And how to make them sweeter
Revenue Management is an amazing discipline: dynamic, ever-changing and evolving, cross functional and anything but boring or about crunching numbers only! There are plenty of moments of gratification in the job, but there are also moments when the Revenue Manager has to deal with annoying situations.
Here are 5 pain points that every Revenue Manager frequently goes through, and some suggestions on how to analyse them from different angles, to soften the pain:
1.Negotiate the corporate rates increase
To negotiate the corporate rates for the following year, it is general common practice to look at the past 12 months of production and analyse each Company’s performance in terms of roomnights and rooms revenue generated. By comparing the performances, Revenue Managers understand where each company production’s fits in their rate grid and negotiate the new rate accordingly. As easy and logic as it may seem from the revenue standpoint, it is not as easily accepted by the Companies that see only the pros of bringing business to your Hotel, considering that there could probably be another competitor Hotel to eventually move their business to. Looking at roomnights and rooms revenue alone is not enough, neither for the Hotel to make good choices, nor for the Company to accept a price increase based on a unilateral rule.
Taking a step further, the following factors should be considered before committing to any negotiatied rate variation:
- Total revenue generated: how much ancillary revenue does the Company generate for Restaurant, Bar, Laundry or any other service that the Hotel has to offer? Is there a way to increase the average spend of the company, through value adds or special targeted promotions?
- Stay days: is there a specific booking pattern? What is the impact of the Company’s volumes for each day of the week? Could the average stay be extended by focusing on the so called “bleisure” need?
- Booking window: how far in advance does the company book and is that positively or negatively impacting occupancy and revenue? Is the booking behaviour causing any revenue displacement?
- Cancellations ratio
- Last room available vs Non last room available
By considering all the above factors, Revenue Managers will be able to make more conscious decisions by looking at the big picture, thus providing arguments and facts to bring the negotiation process to another level.
2. Close out wholesale allotments/availability
When working with traditional Tour Operators with static rates, to optimise rate and inventory over dates of compression, Revenue Managers are used to close out their allotments or availability to sell. These decisions are based on the forecasted demand: it is part of the revenue optimisation process but Tour Operators obviously complain about the lack of availability to sell. The result is that the relationship with these partners can become easily jeopardized. This topic is also a trigger point between Revenue Managers and Sales, that see opportunities and risks from different angles.
To simplify the process and avoid making decisions based on the forecasted occupancy and rate only, the same factors that were listed in point 1) Increase corporate rates should apply, but with some additional factors due to the leisure nature of the segment:
- Average length of stay: closing out one date, will impact the stays on the dates before and after, with consequent reduction of total rooms revenue generated.
- Booking pattern and business mix: how many times does the wholesale segment book over potential sellout dates and what is the business mix on those same dates? What is the wholesale rate variance compared to the other segments and should you probably reconsider the overall business mix strategy over those dates?
- Arrival: could you shift the demand to historically less compressed days of the week?
- Room type: are you offering a wide range of room types to TOs and optimising/closing out inventory at the room type level rather than property level only?
- Lead time: can you capture demand with a longer lead time, by leveraging early bookings or advance promo rates?
Leveraging all possibilities in demand shift or inventory optimisation, will result in a business mix more evenly distributed and reduction of close outs.
3. Parity rate yes or no or when?
When it comes to parity rates with OTAs, every Revenue Manager has an opinion. Leveraging on the price disparity with OTAs is probably the easiest and cheapest ways to gain a competitive advantage for small-medium independent Hotels with low Budgets for direct bookings investments. I generally recommend the following:
- Flexibility: there should be no fixed or general rule applied and the pricing variance to brand.com or direct, should vary based on demand, mix, day of the week, occupancy and competitive landscape. For instance, a corporate Hotel could apply a +5% on OTAs pricing midweek, but be in parity with brand.com over weekends, when the demand is generally low.
- Room type: for leisure hotels working with a wide room type mix, could be reasonable to apply a different price increase based on the specific room class. For example, a +5% rate differential on the base room class (entry price) and a +3% or in parity on superior room classes. This would allow to be in parity or close to parity with superior room types to improve the upselling and boost, where possible, the average rate.
- Promotions: based on demand and length of stay, a smart way to optimise third party bookings without sacrificing the direct channel could be disparity in the most requested average length of stay and parity through promotions on the longer length of stays. This would allow to drive demand for longer stays and create a win win situation.
4. Overbooking, when is it the right time to start worrying?
You can setup rules to calculate overbooking or trust in your RMS forecast oversell limits to close the day with a perfect sold out property. However, it always comes a day (or days) where the negative inventory does not show any signs of decreasing. Time approaches and Revenue managers start getting a bit uncomfortable about overbooking and not even the forecasting algorithm – that may have changed in the worst case scenario – is encouraging. When overbooking is tough like this, when is it time to seriously consider guest relocations? Facts to consider before panicking:
- Business mix: each segment has a different natural cancellation and no show ratio, factor this in your assumptions
- Rate mix: how many prepaid rates vs flexible cancellation rates
- Length of stay: what is the average stay over the date, how many stayovers and how many arrivals
- Room type booked: each room class has a different cancellation pattern, guests booked ei. in superior rooms/suites are probably less likely to cancel due to the nature of their travel
- Booking date: are there any customers booked long ago that are probably worth a follow up?
Handling overbooking is never easy, but factoring the different elements just mentioned will help calculating the potential bookout from the different angles and manage potential relocations in a timely manner.
5. Disparity issues and onward distribution
Customers are well educated and one of the worst moments in the booking process is having the guest complain about your brand.com rate not being exactly the best available one, compared to that “neverheardbeforesite.com”. It is a common and widespread issue, probably the most annoying to deal with in the current distribution scenario. The jungle of intermediaries is potentially endless, however to deal with this there are two ways; they won’t probably solve the problems long term but at least short term you will take a breath.
- if you distribute wholesale Dynamic rates: close out availability of one wholesale at a time in the date of disparity, once the day becomes unbookable, you found the offender!
- if you distribute wholesale Static rates: make a fake reservation on the website undercutting your own prices and invoice any costs associated to the offender.
In both cases though, the fake reservation is the best way to proceed to be 100% sure of the offender and provide a concrete proof of it.