Road to Hotel Recovery: Recoup Lost Biz with Nine Revenue Management Tips

By Jean Francois Mourier | July 28, 2009

For many hotels in many markets, this is knuckle-down time. The decline in demand experienced by the industry is extending into its second year, and the need for customers, bookings, and, most importantly, revenue is pressing to say the least. This is not the time, however, for untested new schemes or reactionary strategies; swinging for the fences in this game is more likely to result in a strikeout than a homerun. What the hotel industry needs today is a return to the fundamentals, but with an emphasis on cohesion and integration. This requires relying on an orchestration of effective, back-to-basics tactics, not one over-the-top strategy.

These nine simple strategies- some of which highlight the online channel, some which stress integration across departments, and some that emphasize efficiency over reach and breadth- are readily achievable by hoteliers operating in any marketplace. They may just be the first step on the path to profitability. 

1. Put revenue where it belongs: at the top of the page
Too few hotels make the necessary investment to optimize their revenue streams, relying instead on a series of ad-hoc solutions or quick tech fixes as the basis of their revenue management strategy. Increasingly, however, the importance of having a cohesive and effective system is painfully obvious in today's market. The added benefit of having such a system is that it frees revenue managers to control pricing and other crucial variables in a proactive, rather than reactive manner. A good revenue management system will also allow hotels to increase their occupancy rates and manage their distribution costs. Given the effects of the global economic downturn, managing revPAR intelligently and effectively is a necessity for hotels everywhere. 

2. Use technology to your advantage
Most hotels (and revenue management systems) rely on the revenue manager to analyze and implement complex and rapidly-changing pricing structures. But human error is, unfortunately, a significant contributor to lost revenues. Implementing a system that eliminates the human error element will ensure that rates are optimized for the best booking rates with the highest revPAR available - at all times. Having such a system eliminates the day-to-day repetitive (and overwhelming) data crunching tasks, so that revenue managers can use their online sales knowledge and internet expertise to focus on the big picture - to actually manage revenues and grow business over the long term.

3. Make integration your watchword
Automation without integration, though, misses the point. The integration of systems is vital to improving the efficiencies of all hotel operations. Rather than having multiple systems or individual applications working independently of one another, look for a consolidated RMS system with a user-friendly interface to provide maximum pricing optimization flexibility, online rate distribution, competitive webpage positioning and inventory control. And importantly, look for a system that will continually update the prices in real-time. If your system isn't doing that, then you better start shopping because this is a very effective way to ensure that a hotel isn't over- or under-pricing itself.

4. Forget about the comp set - online at least
In traditional revenue management, managers only compare their prices with those of their Smith Travel Research competitive set (or comp set), the select group of hotels that is considered direct competition because of its star rating, quality, brand and so on. Much to the consternation of revenue managers (not to mention Smith Travel), consumers rarely know and don't care about the comp set, and make decisions mostly in terms of price and value. So ignore your traditional comp set analytics and focus on comparing your pricing to all of your competitors within the destination. By having the whole picture, this will increase your ability to generate maximum bookings and, importantly, revPAR. 

5. More site visitors does not equal more bookings
Many operators assume that more online traffic to a website equates to higher bookings.  Unfortunately, increased website traffic doesn't mean higher conversation rates or bookings.  Hotel websites, just as with other marketing and sales systems, must be evaluated and tested to be effective. Does your website encourage visitors to book or just to look? What's your website's bounce rate (the percentage of people who left after just visiting just one page) and conversion rates (how many people are actually choosing to book)? Careful analysis of these important metrics will help you determine whether your site has the information and emotional component that compels customers to book a stay.

6. Get onboard with a mobile strategy
The mobile phone, as you may have noticed, is rarely just a phone anymore. Indeed, the increasing saturation of smartphones and mobile data delivery is revolutionizing the way we access information, the way we research our purchases, even when it comes to planning and booking our travel. Unlike the Internet, mobile connectivity takes place at exactly the point of sale- wherever and whenever. So it's important for hotels to consider developing a mCommerce website, where consumers can quickly find hotel and rate information, and of course, book directly through the site. This is not a one-off trend for boutiques and niche properties. Marriott's recently launched mobile site garnered more than $1.25 million in gross revenue during its first 100 days and Hyatt Hotels recently launched Hyatt Mobile, which allows guests to check in and out, make reservations and locate properties on their mobile phones.

7. Channel management is inventory management is revenue management
Right now, hotels need to make sure that there is room inventory available for purchase on all of the channels, a hotel's own website, the telephone and even your brand new mobile site. Keeping rates equal across all of the channels and offering the best possible rate (not discounted, just slightly lower or higher than specific hotels) will entice consumers to choose your hotel over its competitors. 

Worried about paying the huge OTA commissions for bookings?  Steer bookings from expensive sites to your own hotel website. Forty four percent of the national hotel market was in online sales in 2008, and that figure is predicted to exceed 57% by 2012, so why cede control of your market share? The leading hospitality brands have 76:24 direct vs. indirect online distribution ratio, which your property can achieve with proper channel management.

8. Online travel agencies are not the only game in town
Of course, the industry wouldn't be the same without the big OTA players -- Expedia, Hotels.com, Orbitz, TravelocityBookings.com and Priceline, among others - your hotel cannot afford not to be doing business with them. But there are 200+ travel search engines and hotel booking channels online, so revenue managers need to be on the constant look out and ensure they have a solid presence on the most number of sites possible.  Why? Because more exposure and more visibility equals more bookings. Online hotel bookings are the most popular travel item purchased on the web, and with more portals and sites appearing almost every day, don't forget all the niche markets available out there. And if you think that more sites to manage means more headaches and rate parity issues, consider automating the process with a robust RMS system.

9. Dynamic rates always beat fixed rates
In contrast to the hotel industry of the past,  where consumers rarely had access to pricing information unless they used a travel agent or called a hotel directly, today's market is almost completely transparent, with hotel rates openly advertised on the Internet with only a few clicks of a mouse. Consumers use travel search engines to compare hundreds of travel sites through an easy-to-digest interface of hotel rates classified by price, star rating, traveler opinion, location and other variables. But as the booking window becomes shorter and shorter, how are hotels handling the increased "commoditization" of their business, especially in the current rate parity and best rate guarantee requirements?

The fixed rate concept worked perfectly before the internet revolutionized hotel bookings. BAR rates and rack rates were the benchmark (or the base) of all other rates. But now that pricing is transparent, the rules have changed and the online sell rate is dictating all other rates because anybody can access these, at anytime.  Further, the online price transparency following the ever-changing supply and demand is forcing hotels to use flexible rates. Therefore, wherever possible, it makes sense to gradually shift your fixed rates to dynamic rates, to avoid all price conflicts with wholesalers, corporate accounts and groups. Providing a negotiated percentage discount may work in some cases, but in reality, only automation of pricing, yielding, distribution can achieve the perfect, yet complex calculations of rates via direct bookings, opaque channels and promotions.

If hoteliers implement even a few of these nine suggestions, they'll have gone a long way to ensuring their survival through the tough economic environment that we're currently experiencing and will be well-positioned for success in the recovery to come. A focus on integration, automation, the online channel and good revenue management is the basis for a solid operating strategy- and a common sense way to weather the storm. 

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