Mr. Kistner

Executive Leadership

Independents Day: How Independent Hotels Can Win

By Mike Kistner, President, Chief Executive Officer & Chairman of the Board, Pegasus Solutions

Recessionary economies historically lead to the demise of small businesses faced with the challenge of competing against industry giants. Hospitality isn't immune. The recent downturn has affected everyone, including the major brands. But, the independent hotels are faced with potentially making already lean budgets or staff even leaner. As major brands trim a portion of a large budget to adapt to diminished demand, the independent is often faced with eliminating key business building operations altogether. In the down market, when demand reaches historically low levels, how does the independent hotel cope as supply outstrips thinning demand? The answer is to refocus and invest - in revenue management, distribution, rate structures and strategies, travel agent programs, marketing programs, online strategies, corporate travel programs...securing and building their core business to ensure they obtain at least their fair share of the market. How does the independent hotel invest when their budget is under so much pressure?

Some seek the security of a major brand, where fees can amount to 11 percent of revenue, which does not include the cost of meeting brand standards on property upgrades. Others opt for global hotel representation with a company like Utell Hotels & Resorts or Preferred Hotels & Resorts? And the rest maintain their solidarity, relying on their own brand, financial resources and team to manage what business building operations they deem necessary and possible. Each option has its benefits, which are both dependent on and determined by hotel culture, audience and, as always, budget.

Online Booking

In today's travel marketplace, a large part of the discussion centers on online booking, which accounts for a third of total travel bookings according to PhoCusWright's 2009 forecast. Conventional wisdom says online travel booking has leveled the playing field for the global hotel company and the independent or small group hotel. But, ask independent hoteliers, and they'll tell you it has become yet another area where size - of budgets and dedicated staff resources - matters. Take the Centennial Inn Hotel in Farmington, Connecticut for example. The hotel, an independent 96-room property that caters to business and leisure travelers visiting Hartford, recently ramped up its Web site to allow customers to make bookings directly on it. In asking the director of sales, Victoria Freeman, about how the Internet has affected the hotel's business, she said its opened a Pandora's Box of new marketing, revenue management and sales opportunities for the property and its Web site. "Take the meta-search sites alone," Freeman added. "For a hotel like ours, it is important to appear prominently on the search engine results pages, so we may have to invest as much as our major brand competitors in the Hartford area do. Most online bookers don't understand the model - as far as they're concerned, the properties returned first are their best options, which, as we all know, may not be the case at all."

Revenue Management and Competitive Intelligence

For the Centennial Inn Hotel, and countless other independents like it, sophisticated technology and distribution can pose a challenge to competing on a global level. In a competitive marketplace, technology considerations for the independent hotel also extend to revenue management. Industry sources recently reported that the online hotel sector is proving more resilient than expected in terms of volume, but that rates have dropped 12 percent. With effective competitive intelligence, independent hotels can recognize changes to market conditions and react with appropriate market rates to ensure they capture their share of business that still exists. Various products allow independent hotels to measure performance against their competition. Comprehensive market intelligence tools are available that offer integrated insight into market performance with available measures based on revenue, net reservations, room nights, average daily rate (ADR), market share, average lead time and average length of stay. Additionally, booking patterns can be analyzed and reported, both historically and as far out as 120 days, to help guide sales, marketing and revenue management decisions, thus allowing independent hotels to dynamically see and act against competitor performance. We are currently seeing a high level of interest in competitive intelligence from our independent hotel customers and we are now working with growing numbers of them to assist in this important arena of business planning.

Technology and Distribution

For many independent hotels, the "umbrella" of technological support of a major chain is appealing, but sacrificing your identity may not be an option. This is when hotel representation services offer independent hotels the ability to meet the "big guys" punch for punch in the technology and distribution rings. Case in point, The Roosevelt Hotel in New York. Kevin Croke, director of sales and marketing for the hotel, said for The Roosevelt, branding was not an issue, but technology was. "We enjoy the autonomy of operating independently, but we also know the power of revenue management technology in driving business to your property, not to mention the sales and marketing support offered through representation." The 1,015-room Roosevelt, which is the hotel of choice for the slick Don Draper on AMC's hit series "Mad Men," is a fixture on the New York hotel scene. But, in a global economy, how does that translate to inbound reservations from Sao Paulo for example? From a distribution standpoint, the hotel, and any independent, needs a reliable central reservation system (CRS) for efficient distribution worldwide to ensure up-to-date rates and availability for that booker in Brazil. This levels the Internet playing field. Further, the Sao Paulo booking is addressed through specialized sales and marketing efforts offered through representation on the ground, which levels the rest of the playing field. Croke, who has worked with Worldhotels and Utell, adds that the sales and marketing relationships are vital to a hotel representation decision. "My staff and I can handle the rigors of marketing and selling in our own backyard, but having a specialized team working on my behalf in Asia, Europe, Latin America and even Africa gives me the comfort of knowing we're doing everything we can to capture our fair share of the demand there is out there."

Sales and Marketing

Global sales and marketing were also behind the Soho House New York's recent decision to seek representation. The luxury property has long been coveted as a celebrity haunt, and served as a backdrop for an episode of "Sex and the City." With 24 rooms, the hotel in Manhattan's Meatpacking District offers privileged access to the club lounges, rooftop pool, restaurants, screening room and games room. But again, in a time of diminished demand, worldwide sales support is essential to building business, according to Lisa Di Paola, revenue manager. "As an independent, you evaluate your team's potential reach through sales and marketing. Then you assess the relationships, resources and reputation of a representation service, where you reach thousands of travel agencies, major travel management companies, corporations and consortia groups, and it's a natural decision." But sales and marketing doesn't end with relationships for the independent hotel. Packaging and presentation are essential, as is business intelligence to help manage rates and availability. Creative rate campaigns and promotions also allow you to gain traction among hotel bookers. Packaging hotels by specific types of properties can also streamline the booking process, and promote greater visibility for participating hotels.

Budget

A huge consideration for independent hotels is cost. Choosing to go with some brands can run around 11 percent of revenue, plus the cost of meeting brand standards. A third-party representation company can offer packages based on inspection fees, initiation fees, annual dues and per-reservation fees. Most reservation fees will be percentage based, while inspection and initiation fees are often set amounts. In some cases, additional marketing programs are paid a la carte, and annual fees for inspection may recur. But, with representation, independent hotels can save budget by picking and choosing the type of support they specifically require. The independent hotel that braves the marketplace alone will amass a variety of costs associated with sales and marketing, generally recommended at 4 to 6 percent of net sales, and technology, which will vary by organization and need.

So we come back to the initial question. In the down market, when demand reaches historically low levels, how does the independent hotel cope as supply continues to climb? The answer can be defined in the “Declaration of Independents,” meant to empower independent hotels to win, even when economic factors can become destructive. In fact, it is the right of (and requirement for) the independent hotel to:

• Obtain and capitalize on powerful distribution technology, by seeking an effective hotel representation organization, joining a major brand or remaining independent.
• Establish and monitor effective distribution of rates and availability, and
• Reap the rewards of effective and proven sales and marketing efforts on a global level.

Mike Kistner is Chairman, President and Chief Executive of Pegasus Solutions. He joined Pegasus from Best Western, where he was CIO and SVP of distribution. Mr. Kistner holds a BS from Northern State University, Aberdeen, S.D., and a MS in Information Systems from Colorado State University. He is the past Chairman and current member of the e-commerce committee of the AH&LA. From 2000 to 2005, he served as Chairman of the Open Travel Alliance (OTA) and has been recognized as one of the leading CIOs in the hospitality industry. Mr. Kistner can be contacted at 480-624-6450 or mike.kistner@pegs.com Extended Bio...

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