retention might be the single most important marketing strategy in today’s oversupplied market. Consistent staff services and attitude make a significant difference in competitive advantage in every market segment. Hoteliers who can train and motivate employees will have a much better chance of getting repeat business. Only a real quality revolution will give you the competitive edge, because brand loyalty is very limited in today’s hospitality market, especially with millennials dominating the growth.
Since hotels do not hold customers captive, the only way we can prevent “desertion” is to continually outperform the competition, which includes Airbnb. In addition, by soliciting feedback from the “deserters” or former customers, we can dig out the weaknesses that really matter. These travel industry businesses with loyal, long-time customers will outperform the competition every time. Understanding the relationship between desertion of our guests and our profits is paramount to success. Perhaps Bill Gates said it best when he said, “Tell me about the problems we are having, not the successes.”
Further, to get customers to return, they want some bragging rights like a great photo or focal spot in your lobby as social media rules the market today. So the bottom line is simple. Book a profitable guest from the right market segment and make sure that both the guest and his or her family and friends are all impressed. Then you win. Now all that we have to remember is that not all guests are created equal—some cost more to get, some spend more than others on other services and some eat and drink more free food and beverage. Welcome to the science of hospitality. The short version of our 10-step business plan process is below. Now is the time to start.
Business plan development 2017
- Review trend report and competitive set information from STR. (STR is the parent company of Hotel News Now.)
- Meet with general managers and marketing team members of primary and secondary competitors and site tour their business.
- Develop a 2017 sales and marketing budget. ... Do not assume growth from last year; use all data available to ensure you have a pulse on the market.
- Plan a sales blitz and order blitz give-a-ways and mementos with your logo, address, web site and phone number.
- Meet with key contacts at your convention and visitors bureau and chambers of commerce.
- Contact franchise or brand frequent guest program administrator and sync press releases with theirs.
- Create a strong database for electronic mail promotions and upgrade and update your web site for search engine optimization and mobile.
- Continuously create and deliver “can’t resist” content.
- Develop a permission based electronic marketing program and add video content.
- Calculate the lifetime value of a new customer and get repeat business.
Full version can be found here.
Robert A. Rauch is CEO of the hotel management and consulting firm RAR Hospitality. Rauch is an internationally acclaimed hotelier with more than 40 years of industry experience. RAR Hospitality has four independent hotels in its portfolio with an additional property under development.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.