Revenue Management's Finest Hour?

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June 16, 2020
Revenue Strategy and Metamediaries
Kelly A. McGuire, PhD - kelly.mcguire@zs.com

I’m writing this article fully aware that it is likely to be as different of a world two months from now as it was two months ago. 

One thing is for sure: within this extreme challenge, and especially during the recovery from it, is an opportunity, if revenue managers are willing to step up and take it. 


While many believe that revenue management is only useful when demand exceeds supply, I believe the role of revenue management can be even more crucial when demand is soft.  In downturns, there are still opportunities, but they are fewer and more challenging to identify.  They need the practiced eye of a revenue manager to identify and exploit. Remember that back in 2008/2009, even though demand was severely impacted, there were still sellout nights.  When demand is down, pricing becomes more important, as you balance the temptation to drive demand through discounting against true price sensitivity in the market.  Demand forecasting to set the right internal expectations is also more critical, as operations attempts to save costs where possible.  Being able to pull the right commercial levers at the right time is the only way to win in a depressed market place.  This is core to a good revenue manager.  Downturns are also a time where weak revenue management, that hid behind favorable market conditions, is suddenly and dramatically revealed.  

Towards the end of 2019, Sherri Kimes and I wrote and spoke about how we believed that revenue management, as a practice, was in a bit of a rut.  While there has been significant advancement on the systems side, we argued that the discipline as a whole has not made much progress in the last decade.  The revenue management discipline has been talking about breaking down silos, improving communication skills, becoming more strategic, focusing on analytics and technology, working more closely with owners and asset managers and implementing total hotel revenue management for a decade or more.  Progress on these areas has not caught up to the discussion.

As it turns out, these are the very activities that will ensure that revenue management rises up and leads through this unprecedented challenge.  At the risk of overextending the war metaphors that have been rampant throughout this crisis, it could be revenue management’s “finest hour”, but only if revenue management is able stop talking and start acting.  

Before you argue that there’s no time, everyone is doing more with less, there’s no budget, there are no resources, let me say that most of what you should have been doing can be done with minimal financial investment. It may require creativity, and it certainly will require time and effort.    

What should you be focused on to get your organization moving in the right direction?

Breaking Down Silos

Operating with leaner teams is creating the perfect environment to finally break down the silos between marketing, sales and revenue management. Vikram Singh proposed that hotels will come out of this with leaner teams made up of A players. Nothing like a staffing reduction to put focus on the work that really matters, and who is best at accomplishing it.  

If you aren’t having regular communications with your marketing and sales counterparts, start there. If you are, increase the cadence. Take the time to understand their worlds at a deeper level, maybe asking if you can attend some of their functional calls as an observer. Ask (nicely) that they share their performance metrics and reports and review them with an eye to interpreting the outcomes of marketing or sales actions.  Train yourself to see broader implications of any initiative across all three pillars.  

The industry might use this crisis to reorganize and consolidate functions, potentially creating more of a centralized commercial function as opposed to traditional marketing, sales and revenue pillars. Revenue management capabilities and mindset should be right at the heart of a commercial organization – but pricing and inventory management are certainly not its only component. To be sure that you are a part of this evolution, you need to demonstrate that you can work well with your counterparts, and are adept at understanding and pulling all commercial levers, not just the traditional revenue components.

Before you argue that there’s no time, everyone is doing more with less, there’s no budget, there are no resources, let me say that most of what you should have been doing can be done with minimal financial investment. It may require creativity, and it certainly will require time and effort.    

Communication

Most revenue leaders I’ve talked to are spending most of their time during this crisis in constant communication with stakeholders, clients and leadership.  The ability to clearly and concisely provide accessible updates on current conditions and future potential is always important, but it has never been more critical! Any training you can invest in around improving communication skills will only benefit your career.

Remember, your stakeholders don’t spend all day delving into your reports and interpreting your data.  They only get a view into it when you present it to them.  You can’t expect them to navigate your reports and interpret your data as easily as you do. Put yourself in the shoes of your audience.  Strive to be clear and concise. Draw attention only to the metrics that matter – which means maybe not automatically sending the entire Excel spreadsheet, but just a few key graphics. This goes for both written and verbal communication.

Strategy

Revenue management easily gets pulled into the weeds of adjusting forecasts and rates, and then becomes consumed by it.  Leaders tend to ask very tactical questions, further exacerbating the problem.  Revenue managers need to carefully balance strategic and tactical thinking.  If you get pulled into the weeds, resist the temptation to stay there.  If you get asked tactical questions by leadership, answer and tie back to the strategic impact.  

History will not be a guide to the future as we move into this recovery.  Normal patterns will not apply.  Now is the time to rethink every aspect of your business to look for opportunities in the new normal, channel distribution, market mix, rate plans, group relationships, contracts etc.  Revenue management can be a leader in the search for the next opportunity and in setting the strategy to take advantage of it.

Use of Data and Technology

On the theme of not being able to rely on history, for years revenue management has been touting the value of data-driven decision making supported by analytical systems.  Yet, revenue managers persist in relying on directly historical metrics to gauge current performance (our favorite same-time-last-year).   Despite the talk, organizations are still run primarily on excel and gut instincts.  Data-driven, fact-based decision making seems like an especially unachievable goal in the midst of uncertainty, particularly when there is no precedent to refer to. It is certainly true that decisions will rely on good judgement more than usual and will likely change more often than in past times.  Even so, any available data should be considered.  

Revenue management systems are just as important as ever.  The analytics do need to catch up to the current environment, which might require a bit more intervention than is generally recommended.  Keep in mind, your revenue management system is “always on”.  It is keeping an eye out for the future and can detect changes in demand faster than people, especially if the revenue management department is running leaner than usual.  The revenue management system vendors have put out a lot of great material about how you can adapt systems to continue to perform well during the downturn and recovery.  

If you are working with basic tools today, you’ll likely not be able to make any new investments in the short term.  That shouldn’t stop you from analyzing anything you can get your hands on with whatever tools you have, presenting data that backs up your recommendations and asking for data back-up from others.

Owner and Asset Manager Relationships

All relationships are strained by the pandemic, so it would be no wonder if you weren’t feeling great about your relationships with owners and asset managers. Everyone is concerned about their livelihood, and the future of their business. Not everyone handles stress well.  However, the communication increase and information sharing cadence of a crisis is perfect time for you to develop that trusted advisor relationship with your owners and asset managers that can last long into the recovery. Here are a few tips to cement the relationship:

1. Communicate early and often.  Instead of getting annoyed that they keep bugging you for information, proactively reach out even if there isn’t new news.  This will reassure them that they are getting the most up to date information when you do have it. 

2. Don’t display your stress or panic.  We have all felt the feelings, but you need to be the rock for the rest of the team to rely on.  Go off in the corner and have a good cry or smash things, then come back to your colleagues with calm and level headedness.  Panic will only cause bad decisions.  Someone in the room needs to be able to distinguish between decisions caused by panic versus decisions made in uncertainty.

3. Set the right expectations.  Everyone is hoping for good news, but there isn’t that much to go around (at least as of when I was writing this article at the end of April).  Don’t be tempted to sugar coat, or to give in to owners demands to adjust forecasts or budgets to meet their goals.  Revenue management has the best view into market conditions.  It’s up to you to make sure that’s communicated so that the organization can properly align themselves to it.     

Total Hotel Revenue Management

Granted, this is probably not the best time to be starting major new initiatives. However, the spirit of generating revenue from all available assets will be an important concept moving through the recovery, even if the assets are different from those that were available pre-pandemic. More creativity will be required. While restaurants are closed, can the space be repurposed? Are there different ways to sell the room based on unique customer needs during the pandemic (as workspaces, for example)? Does it make sense to offer a day rate for pools, restaurants and spas for locals who have been trapped at home to escape safely for a bit?  This creative thinking will hopefully persist as more of your traditional hotel assets open, so that we can finally demonstrate some real progress toward total hotel revenue management.

Of course, total hotel revenue management is as much a set of tactics as it is a mindset.  Instill a revenue generating culture in all departments across the enterprise, so they can assist in finding revenue opportunities. This is a perfect first step when you have limited resources for a formal program.  

Now is the Time

It’s time for revenue management to step up. We know what we need to do, we’ve been talking about it for decades. If not now, when? This is a huge opportunity to demonstrate value and partnership across the organization, and most importantly to differentiate the strategic role of revenue manager from the tactical job of the revenue management system. We want to be sure revenue management jobs are secure not just today, but in the future as well!



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