Revenue Strategy: It s Time to Move Beyond Revenue Management

Transcription

1 Revenue Strategy: It s Time to Move Beyond Revenue Management

2 Revenue Strategy: It s Time to Move Beyond Revenue Management The hospitality industry is nearing an inflection point and the clock is ticking. Industrywide revenues continue to increase, but commissions are growing twice as fast. In some cases, customer acquisition costs can be as high as 40%. Industry-wide revenues continue to increase, but commissions are growing twice as fast. If we don t find a way for all players in the value chain to rationalize the economics, if it doesn t work for all, it doesn t work for anyone, said Leland Pillsbury, co-chairman and CEO of Thayer Lodging, about the tenuous state of the hotel industry during last year s Revenue Strategy Summit in New York City. Revenue Strategy A comprehensive approach to profit optimization that: A) accounts for costs associated with customer acquisition and retention; B) leverages interdepartmental intelligence to facilitate a collaborative approach to revenue generation; and C) unlocks behavioral insights through new data sources and price elasticity testing. Revenue Management - The art and science of predicting real-time customer demand and optimizing the price and availability of products to match that demand. Commissions - The payments that a travel agent receives for each reservation made on their site. Traditional revenue management is no longer enough. A new revenue strategy is critical for hoteliers to survive and thrive in this new world of not just intermediaries, but now metamediaries that are taking a bigger cut of the action. This strategy must integrate revenue management with sales and marketing and take advantage of the tools and technologies available to combat distribution complexity. 40% Commissions vs. Total Revenue Source: 2013 HAMA Study & Kalibri Labs 30% 20% 10% Commissons Total Revenue 0%

3 Yield - The dynamic pricing, overbooking, and allocation of perishable assets to maximize revenue. Overbooking - The practice of confirming reservations beyond capacity, either in expectation of cancellations or no-shows, or in error. Channels - Different methods by which a customer books/reserves a room. Booking WIndows - The timeframes in which hotel reservations come into hotels for a particular day. Web Shopping Regrets and Denials - When a hotel has been shopped online and a rate was given but the guest did not book a reservation, or a rate was not given at all due to a restriction or sell out. OTAs Online Travel Agencies, travel intermediaries that allow consumers to research and book their own travel through the use of travel websites such as Expedia and Orbitz. Reviews & Social Media Competitor Pricing Data TRADITIONAL REVENUE MANAGEMENT Macroeconomic Data Booking & Reservation Data TRADITIONAL REVENUE MANAGEMENT Times have changed When Marriott introduced yield management to the hotel industry in the 1980s, the Internet barely existed and most customers were using a rotary phone to make a hotel reservation. Think about how consumers book hotels today. Besides calling hotels directly, and the even more rare walk-in, how many bookings are processed or touched by others? Even the most profitable customers visiting the hotel s website to book are likely first visiting other sites that are getting a cut of the action. Very little today constitutes a direct booking, and tomorrow, it will be even less. The Internet, cloud computing, open source software and mobile technology have changed the industry for good. The majority of a hotel s bookings will pass through some intermediary and incur added cost even if the consumer ends up booking on brand.com, says Cindy Estis Green, CEO of Kalibri Labs, and co-author of the recent book, Distribution Channel Analysis: A Guide for Hotels. The Internet, cloud computing, open source software and mobile technology have changed the industry for good. If we look at lodging s booking ecosystem today, we see a web of distribution complexity and compressed booking windows that did not exist Behavioral Insights Web Shopping Regrets & Denials Air Traffic Weather when traditional revenue management was devised. The distribution and data science side of the business has become far more demanding with new channels, social media and one-to-one marketing. Leland Pillsbury, the man who helped launch the first hotel revenue management system while with Marriott in the 1980s, describes the era beginning in 1996 with the emergence of OTAs as the invasion of the value snatchers. Yet many, if not most hoteliers today still employ essentially the same strategies and technologies used 3

4 twenty years ago before OTAs even existed. So many of the core systems central reservation, property management, customer relationship management, revenue management powering the hotel industry are on their way to obsolescence, if not already there. Predictive analytics are a powerful tool - not only for forecasting demand and pricing rooms but for management decisions across the entire hotel enterprise. Fixed-tier best-available-rate pricing is an obsolete strategy when open, fully dynamic pricing is a viable option. Revenue management is inherently a dynamic function, where the target demand changes every second, as should the strategy and pricing to meet it. Managing (and pricing) to pre-set budgets and mistaking inventory management for revenue management are costly errors in today s competitive distribution landscape with decreasing margins. The right customer segments must be correctly understood and defined, and then yielded independently. Otherwise, money is being left on the table. Dynamic Pricing - The process of actively applying revenue management by selling the same products at different prices to different customers. Demand - The forecast of how many rooms you could sell if you had an unlimited number of rooms. Predictive Analytics - Extracting information from data and using it to predict trends and behavior patterns. A New Revenue Strategy Beyond revenue management, a new revenue strategy should incorporate shared intelligence from sales, marketing, distribution, and other departments tasked with revenue generation. Revenue management and its supporting systems have historically been only responsible for forecasting demand and then pricing rooms to maximize revenue. That can no longer be done in a vacuum, separate from the marketers who are creating much of that demand and the sales team trying to convert it. Today, these departments simply cannot operate in silos and instead must work together in furtherance of aligned objectives. Predictive analytics are a powerful tool - not only for forecasting demand and pricing Revenue Management Sales & Marketing Distribution Operations Collaborate Across the Hotel 4

5 rooms but for management decisions across the entire hotel enterprise. Market intelligence gleaned from revenue management forecasts are a natural starting point for proactive revenue strategies. How can marketing know how aggressive to be with offers and promotions when they don t know when they ll need them? Is a particular offer filling rooms when demand is low or are you flooding the market with deals on days when it s not necessary? How much of an upgrade should a loyalty program member receive for his 20 stays, and might that displace a customer willing to pay top dollar for that room that night? Data is available today that can answer those questions, but it s often not at the fingertips of the individuals making these decisions. We need to have a profit focus and not a revenue focus. -Cindy Estis Green Price optimization is an important lever, but there are other levers controlled by sales, digital marketing, campaigns and more, says Estis Green. We need to have a profit focus and not a revenue focus. We have to look at acquisition costs and not just generating revenue, but generating revenue in a cost effective manner. The Future is Now To reclaim value lost to booking intermediaries, it is essential that hotels establish connections with guests throughout the discovery and booking process. Open Pricing - The ability to price all room types, channels and dates independently of each other to maximize revenue without having to close any off. BAR Best Available Rate, a commonly used base rate upon which all other priced segments are based upon. Ever since online distribution brought transparency, hoteliers started competing with the emphasis on price. During the most recent economic downturn, when everyone was fighting tooth and nail to fill their rooms with dwindling demand, the downward pressure on rates played directly into the hands of OTAs. In addition, antiquated revenue management practices like fixed-tier BAR pricing have accelerated the race to the bottom. But hoteliers are getting smarter with innovative new techniques. Jason Thielbahr, Senior Vice President of Revenue Optimization and Distribution Services, of Red Lion Hotels looks to gain competitive advantage after rolling out a suite of technology that will enable an open pricing revenue strategy. The window is now, says Thielbahr. We had a choice to play catch up or to leapfrog 5

6 the competition. We chose the latter and are exited to get this system in place. The industry outlook for next year is strong and we have very high expectations beyond that. It s not too late for hoteliers to regain control of their customers and business, but they can t wait much longer. It s time to drop artificial constraints on pricing and align incentives. Budgets can be useful guidelines, but they are static, while customer demand is dynamic. Too many hotels fall into the trap of managing rates not to maximize revenue, but to meet budgets. Hoteliers need to better track customer behavior as OTAs have been doing for years. Some of the more powerful insights a hotel can have about prospective customers are readily obtained by tracking website booking inquiries. That data can provide real-time feedback on pricing strategies and better approximate price elasticity. It s not enough to have good data; it must be actionable. But it s not enough to have good data; it must be actionable. Revenue strategists need systems that automate data management and make information easily and quickly digestible. It s no longer a realistic proposition to wade through a multitude of data on an Excel spreadsheet and expect to make timely and accurate pricing decisions. Systems facilitating this process need clear user interfaces that serve up complex information simply and quickly and enable flexible pricing strategies. Hoteliers must act now to embrace a more holistic view of generating profit. They must move past an old way of thinking and antiquated systems that no longer work, and look to the future with more sophisticated technologies and a new, comprehensive revenue strategy. Price Elasticity - A measure of the relationship between a change in the quantity demanded of a particular good, in this case a hotel room, and a change in its price. 6