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Revenue Management for Today & Tomorrow - 10 Questions to Consider

  By the HSMAI Revenue Management Advisory Board
Euripedes famously said, "Question everything." That is our challenge to you in 2011. It is by asking questions - of yourself, your staff, your partners, your bosses - that you will uncover the insights and answers to guide you on your path of continuous improvement in your revenue management efforts, and to maximize revenue optimization.

This article presents the top 10 questions we think you should be asking and thinking about this year. We will be expanding on these questions and others throughout the year with articles, webinars, virtual brown bag discussions, the annual Revenue Management Strategy Conference in June, and supporting tools that will assist you in answering them - and implementing effective strategies and tactics in your organization.


 "Every clarification breeds new questions."
Arthur Bloch

1. What is the future of business intelligence?
In the beginning, there were enterprise forecasting systems that only saw internal "unconstrained" demand and suggested inventory and length of stay controls. In the '90s, online distribution changed the game. Competitive rate shop tools soon followed, then forecasting models started to take into account competitor price position with "limited" price optimization guidance. Today there is market demand based pricing...and the influences of social media, traditional org charts and customer relationship marketing systems.

In the near future, the semantic web and intelligent web will change distribution strategy once again by focusing and filtering information presented to consumers based on individual preferences, requiring hotels to personalize their service and product offerings similar to the individualization of applications for handheld devices today. And that will only address certain portions of transient business.

What will be the next tool in a revenue manager's business intelligence arsenal? Some might say (or want) a PMS, CRS, RM and social media solution that integrates consumer behavior, distribution strategy and marketing strategy with demand-based pricing by distribution channel with willingness to buy quotients. Too much to ask? Add to that a predictive labor forecast and expense modeling system to adjust strategy for optimum GOPPAR and we might really be on to something.

No one is doing it all, so what will it take to go beyond one piece at a time? "

Good questions outrank easy answers."
Paul A Samuelson

2. Why does the revenue manager exist?
As the practice of revenue management has evolved in the hospitality industry and as technology has become integral to the discipline, the revenue manager can no longer simply be the person that collects data and implements rate changes. Revenue managers must have a more strategic focus, gaining support of other key executives in their hotels and setting direction. This requires the skills to influence other decision makers in addition to the subject matter expertise.

The ability to set direction and influence others is not guaranteed by education or experience credentials or technology or reports alone. It comes from the revenue manager being able to use their expertise and insights to develop and communicate sound strategies that put the hotel in position to achieve its revenue and profit potential.

The best place for this to begin is in your revenue meeting. The revenue manager must take ownership of this meeting, using the technology, tools and information at their disposal to clearly outline a recommended strategy in a way that is accepted by the general manager, director of sales and marketing, and other key executives. The technology can help you identify opportunities, strategy implications, and expected outcomes, but only a human, with well developed skills and expertise, can build consensus and influence others.

"Who questions much, shall learn much, and retain much."
Francis Bacon

3. Who are your true competitors?
In the best-seller Blue Ocean Strategy, the authors provide several examples of companies that have sought after and capitalized on an uncontested market space. Unless you are fortunate enough to be a stakeholder in a lodging operation that offers such a differentiated experience that your competition is rendered irrelevant, it is likely that you are competing head-on with others that are reasonable substitutes in terms of service offerings and amenities. Not have price as one dimension but think of product type and quality, etc.

The trick then becomes how to best identify your true competitors. Often pro formas are created by developers as part of the underwriting process to help secure funding for a project. Contained within most pro formas are a list of "competitors" (often aspirational in nature), against which financial performance of the asset is then measured. The trouble is, those involved in the underwriting process are not typically the ones running the operation once it opens, but that original competitive set needs to be monitored for obvious reasons.

From an operator's perspective, other competitors also need to be considered, as a practical means to ensure that the day-to-day tactical decisions are supporting the goals of the business. Given the complexity of the distribution landscape today, combined with seasonality and shifts in market segmentation, it stands to reason that monitoring the performance amongst a "fixed" set of competitors is not sufficient - nor is it wise.

"No question is so difficult to answer as that to which the answer is obvious."
George Bernard Shaw

4. How will you measure your success?
With the evolution of distribution channels, dynamic pricing, changes to the competitive environment, changes in guest behaviors, and increased investment in revenue management resources including tools, technology and people, it is more important than ever to make data-driven, fact-based decisions that have specific measurements of what outcome is expected.

By setting specific measurements around a decision or strategy, you will have a much sharper focus on the outcome. Are you looking to grow occupancy, market share, RevPAR, rate, share shift business from the competition, fill a need time?

To get to the heart of measuring a particular strategy, tactic, promotional activity, or other revenue decision, determine the objective, define what success looks like, implement the strategy and measure the results. Data used to determine results can come from demand reports, market share reports, forward looking tools that show segment pick up, profit and loss analysis, etc. The key is to ensure that you are measuring the right thing.

For instance, in many cases the effectiveness of a promotion or rate plan will be based solely on room nights produced without regard to the effect on the overall business. Therefore, when considering how to measure your strategies, ask yourself these questions:

• What would happen if we did nothing?
• What are we trying to achieve?
• What metrics can be used to isolate the effectiveness of the strategy?

"It is better to know some of the questions than all of the answers."
James Thurber

5. What is your hotel's value proposition?
Many hoteliers believe the value of their hotel can be measured by a SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) and that researching competitors' product pricing, facility structure, meeting space and flag type can give them the information to properly position their hotel.  In fact, the value of a hotel is not the location, flag, brand standards, website, or number of HD flat screen TVs on property.  The true value of a hotel should be measured in perception, reputation, morale, experience, community and culture of the staff and guests.

So, how do you propose, measure, market and execute a value proposition?  It has to start at the top with a general manager or managing director who should instill a culture of great service and open communication with all staff.  We act and serve the way we are trained, we need the right information to do the right job, and the more the team knows the more efficient, effective and happy both the staff member and guest will feel. 

This effectively results in more top line revenue and bottom line profit through a better experience and enhanced perception of value, more repeat guests, more efficient operations, fewer adjustments and fewer hours spent in redundancy.

"It is not the answer that enlightens, but the question."
Decouvertes

6. What is the future of distribution?
Hotel rooms, air seats, cruise cabins, rental cars and many other products are sold directly from the provider to the customer, through various third party partners like OTAs, the GDS, wholesalers, group third parties, rep firms and many others.  Along with that are many other "behind the scenes" partners such as Pegasus and their switch technology, web hosting companies and other technologies.  Each layer of this distribution adds complexity, cost, and questions of customer data ownership. 

Who owns the customer information (and more importantly the customer loyalty)?  Today, it is different for each distribution channel.  The space is changing rapidly, and with the share of business done online, the changes are, in many instances, not in the inventory providers' control.

Who's the elephant in the room?  Google.  What might the world of distribution look like if the Google Travel and ITA merger is approved?  The answer is not clear, but it is likely to be ground breaking and game changing for the hospitality industry.  Which direction this takes could determine, for better or worse, the definition of the relationship between hospitality providers and their customers.

"The wise man questions the wisdom of others because he questions his own, the foolish man, because it is different from his own."Leo Stein

7. Is revenue management art or science? (A special question for Independents)
Independent properties and small chains continually face the challenge of limited resources and budgets to invest in revenue management technology. Without it, are you at a disadvantage against the large brands? If you make the investment, is there a reward?

For every property and every revenue manager, there is a different definition of what revenue management is and how to achieve success. No matter your definition, likely customized to the individual property, market and rate structure, the practice of it must fit the operation and goals of the hotel. Only then will it have the desired impact on the bottom line.

So, which will make you flourish - the art or the science? How can you make the art more scientific? What is the right fit for your property?

"Questions show the mind's range, and answers its subtlety."
Joseph Joubert

8. How can you best optimize your BAR?
As the hotel industry slowly moves from survival to recovery, hoteliers continue to optimize all revenue opportunities. Pricing structures and management of these structures are key parts of this optimization effort.

The Evolving Dynamics of Revenue Management , published by the HSMAI Foundation, defines Best Available Rate (BAR) as "the non-qualified, publicly available rate that serves as the baseline for comparison between hotels. This rate serves as the benchmark and typically drives discount and package pricing based on a percentage or dollar amount above or below this rate. BAR replaced Rack Rates as revenue management evolved and became more dynamic."

While the definition of BAR or the application of BAR may vary from hotel to hotel, most hoteliers have incorporated some type of BAR rate levels into their pricing strategies. Some offer a pre-defined rate that may fluctuate based upon availability. Others have sophisticated systems that offer a BAR based on a consumer's search criteria. Add to those differences the various approaches to the management of BAR - some hoteliers apply it on a day-by-day basis while others apply it on a length-of-stay (LOS) basis - and the issue becomes more complicated than it appears on the surface.

There are benefits and challenges to all of these approaches to managing BAR. What is the best approach for your hotel?

"No man really becomes a fool until he stops asking questions."
Charles Steinmetz

9. How can you get the most from the data you have?
Revenue managers have at their disposal more information today than ever before. Third party data providers have always been an integral part of the revenue management process. Market share reports from STR, price shop products, and many others have been around for years. Recently more partners have entered the arena bringing additional data to the table with forward looking products, advanced web analytics, and more. Combined with proprietary reporting from distribution partners such as the OTAs and hotel companies' advancing reporting technology, today's revenue professionals have access to more data than ever before.

Avoiding data overload, understanding what data to use and what to ignore, and knowing what to look at daily and what to look at less often are as valuable as knowing how to price your hotel. Start with the reports you currently have, and consider how you can best utilize them. Work toward a laser focus on data usage and time management which will help you to move the organization forward.

"You can tell whether a man is clever by his answers. You can tell whether a man is wise by his questions."
Naguib Mahfouz

10. What will the "Revenue Manager of the Future" look like?
The past 18 months have been some of the most challenging for the hospitality industry, but all signs indicate we are over the worst of it and headed into a period of healthy recovery.

One of the clear messages from the industry is that revenue management was crucial for survival during this challenging time. As a result, many companies have realized the importance of this function and are beginning to elevate it within their organizations. And as they do so, the job description is growing and evolving.

As this description changes, so do the inherent skills and abilities. The revenue manager of the future will have to have not just analytical skills, but deep and specific mathematical, analytical, managerial abilities that will elevate the position beyond how it is seen today.

How will you prepare for this future? Ask yourself these questions, and more, and embrace the role of the strategist in your organization.


For a more in-depth look at the topics addressed here:

• Subscribe to the HSMAI Revenue Management Blog.
• Participate in an HSMAI LAB (Learning About Business) virtual brown bag (for members only).
• Attend the HSMAI Revenue Management Strategy Conference on June 20th in Austin, Texas.
• Join one or more webinars in the 2011 HSMAI University Revenue Management webinar series.

About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board leverages insights, emerging trends, and industry innovations to guide the development of products and programs that optimize revenue for hotels. www.revmanagement.org

Members include:

• Chris K. Anderson, Ph.D., Professor, Cornell University
• Christopher Crenshaw, CRME, Vice President, Marketing Intelligence, Loews Hotels
• Kathleen Cullen, CRME, Corporate Director of Revenue Strategies, Heritage Hotels and Resorts
• Sloan Dean, CRME, SVP of Revenue & Market Strategy / CRO, Alliance Hospitality Management, LLC
• Jon Eliot, CRME, CHA
• Tammy Farley, Principal, The Rainmaker Group
• Fred Heintz, CRME, Director of Group Strategy, Marriott & Renaissance Hotels of New York City
• Jay Hubbs, Director Hotel Supplier Relations, Expedia Partner Services Group / Hotwire
• Burl Hutchison, CRME, Director of Revenue Optimization, Sabre Hospitality Solutions
• Warren T. Jahn, Jr., Ph.D., Manager, Revenue Systems Training AMER, IHG
• Klaus Kohlmayr, Senior Director, Consulting, IDeaS Revenue Optimization
• Orly Ripmaster, CRME, Senior Analyst, STR Analytics
• Scott Roby, CRME, Vice President, Revenue Management, Evolution Hospitality
• Chinmai Sharma, Vice President, Revenue Management, Wyndham Hotel Group
• Susan Spencer, Market Director - N. America, ChannelRUSH
• Trevor Stuart-Hill, CRME, President, Revenue Matters
• Rob Sudakow, Director of Revenue, Destination Hotels and Resorts
• Paul Wood, CRME, CHBA, Vice President of Revenue Management, Greenwood Hospitality