Not surprisingly, senior management’s first reaction was how long has this been going on?  After some very swift investigation the answer came back that it has been exactly 21 days.  Let’s refer to this as the unfortunate period.

The revenue management team’s immediate reflection was that they wished the rack-rate had been affected too, that way the rogue situation would have been identified much earlier as all hotels would have been listed “not available”. A status that was being systematically monitored in near real-time.  However, the most important activity at hand was to deal with the incorrect configuration setting and get all the rates exposed again.  As it turns out, this was a very simple and quick thing to do.   All was back to normal on the Web site within an hour or two of the discovery.

Action Item: Request IT enhance the CRS and secure access to this configuration setting.

Then came the inevitable recriminations. Almost without exception, all management functions wanted to know how many bookings had been lost as a result of the unfortunate period.  This wouldn’t be nearly such a swift investigation, but it had to be done as someone was to be held accountable for the lost business. But how much business was lost?

Work started to evaluate the differential in bookings actually taken against bookings expected over that same three-week period.  Looking back to the three weeks immediately prior to the unfortunate period was a good place to start, but the analysis would require more detailed refinement to ensure seasonal influences and special events were factored in too. When the booking data had finally been collated and validated the following was discovered.

The actual booking pace compared to the expected booking pace during the three-week period, for all hotels, can be seen in Figure 1. Bookings were down by an average of 25 percent over the period. That’s a lot of bookings, almost a thousand. Comparing the two sets of numbers we can see the differential in terms of retained and lost bookings.  But what did that relate to in terms of lost room revenue?  That would take some more detailed investigation. 

The findings genuinely shocked everyone.  Even with a drop of 25 percent in bookings over the period the revenue had increased by 4.5 percent.  The ADR was up from $301 to $418 when averaged over the unfortunate period. 

All gave a sigh of relief and many returned to their desks as the excitement was over.   Not so for a few savvy revenue management types.  They sensed the implications of what they’d discovered - a discovery that without the unfortunate period, they wouldn’t have dared to deliberately expose themselves to in production– only sell full rack-rate for three straight weeks on their branded, consumer-direct Web site.

With some external guidance, their subsequent findings were far reaching and lead them down a path that today would be a first-rate case study into the fundamentals of demand management–defined as the convergence of revenue management and channel management. 

For 75 percent of the consumers who did make reservations the price [value proposition, if you like] didn’t affect their buying decision because they  weren’t exposed to anything cheaper.  What of the other 25 percent who did not buy?  This confirmed to the revenue managers that they had more than one market segment using their branded Web site channel.  It is often the case that the term channel is assumed to be interchangeable with market segment, in fact nearly every channel of distribution has multiple market [consumer] segments sitting at the buying end. 

Action Item: Requirement for better understanding of consumer persona, demographic and physiographic within channel.

Next the revenue managers were encouraged to turn their attentions to those onward third-party channels [channel classes] that used their branded Web site to search against for availability and rates, in particular the newer meta-search sites. These sites are predominantly servicing consumer segments that are price shopping–allowing the consumer to see where the same property has the best deal based on price alone. Accordingly, these sites’ consumers can be confidently categorized as price sensitive.  In order for this particular hotel brand to feature in this channel class it would need to expose products targeted at price sensitive consumers, unless some technical way of fulfilling a fencing [masking] their products through their branded Web site was possible. 

Not knowing who was searching and booking, they were, by default, always pitching to price-sensitive consumers. Many of the consumers that made those 75 percent of the bookings during the unfortunate period would have been, understandably, drawn to the availability of lower rates for the same product. The key is that if you know one of your consumer segments is well prepared to pay $200 for your product, then put a $210 rate in front of them, not a $165 rate.

Action Item: Evaluate how the BrandHotel.com site can effectively support the servicing of multiple market segments concurrently without always exposing the lowest price to every consumer.

To further comprehend what had been discovered during the unfortunate period regarding the pricing aspects of marketing to different consumer segments within single channel, the revenue managers were encouraged to become familiar with the basics of price elasticity, as its effects were clearly at-play on their Web site.
 
Again, this is an up-market brand with hotels in first-tier destinations.  Accordingly comparable products are not in huge supply, meaning the consumer has less opportunity to find and swap-out to a competitive product. The inverse of this would be an economy hotel brand that has, at least in the U.S., many competitive products in the same location for the consumer to hop between when shopping and buying. 
However, as was confirmed via the unfortunate period price elasticity has to be determined and acted upon at the consumer market segment level within channel, not just at the channel level.  Even luxury car buyers have a point at which they feel the price is too high and swap to a comparable but lesser priced alternative. 
Action Item: Research and determine the price elasticity characteristics of each of the brand’s consumer market segments irrespective of channel.

Following on from the above action item, the revenue managers were guided toward revisiting and developing a deeper understanding of the multitude of distribution channels available to them, and more importantly develop detailed profiles of each across a number of dimensions and measures.  Only then could they right-position their own branded Web site channel alongside all other appropriate channels for their particular brand of products.  In other words, get really good at channel management, in advance of getting really good at demand management.

In defense of the revenue managers they had already undertaken a study in conjunction with the marketing folks, and in comparative terms their consumer segmentation definitions were very well defined. What came to light, however, is that the same definitions had been in use over the seven trailing years.  Although their consumer’s profile had not altered much over that time, the way in which they accessed and booked their accommodations had changed immeasurably. Additionally, mega online travel agencies [Expedia, Priceline, Orbitz] and travel search engines [SideStep, Kayak], have exposed the brand to many new consumer segments that, via their price-centric business models, have provided a three-star consumer segment with a five-star hotel product.  While all of these distribution channels have a tactical value to the supplier [under the right circumstances], they have also caused significant price erosion, erosion that hotels are only just coming to grips with. So is this a pricing issue or a channel management issue?  Both really, but more so it is a demand management issue.

How does this relate to the unfortunate period?  Well, unwittingly, it exposed that the hotel brand-value had been notably devalued.  Even though the brand’s identified consumer sweet-spot clearly has a propensity to align with a higher value proposition, they have been only too happy to accept the cheaper pricing. Now the five-star consumers were getting five-star products and three/four-star prices. 

Action Item: Start along the path to re-establishing the correct price/value strategy for the brand and its most lucrative consumer market segment(s).  At the same time, find out which channels these segments are coming in through. 

One other interesting point of note came out of the unfortunate period.  As can be seen in Figure 3, the percentage of lost bookings was much lower at the weekends than during the week. That is, the days on which reservations were booked, not the future days for which the reservations were being made.  This indicated that the brand’s sweet-spot consumers—those with much lesser price sensitivity, primarily valuing the quality of the brand and the experience—were indeed booking directly and on their own time presumably for leisure trips.  During the weekdays it was suspected that consumer segments with higher price sensitivity were not finding the brand high up on search engine listings due to their being no discount rates available.

In bringing this recollection of the unfortunate period to a close it is worth mentioning an argument made by one of the functional managers, that the hotels would have, as a result of having lost nearly 1,000 bookings, lost an unspecified amount of incremental on-site revenue.  Certainly, some will have been lost but considering the 25 percent of consumers who didn’t book were clearly price sensitive to the room rate, it is fair to assume that a great number of them will have had an equal, if not higher, price sensitivity to products and services at the property. But that’s some analysis for another day.

Many lessons were learned as a result of this experience.  Not least of all that it is necessary to keep firmly on top of the exponential change that is occurring in the hospitality and larger travel distribution landscapes.  What we assumed to be true only one quarter ago may have already morphed and still be obscure to the business.  Whether you operate with basic revenue management and channel management principles, complex price modeling, right through to sophisticated demand management practices, there are endless opportunities to improve the business flowing through all your channels of distribution.

Perhaps one could now say that the unfortunate period was actually a very fortunate period. 

Mark B. Hoare is a partner with The Prism Partnership LLC, a consultancy servicing the global hospitality industry.  Hoare has broad experience in all aspects of hospitality technology and operations, including revenue management, electronic distribution and demand management. For more information, please visit http://theprismpartnership.com.