• Follow us on:

Running Shoes, Bears and Revenue Strategy

Order a reprint of this story
Close (X)

ORDER A REPRINT

To reprint an article or any part of an article from Hospitality Upgrade please email geneva@hospitalityupgrade.com. Fee is $250 per reprint. One-time reprint. Fee may be waived under certain circumstances.

SEND EMAIL

October 01, 2013
Revenue Strategy and Metamediaries
Cindy Estis Green

A bear enters the tent of two campers, Jo and Jim. Jo immediately whips out her running shoes and has them on in a flash. Jim, looking both terrified and perplexed, asks why she would be racing to get on her shoes, after all, she can't outrun the bear. To which Jo replies, “I don't need to outrun the bear; I only need to outrun you.”

The dynamics in the online marketplace have triggered a cascade of issues within the hospitality industry that affect many areas including organizational structure, the business acquisition disciplines, performance evaluation with a focus on profit contribution and costs, deployment of sales, the approach to price optimization, the nature of technology in use and the overall role of data. These issues are elements of the emerging discipline of revenue strategy that will be explored in this article.

Highlights of Changes in the Online Marketplace
It’s the end of the world as we know it. There are many companies who want to help fill up hotels now. Any part of the filling of hotels that has a value will be a target for intermediation. Hotel shopping and buying, the arrival experience from the airport through check-in, controlling the room environment (temperature, gadgets), ordering F&B, reporting on the stay, collecting loyalty points … you name it, there are vendors ready to intermediate. While they are unlikely to take over, they just want a piece of the value chain.

As for the other aspects of hospitality, no one else wants to own or manage hotels; the competition is in the shopping and buying path. And since business acquisition is core to a hotel’s success, it is a subject that justifies urgent attention. The intermediation affects owners’ costs, and this may prompt them to pursue lower cost options. But it also tests a hotel’s ability to connect with consumers in a way that doesn’t end up commoditizing hotel stays, and thereby reduces brand distinctions in the eyes of the buyer.

The hospitality industry has reached an inflection point. On one hand, the many intermediaries involved in travel have driven the cost of business acquisition to record levels; on the other hand, the opportunities to tap this base of third-party partners for competitive advantage is growing in leaps and bounds. Changes in consumer behavior have altered the business dynamic more than most hoteliers yet realize.
 
Mobile content is different than what users expect on a website. The capability that is native to mobile devices, such as mapping and geo-location, will demand different connectivity and different content. It is not a simple matter of making websites smaller for portable devices; it’s a different experience altogether and that means all those in the travel landscape are getting a hard reset in terms of how they go to market, and this affects all the most popular sites used by travelers: hotel brands, online travel agencies (OTAs), meta search engines, social and consumer review sites. This reset will allow the hotel industry to think carefully about its online presence and since that goes to the core of the way marketing will be executed going forward, it offers a time to take stock and assess how best to leverage the new environment. 

Digital assets will need as much attention as brick and mortar assets, and the way hotels and brands carefully stake their territory in the booking ecosystem will be crucial. This will lead to a dual approach of branding and positioning bifurcated between promoting a general bias for booking direct at the industry level while competing at the brand level to promote unique stay experiences.

The Rise of the Metamediaries and the Implications for Hotels
Hotel distribution continues to evolve as consumers tap more kinds of online content on their path to a hotel booking. For the last 10 years, there were two primary online venues: travel agencies and hotel brand sites, and that is where marketing resources were applied. In the last 12 to 18 months, there has been a wave of development responding to consumer demand for a more refined search process and better intelligence on travel and hotel options.

Google Hotel Finder emerged as a hotel-specific search engine and had a companion in the Google Flight Search tool, all part of what has been called travel meta-search. The inefficient process for consumers to visit seven or more sites in the run-up to a hotel booking  flies in the face of Google’s goals for search.  Honing in to streamline and enhance the travel shopping process, Google has systematically improved its content, including the acquisition of Frommers Travel Guide.

Google’s entrance sparked many others to come onto the scene ranging from 2010 startup Hipmunk, and the well-established TripAdvisor who, in mid-2013, declared itself to be a meta-search engine. Even Facebook is morphing into a mobile-based app built around social graph search with travel established in late 2012 as one of its seven primary industry verticals. It will connect hotels to those who have interacted with them on a Facebook fan page using algorithms that point to products and services similar to what a consumer’s Facebook friends “like.” 

In response to this disruptive phenomenon, the online travel agencies have been highly motivated to improve search as they compete with the meta-search sites to simplify the traveler’s shopping experience. The original product was a type of search engine offering a wide range of hotels in any given destination, but it is being quickly supplanted by the meta-search model and they are scrambling to offer compelling alternatives. After all, the consumer will often reach a search engine before he or she gets to an OTA, and if the traveler’s needs are met there may no longer be a need to visit the OTA. To this point, in the space of a few months in 2013, Priceline announced the acquisition of Kayak while Expedia acquired European-based trivago.

All of these developments happened while mobile growth was skyrocketing. Everyone with a website is now diving into mobile to tap the unquenchable thirst of consumers who can’t get enough use out of mobile devices – smartphones, tablets and all the hybrids inbetween. In the last year, Apple® has begun deployment of the first phases in its iTravel patent which, when fully loaded, will include a full-service travel app that allows the user to make all types of travel reservations, manage confirmations, check-in, and control the in-room or on-flight experience. With the massive adoption of Apple mobile products, this app could be popular with consumers who will find the all-in-one, end-to-end nature of it a great convenience. What is not clear is how Apple will tap into hotel content such as inventory and rates to facilitate the hotel room shopping experience and how monetization of the app will affect hotel distribution costs. No doubt Apple will charge for this convenience and hotel suppliers will be more likely to pay, not the consumer.

We are now in an era in hotel distribution where some of the giants in technology and media have decided to enter the travel industry, establishing a new form of intermediary built on the meta-search model and therefore nicknamed “metamediaries.” Few emerging vendors want to be transaction-based sites; there is little interest in building out new online travel agencies. The preferred role is to pass along the consumer to the supplier site, whether it’s a hotel brand or an online travel agency, and they want to charge a small fee for their efforts. The metamediaries will serve as the gatekeepers, and those with the strongest consumer power will have the upper hand in determining the fees at the toll booth.

Hotel brands, individual hotels and OTAs have been pushed deeper into the shopping and buying process with greatest consumer adoption at the device or app level, typified by consumer giants Google, Facebook and Apple. Mobile users are after convenience and are likely to prefer generic apps that offer multibrand airline, hotel or car rental companies. It is a time saver to have one go-to app that stores travel documents, allows the traveler to shop and buy and even to check in, buy services and get local information about dining, transportation and/or attractions while traveling. When millions of consumers are engaged, the network effect will push even more suppliers onto the path of the most popular mobile apps and these company’s market caps will be strengthened. As for the hotels, there is a limit to how much a hotel can pay to acquire a customer. Commissions, transaction fees and media costs will dominate marketing budgets going forward and the crucial decisions made by hotels and hotel companies will be about how much to spend and where.

The new reality in a marketplace dominated by mobile apps and devices, controlled largely outside of traditional travel companies, calls for an urgency to integrate a financial discipline that will address multichannel revenue planning with a focus on business acquisition costs, and an eye to sustainable profit.

Revenue Strategy
At the Intersection of Marketing and Finance

Revenue strategy calls for the integration of the disciplines that drive the highest quality revenue mix while accounting for the costs of business acquisition. In contrast to the short-term tactics that deliver daily revenue, revenue strategy is about proactively identifying, planning for and tapping an optimal blend of sustainable revenue streams and making the needed resource trade-offs to enable margin growth. Some simple trade-offs might be to reduce direct sales by one staffer and put more funds into point-of-sale initiatives in the call center; or invest in targeted online intermediary promotions and reduce mass-market print advertising. These trade-offs require a view into the business that predicts revenue, incorporates corresponding costs and manages a hotel on the basis of net revenue (i.e., revenue net of business acquisition costs). After all, in this new marketplace with its skyrocketing costs, brands, owners and managers will have a more meaningful gauge of performance when they evaluate the revenue that remains after the acquisition costs are removed.

It’s Not About Channel Shift
When the lament is that distribution costs are too high, the perennial response is to work on channel shift, which, more specifically, usually means to reduce the OTA channel and increase the brand.com channel. However, that is a response from a bygone era. It’s not about a simple two-channel shift; it’s about a broad evaluation of the production and margins by channel, and making trade-offs that put a premium on recurring revenue streams that result in an acceptable profit level. The new metamediaries will add costs to brand.com while the OTA costs may in fact start to decline due to intense competition from the search engines. The analysis will not be a simple choice of one channel over another. There will be more factors that enter into the evaluation of each channel and the margins may vary by segment, day of week or season of the year. It will take vigilance to frequently review all the combinations so a hotel can stay on top of the way these costs play into the revenue stream and what they can ultimately claim as net revenue.

Already high, the cost of business acquisition continues to climb. In New York, Kalibri Labs gathered data from more than 50 brands and found that commissions/transaction fees ranged from 10 percent to 20 percent of room revenue; when sales/marketing costs were added, total business acquisition costs generally doubled. The industry cannot sustain these costs and remain healthy. Owners and management will find ways to lower these costs, but beyond the cost factor, some third-party channels undermine the value of the brand by diverting the consumer away from the hotel as they shop, buy, and even when they interact with the hotel onsite.

Business acquisition costs have to be measured and managed. A proactive revenue strategy laser-focused on the “true north” of net revenue will enable each hotel to thrive in this dynamic and costly marketplace.

What Can a GM Do about These Costs?
Those with responsibility for managing the profit of the hotel will want to track their business acquisition costs. Those with responsibility for profit will orchestrate a revenue strategy, while managing its associated costs, with the support team (whether it’s inhouse or regional) to take the actions that move the needle. In some hotels, the GM monitors the metrics and a regional team digs into the details to assemble an action plan that improves the hotel’s position. In smaller chains and independent hotels, the GM and hotel management team does it all: it sets objectives, takes the actions and monitors results. No matter how the tasks are assigned, it is critical to have an agreed set of metrics and an action plan that can be articulated both internally and externally to owners and other constituents.
 
Managing a revenue strategy that generates optimal revenue for market conditions and does it cost effectively requires different intelligence than one that only seeks optimal revenue; measuring ROI on business acquisition spend is a critical addition to management’s toolkit, particularly in a marketplace where these costs are growing so rapidly and are difficult to quantify. Doing this for a hotel is valuable and being able to compare to a comp set adds even more power to the metrics. These metrics serve as the guidepost at the hotel, regional and corporate level since there are so many members of the team involved in various aspects of the revenue strategy.

The goal is to improve net revenue contribution, a metric that will resonate strongly with ownership, management and brands. If the industry works on increasing it, it will enable investment by brands and owners in staffing, product improvement and new development.

While all channels should be considered when planning for the potential sources to a hotel, there is a triple threat for increased dependence on third parties for business acquisition and it applies to large brands, small brands and independent hotels alike: 1.) brand dilution through commoditization of hotel rooms, 2.) diminished relationships with customers, and 3.) increased costs with little control.

With the significant investment that has been made in each brand by its owners and management, allowing rooms to be sold mainly based on price will quickly undermine that brand value and train consumers to think of hotel rooms as a commodity. This reduces the opportunity to engage with customers. And finally, simply looking at the cumulative cost of third-party channels is enough to give pause. Most hotels cannot sustain reservation costs of 20 percent of room revenue and still have enough funding available to spend on additional business acquisition efforts through sales and marketing.

After all, the combination of commissions, transaction fees and total sales/marketing spend is the sum total of a hotel’s business acquisition efforts and should be looked at holistically. When most consumers will use metamediary channels to start travel planning, many more will end up booking at brand.com. This still calls for careful tracking of the various media costs incurred to shepherd travelers along the shopping path to the hotel website, as it may mean fees on multiple sites along that path. However, once the travelers book directly, the chances of seeing them again go up dramatically. This supports a sustainable revenue stream that with carefully managed margins will yield a corresponding growth in profits.

No More One Size Fits All
How often do the finance teams complain about the high cost of wholesalers and then the sales department turns around and pays incentives to the staffers who produce the most revenue from these same accounts? This diversion of funds and management attention is what happens without a focus on profit contribution and lockstep integration between business acquisition disciplines. A one-size-fits-all approach will not work in today’s marketplace for direct sales or for digital initiatives; hotels have to build acquisition strategy around segmentation by customer type and geographic market, with margins tracked by channel, segment and even down to account. If you sift through business opportunities by margin, it will drive priorities to work in a more targeted manner yielding better outcomes.

With growing challenges imposed by the high cost of business acquisition, we have to shift our focus to profit contribution, and the way to accomplish that will be to manage by margin, a discipline that means optimizing net revenue.

Does Revenue Management + Marketing = Revenue Strategy?  Probably not.
Some assume the discipline of revenue management is another name for revenue strategy, but it is not. The roots of revenue management are in yield management, which is essentially a form of price optimization.

It may seem odd that there should even be a discussion about the convergence of revenue management (RM) and marketing since forecasting and pricing, the core tenets of RM, have always been considered marketing functions. After all, price is one of the Four Ps of marketing defined more than 50 years ago, and although the concepts have been modified for the online environment, this model has withstood the test of time. 

Revenue management in hospitality has typically been treated as a discipline distinct from marketing, in large part because the first revenue managers were drawn from reservations departments and the position typically reported to the front office, and ultimately was part of the operations team. After all, reservations managers understood the property management system, the mechanics for maintaining rates and availability, and the processes entailed in booking reservations. With limited analytical training and the airline’s approach to yield management as a guide, early revenue managers focused largely on controlling inventory and matching rates to demand, with little or no attention paid to profit or stimulating that demand.

In many organizations not much has changed as revenue managers remain junior members of the management team and perform daily tactical functions with a time horizon that is most often 90 days. Reporting structures have evolved and occasionally the RM employee reports to finance or IT, and very often to someone with a sales background, so despite the changes, revenue management has not migrated to a strategic function charged with driving profits. For that matter, even the traditional marketing function is not charged with driving profits. That task still remains siloed in the operations arena even when the levers (and corresponding costs) of business acquisition are spread between the disparate sales, marketing and revenue management teams, and often even further divided between hotel, regional and/or corporate locations.

Not only has RM (and the price optimization task it performs) been detached from marketing, but also the term marketing itself has been confused as being just a companion piece to the sales process, a common misunderstanding in many industries. Marketing is often defined as a set of ideas, tools and analysis designed to stimulate demand. This belief leads companies to elevate a senior sales executive by adding marketing to his or her job title and functions, and the new marketing executive attempts to use new tools to stimulate demand without the benefit of skills in consumer behavior, market trend analysis or an understanding of the dynamics of distribution channels. New job titles without the needed skills and integration of disciplines will not alter the sales focus of these organizations, and unless demand is so strong as to mask these deficiencies in process and execution, the results will usually be suboptimal. One notable symptom that can be linked directly to this phenomenon is lagging hotel rates in the face of rising demand since the last recession.

This pattern persists, where sales executives add marketing to their titles and faithfully fulfill what they believed to be the role of a marketer, which includes brainstorming new ideas to stimulate demand, reporting on the success of sales efforts and executing direct marketing campaigns.  These are some of the roles of a marketer but it ignores other important aspects. In other companies, analytics were turned over to revenue management. However, the RM team may know Excel and some may know pricing, but as for the rest of the marketing mix, not so much. In many brands, the regional teams assigned for sales, marketing and RM often support different clusters of hotels, challenging their ability to integrate their knowledge in needed disciplines and execute against one set of net revenue objectives with one game plan.

By remaining sales focused for decades, [in hospitality this means a business-to-business (B2B) bias], and by carving out revenue management from marketing, there has been a huge void in many hotel companies. It was into this gap that the third-party marketers jumped. The large hotel companies’ expertise in business-to-consumer (B2C) marketing was narrowly limited to frequency/loyalty based and it has cost them dearly when third parties quickly mastered the broader consumer market, particularly leisure travel.

The industry tries to respond with RM using price optimization to combat its dominance, but expecting one tactical lever to meet this daunting market challenge is not realistic, and it may not always be the right tool. After all, if you set goals for revenue optimization, you will get more revenue, but that won’t guarantee higher profits. If you want higher margins, you may need the added support of a mix of marketing levers along with a focus on profit contribution.

Revenue Strategy Rising
Revenue strategy may be more descriptive of an integrated approach to customer acquisition and demand optimization with rigor in planning, analytics and execution. Brand executives and e-commerce specialists deploy content and strategies to create the right marketing mix to drive customers to hotels. Revenue directors create hotel demand forecasts and use price and availability to optimize revenue streams. Database, digital and loyalty marketers build a base of businesses and fill need dates while salespeople secure lucrative contracts.  None of these can stand alone, none can be executed in isolation, and when evaluated without regard for associated costs, will not likely deliver optimal profit to the organization.
 
When RM is not integrated with sales and marketing, it is impossible to have a well-functioning enterprisewide revenue strategy. As the old cliché states, if you’re not measuring then you’re not marketing, which reinforces the analytical nature of the field. RM often provides a measurement for hotels to forecast demand, balance customer mix, maximize price and then analyze the results after the fact to ensure continuous learning. Where RM is not serving that role, it is typically not being done at all or with inconsistent results. Those threads of data that tell the story need to be braided together in a tight weave so all members of the team see how it plays out and share the same vision.

Too often, revenue directors are viewed narrowly in a tactical role responsible for short-term recommendations and reporting. In these organizations, the revenue director arms the team with information and may fulfill an important coordination function, but in most organizations are still absent as a strategic thinker and leader. Whether the RM function takes this on, or the marketing role is expanded, the function of revenue strategist has yet to emerge.

The void in marketing leadership has had profound impacts on the profitability of the hotel industry. With a lack of analytical rigor combined with a sales-focused mindset, intermediaries have realized that an opportunity exists to leverage technology, data and analytics to create a shopping experience that is better aligned with what customers want and need from the earliest discovery phase to the point of booking a reservation. They methodically test new content like photos, videos and social media, while exploring how to leverage new mobile technology. The intermediaries understand marketing principles and the results speak for themselves; one only needs to compare the large and buoyant market caps of these companies against the much smaller static values of hotel brands and ownership groups.

Where Are We Now?
Today, we are all being forced to reevaluate the status quo as we’re living in the fastest changing business environment anyone has seen. Hotel profitability for owners has declined. Intermediaries are stealing share with new competitors continuously entering the market. Consumers are increasingly savvy at finding value and convenience and are resistant to corporate messages that interrupt their daily lives. Big companies are consolidating power. There’s more data and yet more uncertainty than ever. Technology is offering new ways to analyze trends, drive efficiencies and communicate with customers. The industry is recovering but revenue and profits cannot keep pace with the cost to maintain a presence in the dynamic marketplace against third parties that are better positioned and better funded relative to technology and marketing resources.

The symptoms of a lack of cohesion in the marketing team are obvious in some instances but they are subtle most of the time, which has made it easy to ignore the problem. But the lack of effective revenue strategy causes hoteliers to sacrifice long-term profitability for perceived short-term benefits. This might include slashing rates or over-reliance upon new discount channels. Effective marketing allows a company to interact with customers at the right time, in the right place, with the right product and with the right message, and to be more strategic and less reactionary. The strategic view calls for planning, predicting outcomes and making decisions about resources deployed. The insights gleaned from data provide better predictability of everything from demand patterns to what products each customer group is likely to purchase.

In order to become more sophisticated with data and more agile, hoteliers require deeper cooperation between historically distinct functions. It also requires a monumental shift in culture and processes, which can be painful and difficult.

Revenue strategy can be a useful concept to catalyze that change, but it is clearly not a synonym for revenue management. Revenue strategy must encompass all customer acquisition and demand optimization functions that lead to sustainable profit, including revenue management, database marketing, digital marketing, distribution, sales, branding, loyalty/affinity, etc., all based on a foundation of analytics and insight with a constant eye on costs and an objective to optimize net revenue.

As hotel companies reach alignment around revenue strategy, there must be a parallel focus on tools and data, which in almost all cases comes down to technology. The industry has consistently underfunded technology and trails in creating effective platforms to facilitate optimal marketing decisions. Sometimes it is easy to blame the technologists – anyone with information or technology in their title – but it is a hopeless task to develop and implement systems without savvy business partners to set priorities, develop specifications, monitor development, implement, and use them.

What All This Means
Revenue strategists must aim for big wins, not settling for an incremental approach, but it is also a time for honest reckoning. As an industry, hospitality has not invested in the technology and infrastructure needed for the fast moving online-driven marketplace. Competitive weakness has come from a legacy of siloed functions for business acquisition that are largely tactical in nature without a rigorous strategic view and inconsistent use of key marketing disciplines across the industry (both at the corporate and at the unit level). 
This is further constrained by a fragmented industry structure with brands, management companies and ownership groups having to come to terms on investment levels and agree on an approach. The greatest challenge will be to get widespread recognition of the situation and simple agreement to get the basic tactics right as we prepare to conquer our respective markets and turn around the gradual decline of hotel profitability. 

Signs of change are on the horizon as evidenced by the explosion in new technologies, an increased appetite to tap data for insights and a realization that the industry has to integrate its business acquisition techniques and tightly control corresponding costs in the face of so many active third parties. The new sense of urgency to break down silos and focus on efficient business acquisition translates to innovative development in the enterprise software space and means that the stars are finally aligned to do great things. Revenue strategy is emerging as the discipline to take control of profit and steer the industry to higher ground. It’s time to thumb your nose at the bear, grab your running shoes and outrun your competition.

CINDY ESTIS GREEN is CEO and co-founder of Kalibri Labs, a company that offers an analytics platform that enable hotels to plan and monitor profit contribution by channel and segment. A 35-year industry veteran, she is the co-author of the industry bestseller, “Distribution Channel Analysis: A Guide for Hotels,” published by the HSMAI Foundation and AH&LA. Special thanks for editorial contributions from Cathy A. Enz, Cornell University and Patrick Bosworth of Duetto Research.

Click here to view this article in the digital edition of Hospitality Upgrade .

©2013 Hospitality Upgrade
This work may not be reprinted, redistributed or repurposed without written consent.
For permission requests, call 678.802.5302 or email info@hospitalityupgrade.com.

 

The Operations Guy

Mark G. Carrier, President
B.F. Saul Company Hospitality Group

Do you see changes in the relationship between marketing and revenue management given the demands of today's marketplace? If so, how do you expect it to play out at the hotel level? At a brand level?
Absolutely, there is tremendous change that is occurring today and has been underway for some time. The changes brought to the forefront by technological change, digital communication and search have completely altered the marketing and distribution landscape and consumer behavior across all segments. There has been a virtual revolution that is affecting the brand companies, owners and operators in profound ways. The threat of commoditization and emerging trends of younger travelers and brand loyalty are issues that have major impact on the strategies and tactics of all stakeholders in the industry. The competition for the consumer has been radically altered as has the balance of power in the industry.
Marketing, sales and revenue management must be joined in a holistic fashion at both the hotel and brand level.  They cannot operate as distinct silos but must be integrated in a fashion that blends an understanding of demand trends, costs and opportunities in a manner that maximizes the potential return to the hotel and the brand.  
 
What kind of new tools will be needed for marketing, sales and/or revenue management?
The industry must learn to look at revenue from a net basis rather than simply on a gross revpar basis. Many have not integrated an understanding of distribution or marketing costs into their decision making. This leads to a poor allocation of inventory and often lower returns for the owner and the brand with no consumer benefit. We need tools that will help the property personnel, corporate and brand leadership to truly understand the net benefit of each channel or type of business. The growing success and penetration of the intermediaries has made this vital.
 
How would you define revenue strategy?
Revenue strategy is the holistic integration of strategies and tactics to produce the most profitable revenue. It takes into account the full cost of obtaining the business.

 

The Marketing Guy

Tom Botts, EVP and Chief Customer Officer
Denihan

Do you see changes in the relationship between marketing and revenue management given the demands of today's marketplace? If so, how do you expect it to play out at the hotel level? At a brand level?
These key areas can no longer operate as silos – they need to team together in order to make the right revenue decisions. As marketing has become more digital and analytically driven, it has become critical to have alignment between these areas. You can't just think about market segments and distribution channels in isolation – they overlap and need to be forecasted and managed together. More and more, there needs to be a greater focus on marketing sales and distribution costs and the trade-offs between these areas. At the corporate level, Denihan has aligned these functions in one area to drive decision making and results.  At the property level, we are introducing new joint business plans that clearly align the marketing (and sales) spend with expected results. 

What kind of new tools will be needed for marketing, sales and/or revenue management?
Real-time analysis is critical moving forward as is a single, open platform. Revenue management in the past has often been a bit of a black box science wrapped up in giant spreadsheets, which often only one or two people at the property could manipulate, let alone understand. A single graphical, easy-to-use data source (rather than just miles of numbers on a page or more often page after page) will enable hotels, owners and managers to make better decisions faster and also ensure buy-in of the strategy across all of the key leadership areas at a property.

How would you define revenue strategy?
Revenue strategy gets beyond simply revenue management, marketing or sales. There needs to be clear, tangible and measurable revenue goals with strategies and tactics to support them. Setting revenue goals based on hopes and dreams just won't work anymore. We need to evolve to set revenue strategy by looking at the intersection of distribution channels, marketing drivers and how those affect market segments.

 

The RevManager Guy

Sloan Dean, CRME, Vice President of Revenue Optimization
Ashford Hospitality Trust

Do you see changes in the relationship between marketing and revenue management given the demands of today's marketplace? If so, how do you expect it to play out at the hotel level? At a brand level? 
As data drives more and more decisions, the intersection of RM and marketing is being blurred at an increasing velocity. Pricing, yield, distribution, advertising, etc., are all part of consumer acquisition and profit maximization. At a hotel and brand level, the leaders who are the best blend of communication and analytics will lead integrated marketing and revenue management teams. At a brand level, we still call that person a CMO; however, the person is ultimately a CMRSO.
 
What kind of new tools will be needed for marketing, sales and/or revenue management? Profit optimization for all categories: rooms, function space, F&B, ancillary, etc. Does that mean price, yield and marketing optimization tools across all disciplines?
I think it does. The article I wrote in 2011 about The Future of BI, is still very relevant to answer this question with an expansion on profit optimization. http://www.hotelnewsnow.com/Article/5212/Hotel-business-intelligence-seeking-its-identity.  
 
How would you define revenue strategy?
Identifying, capturing and maximizing the optimal consumers to maximize profitability across all disciplines: direct sales, distribution, yield management, marketing/loyalty and pricing.
 
What do you see as the constraints or the limitations in moving in this new direction?
Big data and not being able to manage the vast amounts of useless data.  Another limitation is the lack of talent. To operate in a data-driven world requires highly analytical people with great communication skills. Those folks unfortunately go into financial services, management consulting, etc., due to higher compensation.
 
 
 

Innovation: The Key to an Effective Revenue Strategy
By Cathy A. Enz, Cornell University

The emergence of a fiercely competitive global economy and metamediaries has shown that hospitality cannot own all of the key capabilities needed for competitive advantage.  Expanding networks of relationships and cooperating with others, including competitors will help to reduce risk, focus on strengths and innovate. Roomkey.com, the online hotel search engine owned by six hotel companies, is a good example of competitor cooperation.  Collaborations of new and different varieties are also proving to be effective ways to generate new perspectives and consumer insight. Marriott with its travel-brilliantly idea-sharing website is one of the latest to tap into connecting people and ideas via crowdsourcing. 

Metamediaries or third-party providers who electronically connect multipartner online services are the next wave to disrupt travel and hospitality. Since the ‘90s, we have witnessed more travel intermediaries, in a pattern that chronicled the elimination of some traditional travel agency intermediaries followed by the emergence of online subsidiaries of traditional agencies and new entrants with intermediary functions (cybermediation). These evolving business models indicate that the market structure is still in flux, and strategic choices to differentiate, partner and cooperate are essential to survival. For hotel companies the question is how and with whom to build partnerships and customer relationships. Choices will need to enhance a hotel company’s competitive position and take advantage of core competencies.

Consider the possibility that large firms outside of travel, such as Apple® and Google, could become the single point of contact between online travel customers and existing hospitality players. Who will own the customer if these third-party providers build systems based on deep consumer understanding? If large consumer giants enter the travel space with significant scope and scale economies, they could re-apply their significant investments in brand-building and technological know-how to change the industry. In recent history we have witnessed a radical change in how music is purchased with the introduction of Apple’s iTunes®. Apple went on to alter the mobile phone industry with the introduction of the iPhone®, substantially reducing the control of mobile operators in that industry. We can learn from innovators in other industries that game changing is possible and may come from outside players. Collaborating with suppliers and customers to develop, test or market new offerings may be more important to remain competitive.   

The changing landscape makes the choice of partners and the development of new revenue- enhancing competencies key strategic choices. It further challenges the CIO to carefully determine what management systems will be required as strategic needs shift and new types of competitors emerge. This will not be an easy task for larger firms with legacy systems and beauracratic processes. For CMOs and CSOs, the job of establishing a compelling sales proposition will continue to require deep customer understanding along with investments in online marketing channels and expanded digital marketing budgets. As new niche metamediaries emerge, the marketing team will need to focus on ways hotels can devise offers that build mutual benefit. According to Forrester, online retail sales will account for a 10 percent compound annual growth rate for the next five years, and consumers will gravitate toward purchasing via smartphones, tablets and other portable devices. Tapping into this trend, businesses are building social interaction into virtual retail. How consumers use mobile technologies will be essential for savvy hospitality marketers to gain new insights.
  
Innovation also includes existing ideas that are reapplied or deployed in different settings for different customer groups. Innovations may be a recombination of old ideas or a unique approach that is perceived as new by the individuals or industry involved. With this broad definition of innovation comes the opportunity of replacing existing systems for data capture with new and emerging sources of information from partners and secondary sources, while usefully converting existing data into more powerful information tools. The challenge is to determine what systems are needed and how best to build them. In hospitality, numerous firms like Revinate and newBrandAnalytics exist to provide customer information from social media, manage and filter reviews, and provide additional analytics.

Linking support systems and measures of performance to broader strategic choices is essential to go beyond current revenue management systems and provide meaningful information to the sales and marketing team. Metamediaries entering the travel space may be in a desirable position to reapply their current competencies, including data analytics, and build on their core strengths. Assembling a revenue strategy is much more than a shift in current revenue management systems or the addition of innovations. A combination of innovations will be necessary for hospitality firms to create new offerings, compete against metamediaries for customer loyalty, and continue to deliver hospitality services with operational excellence. 

Companies in many different industries are increasing their spending on innovation, yet remain unsatisfied with the return on their investments because of several challenges. Senior executives cite a risk-averse corporate culture, an overly lengthy development period, a lack of coordination within the company, and difficulty choosing the right ideas to commercialize as the most common obstacles to generating a return from investments in innovation. Innovations that build greater flexibility and agility may be at the top of the list of future areas needing attention. 
Moving forward, CIOs and MISs must be part of cross-departmental collaboration to enable the development of the required management systems that support new strategic choices and assure the development of specific firm-based capabilities. Innovations that help the firm to adapt quickly, function efficiently, reduce costs and work with new predictive analytics are essential. Marketing and sales professionals can also play a critical role by finding the best ways to work cooperatively with other partners’ products and services to bring bundled or differentiated hotel offerings to segmented customers. In both cases, an overarching revenue strategy will require a combination of innovations, and the time to start is now.
 
 

El Cortez Hotel & Casino
Las Vegas, Nevada

El Cortez Hotel & Casino is the longest continuously running downtown hotel/casino in Las Vegas. Along with the rest of the Las Vegas market, the property’s casino revenues struggled after the economic downturn in 2008. The property’s management team realized that the downturn was permanently changing consumer spending behavior in Las Vegas and they needed to jolt hotel revenues through incremental cash business via transient and wholesale channels. To help them achieve this goal, El Cortez worked with revenue management consultants and made a number of changes to its revenue management strategy. The new strategy took a few months to implement, but the hotel started to see immediate year-over-year increases in cash revenues. 
The hotel made improvements in two areas of the business. 

Implementation of a Revenue Management System
El Cortez installed a cloud-based revenue management system (RMS) which added a significant amount of value through market intelligence, accurate forecasting, pricing recommendations and historical data comparison. Specifically through the system’s unique alerts feature, key dates were highlighted that needed attention which would normally be overlooked without such a system. The RMS company also placed a JavaScript tag on the hotel’s booking engine, which allowed the property to obtain and track all lost business (categorized by regrets and denials) through the hotel’s website shopping traffic. The property was then able to understand the website shopping behavior by day and analyze how the pricing strategy on any particular day affects the website booking conversion rate.  

Change in Pricing Strategy
Through an analysis of data that was extracted from the RMS, it was noted that the hotel had room to lower its midweek rates to be more competitive and gain market share, and increase rates on weekends and other compressed dates such as holidays and citywide conventions to increase ADR. 

Discounts and promotions through direct and third-party channels were too deep most of the year. By pulling back many of these discounts and adding many blackout dates on these discounts where they didn’t think the hotel needed the help, cash production wasn’t affected, the hotel still had great exposure through third parties, and it netted higher ADRs. Overall, all of these pricing strategies resulted in an increase in cash ADR of 10 percent along with an increase in average occupancy of 6.3 percent.

An analysis of casino segments that received complimentary and discounted cash rooms showed that the lowest-worth player segment was unprofitable. They then implemented a standardized casino yielding process that included variable casino cash and comp pricing. This process lowered the hotel room mix contributed by the casino segment and allowed the hotel to backfill these rooms with more profitable cash-paying guests.

The hotel didn’t actively maintain rate parity between third parties and the direct channels. As a result, it was undercutting its own rate and pushed business to third parties including the OTAs with 25 percent commission margins. This strategy significantly contributed to the increase in about 10,000 direct room nights (more than 130 percent).

El Cortez has six room types excluding its suites, and its cheapest room type only accounts for about 10 percent of room inventory. When the hotel sold out of this room type, its pricing immediately shot up by about $10 to the next highest room type.  This made the hotel's pricing less competitive in the price-sensitive downtown Las Vegas market. A strategy was implemented to oversell the cheapest room type by a manageable number on specific days.

The property expanded its third-party distribution to include additional OTAs and wholesalers, and expanded its reach to new domestic and international guests.

Now that this new revenue management strategy has proven to be successful, the property plans to maintain these strategies and leverage the RMS to maximize all of its key features and business intelligence tools. 

 
 

What a CIO Needs to Know
The Implications for Technology and Data

CIOs are keenly aware of the immense challenges they face in a rapidly changing environment, but these are also invigorating times due to the immense opportunities as technology evolves and embeds itself ever deeper in every facet of managing a hotel.

Revenue strategy demands changes in several areas. If the CIO is not a bona fide member of the senior executive team today, then he or she should be elevated, developed or replaced. The CIO or a designee must participate as a member of the revenue strategy team. Budgets need to be analyzed on a true total cost of ownership basis, and they should not extend beyond 18 months in the future. Third-party vendors must be held accountable to keep up with the pace of change, which will require many of them to abandon legacy architecture and reinvest in their businesses.  Software applications must make complex data and concepts simple or it is likely to increase confusion and uncertainty among decision makers rather than improve it. Except in rare instances, hotel companies would probably benefit from getting out of the custom software development business. Resisting technologies that customers have enthusiastically adopted is counterproductive, while embracing those emerging technologies and adapting them to each company is the proactive response that will preclude watching others do it first, particularly third parties that may not have the economic interest of the hotel industry as a priority.

There is a growing divide among technology company executives and a heavy use of buzzwords within this sphere. There are those that have fully embraced the new realities of cloud computing and big data, while others are taking piecemeal approaches.

The cloud is not a panacea. It presents a structure that will slowly take over software as we know it, but there are numerous challenges that are tough to manage. Unfortunately, there are still few technologists who understand how to build scalable cloud applications. It will take time before well-understood frameworks and best practices will mature so that the average software developer can code successfully in the new environment. In the meantime, there will be fear, uncertainty and doubt in the market as the lethargic incumbents steadily lose market share and as some startups lacking funding or well-thought-out plans will start to fall by the wayside.

CIOs must learn to discern those who are qualified to operate in this space or they risk being blamed for either being duped by a fake cloud company that cannot keep up or startups that do not have the technical expertise, financial resources and industry knowledge to succeed.

The good news is that there are many exciting things happening in the cloud space. Hoteliers are beginning to hold vendors accountable and many are stepping up to the challenge. When it works well, there are many advantages and CIOs become the heroes: 1.) costs are lower (nothing to install or maintain – and there are no upgrade costs), 2.) innovation is faster (rapid code releases with no legacy versions to support), 3.) stability is improved (Amazon Web Services knows how to run data centers and hardware can scale horizontally quickly), and 4.) usability is enhanced (modern Web-based design that feels more like Gmail or Facebook than a Windows application).

A time of change often conjures up images of doom and gloom but this should be an optimistic time. Hotels have watched others with better technology, funding and focus outperform them in the consumer marketplace for more than 10 years now, but it feels like the tide could turn. By aligning all of the key stakeholders who are critical to revenue strategy, hotels can become far more nimble and responsive to customers, adapt to changing market conditions and achieve greater profitability as they seize opportunities. The pieces are in place.

Although there are many challenges faced by CIOs today, below is a partial list of some challenges that are relevant to revenue strategies in an organization:
  • Technology budgets have not recovered to their peak and may already be declining again despite the continued expansion in the depth and breadth of supported systems, so we must be more efficient.
  • Third-party software companies are still developing applications to serve marketing and sales silos, which means comprehensive platforms must either be developed internally or be cobbled together from a host of vendors who maintain weak, non-public APIs and innovate slowly.
  • CIOs are accountable for fostering the success of the revenue strategy teams and yet they often do not have a seat at the table among the most senior executives of their companies when setting priorities.
  • Cloud computing provides a more innovative platform to align IT planning and budgets with the pace of change and flexibility required, but the vendor community is still underdeveloped and CFOs often resist a shift from IT spending as a capital investment to one of operating expenses (even when the total cost of ownership declines).
  • Big data places a premium on collecting and storing growing volumes of data, presenting a paradox that calls for increasingly complex analytics to interpret it while also requiring ready access to those insights by hotel-level decision makers in a simple form they can use when and where they need timely answers.
  • Consumer technologies are racing forward at a frenetic pace, which often pressures hoteliers to develop new ways to interact with and fully leverage those emerging technologies.
want to read more articles like this?

want to read more articles like this?

Sign up to recieve our weekly newsletter and monthly e-magazine and never ever miss an issue!

Subscribe

Keep up to date on all the latest industry news.