Mr. Mourier

Revenue Management

RevPAR, the Constantly Moving Target Revenue Management Strategies in a Recession

By Jean Francois Mourier, Founder & CEO, RevPar Guru Inc.

Desperate times for call for desperate measures. For almost 12 months, we have seen and increasingly, felt the knock-on effect of economic strife en mass. At first on our shores and then abroad, like an airborne virus, the financial meltdown and ensuing panic spread quickly, affecting every facet of our lives. And today, that malaise has infected the hotel industry to its very core.

As the hotel industry struggles to keep its proverbial head above the deep recession waters, the matter of effective revenue management becomes more critical than ever. Hoteliers want to know, in such a depressed climate, what revenue management strategies will work most successfully? After all, RevPAR is a driver in any hotel's profitability. Times like these require greater efficiencies across all operational aspects such as continuously improving customer relationships and boosting loyalty initiatives, to improving direct marketing programs and not cutting back on service. None of these, however, can be sustained without optimizing cost centers and profits. And on that basis, effective revenue management becomes an operational imperative, not an option or something to think about.

Can't stop now, but there's no going back

Firstly, it must be understood that there is no panacea for the industry at large. What is certain is that there is no going back. With more write-downs and declines expected (PKF just released its March 2009 report to reflect a 13.7% drop in RevPAR this year (1), the question becomes "what do we do next?" Why not start, then, with optimizing RevPAR by updating and implementing a robust revenue strategy that is pro-active, instead of reactive?

Opposites attract, but not when it comes to pricing

With supply and demand moving in opposite directions, it seems counterintuitive to adopt a strategy that is based largely on price moving in only one direction - down. That, unfortunately, is a very short-term, short-sighted approach adopted by some managers right now, as they deal with hanging onto existing market share. What revenue managers must consider before embarking on discount combat - because that's what it is - is how these short-term actions will ultimately impact the long term value and brand of their hotel. And of course, margins. Savvy operators will look for ways to do away with discounts, especially on high value products and services - without sacrificing margins, even in a downturn. So stop running after unrealistic revenue goals with price wars. Remember that in any war, there can be only one winner, if at all.

Heads in beds is old-school, no longer cool

Heads-in-beds is out and optimizing RevPAR is in. With of laws of supply and demand as the guiding light, occupancy at all costs no longer has a place in a successful revenue management strategy. This approach undermines demand, and bears little relationship to many external factors. So as the recession bites deeper, proper revenue management can carry hotels through this sluggish economy.

Remember that selling the right product to the right customer at the right time and through the right distribution channels, is the cornerstone of effective revenue management. There is a science behind effective revenue management that drills far deeper than any one single aspect; an effective revenue management strategy should enable sales, marketing, cost control and rate integrity to work in perfect harmony. Does yours?

Update Revenue Strategies and Policies to Reflect Current Conditions

Consumer booking trends need to be monitored very closely to identify the optimum price for a hotel room at any particular time. A few years ago, the booking window for hotels was more than 90 days and now, because of the advent of new technology and, especially in the past few months, because of recessionary concerns, the booking window has shrunk to less than 20 days. And today, online booking (and the online travel agent) is how 80% of travelers book their stays, replacing the traditional travel agent booking of earlier years.

Hoteliers need to think about how these trends (among many others) are affecting pricing, and how is this challenge reflected in the current revenue management strategy? Should you price your rate higher or lower? How should your rate compare 60 days out and 10 days out? All of these questions are vital to determine the optimum price for a hotel room at any particular time.

And don't forget to leave your assumptions at the door... old ideas about profit margins for different levels and types of demand and pricing need to be updated, to maximize the bookings from the most profitable customer sector.

RevPAR is a constantly moving target

And the constantly moving target of getting the right rates all the time, within the short booking window can only be perfected with automation. So what are you doing about it? During a recession, business isn't 'business as usual' therefore it is clear that your revenue management strategies must change to reflect the current marketplace and conditions, as well as your competitors' actions. And all of which need to be actioned in real-time and across all channels that impact your operations.

So enough talk... let's get down to business. Here are the steps that every hotelier should be taking to optimize their RevPAR right now (and we do mean, right now):

Data is Key

Today, most hotels using Online Travel Agencies price themselves manually. The most common method of pricing is gut feel, trying to guess what the customer is willing to pay or using basic historical data. Bad move. There is so much more to online pricing than historical data or consumer demand and if that's all that a hotel uses, then they are really missing out on valuable revenues. Pricing should consider all of the following: star rating, competition within geographical area, location, reputation, price, amount of hotels sold, historical data and projected demand... among many, many other criteria. A robust system to handle and correctly utilize this data should be in place as part of a successful revenue management strategy.

Time Waits for No Man, So Update Rates Often

Most hotels change online rates one time per week (and it takes approx. 8 hours for a revenue manager to go through the process of making these changes manually - vs. a fully automated system that updates every 10 minutes in real time). Does that sound like a good use of their time? Rather than spending one day each week on reading reports, analyzing data, having meetings on pricing, making calls, using your gut, revenue managers should be looking at the bigger picture, focusing on long-term business development goals, developing relationships with OTA market managers and proactive yield management rather than reactive.

Eliminate Human Error

Most hotels (and revenue management systems) rely on the revenue manager to analyze and implement pricing structures. Human error, however, is a very significant factor in RevPAR loss using this approach and systems. Implement a system that eliminates the human error element, and that will ensure rates are optimized for the best booking rates with the highest RevPAR available.

Working with OTAs

Many hotels' are still very old-school in their thinking. They distrust the OTA's because they feel bullied into paying 30% (approx.) commission for their bookings. Because of this distrust and dislike, they often ignore or downplay the importance of online bookings resulting. Lack of visibility on online sites=low booking rates. Consumers use sites like Expedia.com as the Google of travel, checking out pricing and availability of hotels within a certain destination so if hotels do not have visibility of these sites, they are losing out on consumer traffic. Solution? Make sure you have good relationships with the OTA marketing managers so that you get good positioning on featured default page positioning. Don't disregard OTAs because of their commission structure - they do work! So put them to work for you.

So these are just a few actions you should be taking to ramp up your RevPAR and include in your revenue management strategy to beat this recession! Here's a recap:

Revenue Management To the rescue

While this may sound like a lot of work, having a robust and effective revenue management strategy in place can bring in the maximum amount of revenue to any hotel property. But this takes commitment and a willingness to embrace change. Having a proactive rather than reactive stance is essential right now, as what worked in 2008 no longer applies to hotels in many different markets. Don't be tempted by the allure of discounts as the magic cure-all. Instead, invest some time into "soul-searching"; evaluate distribution channels, cut out what's not working, improve your collection and use of data, be strategic in all your actions, make your sales and marketing teams more accountable to the bottom line, and think beyond the discount.

Right now, optimizing managing RevPAR intelligently and effectively is a necessity for hotels everywhere. A proper revenue management strategy is our very best hope for the industry to survive and thrive in these adverse market conditions, without resorting to discounts and short-term price corrections that can ultimately destroy a hotel's valuable brand in the long run.

References:

(1) PKF Hospitality Research, Hotel Horizons (TM)- March 2009

Jean Francois Mourier arrived in South Florida in 2003 after a career in Europe as a trader, financial analyst and director for a number of firms including Merrill Lynch and ING Barings. He joined a small Miami Beach hotel management firm as a financial analyst. he revamped the company’s revenue management methods, with dramatic results. In 2007, along with his colleague Bruno Perez, Mourier founded RevPar Guru to provide the Yield Dynamic Price Engine, an integrated revenue management and pricing solution, to others in the hospitality industry. Mr. Mourier can be contacted at 786-478-3500 or clientservices@revparguru.com Extended Bio...

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