This is the third chapter of a small serie about the Management process in Hotels.
Read part 2: The fast evolution and the tech revolution
It is interesting to compare the evolution of the role of the Revenue Manager over time and how the evolution phases still exist based on the management and education level of the hotels.
In the first phase (the late 90s) revenue management was considered a technical activity.
The person in charge was mainly dealing with systems management, loading rates, maintaining updated availability, and updating OTA extranets. There was no real revenue manager on the property, as the activity was performed by someone working at the front office or booking office, sometimes the GM.
Even if it seems like a very remote time, manual activity is still widespread, especially among independent or family-run properties. In these cases, the management is handed down from generation to generation. The business is often focused on repeat customers or retailers with traditional wholesale contracts that work with fixed pricing and allotments. The missed opportunity is to remain stuck to a very old business model, in a world that is now fully dynamic when it comes to demand and pricing.
These properties often find themselves passively managing the systems and pieces of technology that they consider “useful but not essential”, not understanding, for instance, the value and importance of the online presence and the benefits of having a performing booking engine on the website. These breed of Hoteliers sometimes get defensive towards any kind of change and have issues in understanding how revenue management could be of any help; there is also often distrust in technology that is considered as extra non-value add workload and time-consuming to manage.
Hotels that find themselves in this phase, can change only if they invest in education to be able to open their eyes and see the opportunity for growth. Through education, they can reach an understanding of the key performance indicators, market dynamics, and digitalization opportunities for better revenue return.
Digitalization, tech adoption, and revenue management are all connected.
Starting from the simple channel manager or booking engine, up to the business intelligence and advanced revenue management systems able to predict demand in real-time by combining small & big data. The tech introduction must be implemented gradually and be adapted to the peculiarities, organization, and specific skillset of the hotel’s team: there is no technology that does the magic, even the most advanced revenue management systems require man + machine collaboration and the secret is again to choose the right tools based on the specific Hotel skillset and awareness.
The second phase of the evolution of the role is the analytical phase.
In this phase, the role of the revenue manager is isolated from the reception or booking department, and the person in charge manages revenue as a full-time job. The activity is focused on the analysis and interpretation of data through reports extracted mainly from internal sources (PMS) and then elaborated with Excel or VBA. The analysis and reporting are carried out manually, this is very time-consuming and is therefore limiting the time left to focus on strategy.
The elaboration of reports and analysis coming from internal data only is restraining also for further reasons:
- the data is always benchmarked against the same property, with no external comparison (vs market or competition)
- data analysis cannot reach detailed levels
- external data or big data are not considered
External data is critical as with the evolution of demand and online bookings, retailers and OTAs have access to great valuable information thanks to their wide distribution: they can grasp macro trends at a global level by incorporating in their analytics data on the purchasing behaviors and travel intentions, thus anticipating demand and converting it sooner and better than the hotels that cannot get access to such amount of data.
For this reason, the need to be on top of real-time data and trends becomes essential to be competitive, anticipate demand, and define the most effective sales strategy.
Hotels that find themselves in this phase, usually tend to miss the opportunity to grow and change. What if the Hotel grows by 3% in RevPAR over its past year’s performance, but the market has grown by 6%? Or the other way around?
A competitive benchmark is the only objective way to understand the effectiveness of one’s financial performance. STR is the most known benchmarking company in the industry and provides anonymized financial benchmark information that allows the Hotel to compare its KPIs vs the compset of reference or market historical performance. The Hotel can critically analyze and strategically use this data to correct the strategy and grab market share opportunities leveraging very detailed information that is made available by year, month, and week up to the day of the week.
The need for more data granularity leads to the third phase of the evolution of the role of the revenue manager, the strategic phase.
In this evolutionary phase, the Revenue Manager becomes a key role who can read, interpret and translate the data to lead the hotel team towards the correct strategic direction to pursue for the best possible economic return. From “technician” to “strategic leader”. The fourth generation of revenue management is now: transversal to all commercial functions, visionary, leader, focused on total revenue and profit management, in symbiosis with technology and pioneer of different ways of working, with a critical and creative spirit.
From the Revenue Manager to the Commercial Leader.
The commercial leader can collect and elaborate the information from different data sources, not necessarily strictly linked to the revenue management discipline but tapping into digital, sales, and marketing. He/she is keen on using and leveraging technology for enhanced and very detailed analytics and is a leader in communicating and engaging the whole team towards the best strategic direction to pursue in good and bad times. Can cope with uncertainty, optimize and stimulate demand.
REVENUE MANAGEMENT DRIVES OPPORTUNITIES TO GROW IN UPS AND DOWNS ALIKE
“Revenue Management is the art of predicting real-time customer demand at the micro market level and optimizing price and the availability of products.”
ROBERT G. CROSS
Revenue Management, Hard Core Tactics for Market Domination
The opportunity to invest in a revenue strategy has been proven in 2020, a year that has strongly tested the world of tourism but that saw those who have been able to seize the wave of change and adapt to it, thrive. In a moment of unprecedented crisis, Revenue Management was severely questioned. People doubted its value in a time when its foundations were lacking: Revenue management is based on forecasting and demand optimization. When the demand is low and difficult to predict because there is no historical meaningful pattern, when the hotels are operating with reduced inventory, forecasts are not reliable, the price war has taken over and margins must be protected … isn’t revenue management obsolete?
Segmentation, distribution, moment, product… these are concepts that are transversal to marketing, digital, sales, and operations… there is the contamination of revenue towards everything that is the commercial area of the Hotel, the evolution towards the role of cross-functional ninja and leader of the strategic direction. Considering revenue management as related to forecasting and optimization only is indeed misleading and limiting: in low demand conditions or in a crisis, revenue management pivots its traditional tasks, changes, adapts to stimulate demand, unlocks and captures all opportunities to drive revenue:
- Segmentation vs target
When Hotels cannot count on the wide segment mix they are used to dealing with in high-demand conditions, they must go granular starting from the segment (revenue) to reach the target (marketing). Combining the weapons with marketing, digital, and sales, develops joint actions based on mutual data and converts the even so volatile and low demand into bookings.
- Optimize in constraint capacity
Even if hotels operate on a reduced inventory, it is possible to optimize on that limited inventory and capitalize on the demand they can grasp. Crises teach that every single dollar counts. Only through specific and targeted actions that deliver value to the customer, is it possible to stimulate demand and avoid reducing the strategy to mere pricing management.
- The Retail approach to the sale of the Hotel
Total Revenue Management is a concept that has been talked about for years, and which still has little application. There is an opportunity to generate “other” revenues by working on staycations (domestic demand), alternative uses of spaces (eg. Turning a suite into a meeting room), and day-use… however, these practices do not work with a “one-size- fits – all” approach. The conception of the Hotel as a real asset and a Retail approach to sales requires awareness, analysis, and customer profiling using internal and external data to build a strategy that sells.
- Internal data is no longer sufficient
If hotels don’t fully understand their clients, their new and changing needs, the channels they search from, and their travel intentions… how do they convert them from lookers to bookers? When there is a scarcity of demand, the on-the-books data alone is not enough and it must be combined with benchmark data, flight searches, travel intentions, travel sentiment, analytics, and big data. This is fresh data to look at when the forecast is zero-based as historical data is not relevant: only by gathering as much information as possible from external sources, hotels can make timely, data-based, and aware decisions.
- Break the silos
Revenue, marketing, digital, and sales have historically had different objectives. To break individual barriers and collaborate as a real team and cope with uncertainty and downtimes, all departments must move in unison towards a common goal: profit. Revenue & Profit management are two connected elements, from the RevPAR (Revenue Per Available Room) to ProfitPAR (Profit Per Available Room). The focus on profit makes it possible to bypass individual silos and move towards a single purpose that is detached from the goals and objectives of the individual functions.
- Embrace technology
Crises and downturns can have two consequences: evolution or regression. Losing trust in technology means running a big risk of regressing. The paradox is: if we think that unpredictability is difficult to be forecasted by an algorithm, how can the human mind do better? Now more than ever, the man + machine relationship must be close, the human must feed the piece of technology with the correct information and embrace change. Not only Revenue Management Systems: CRMs, analytics, chatbots, social media, and all the tools not strictly linked to revenue, must become part of the revenue strategy. They enrich our knowledge and information when it is vital to profile the evolving needs of our guests.
- Walk the data, Walk the talk
Interpret, translate and share data. The ability to communicate, and build engagement and leadership are imperative soft skills of the revenue manager of the new generation. Translate complex data into simple concepts, when necessary, to bring all departments onboard and grow the revenue management culture within the organization.