Mr. Kohlmayr

Sales & Marketing

Planning Out of the Downturn: Key strategies for long term success

By Klaus Kohlmayr, Senior Director - IDeaS Consulting, IDeaS Revenue Solutions

Following a tumultuous 12 months in the hotel and hospitality industry, things finally seem to be improving (or at least levelling out) as guest numbers grow and RevPar begins to stabilise. Importantly though, hoteliers are entering the crucial stage of adapting their 2010 strategies to prepare for any market rebound or sustained improvement in operating conditions.

While many hoteliers were operating under a “busy hotel is a successful hotel” mantra throughout the economic downturn, which sacrificed guest revenue - it is important to note that 2010 will not purely be another year of doom and gloom.

According to a survey of more than 1400 business travel managers at the recent Business Travel and Meeting Show in the UK, 27 per cent of travel budgets look to be increased this year and more than a third of business travel buyers will actually increase their amount of travel in 2010.(1)

Smart hoteliers need to recognize new opportunities now and as shell shocked Executive Teams around the world sit down and finalize their strategies for the coming 12-18 months, they need to ask themselves - how will they avoid making 2010 the year of missed opportunities?

While significant losses were sustained in many of the large hotels around the world in 2009, it’s important now for savvy hotel owners to throw themselves into new opportunities and change their discounting habits to emphasize value over price.

A recent report from global management and consulting firm, Accenture, contended that mass-discounting during the Global Financial Crisis had hindered rather than helped the hotel industry during the weaker business conditions, saying that:

‘In many situations, business leaders listen to salespeople who insist that the sky is falling, so they must have pricing relief. But savvy managers push back with queries about where, exactly, the sky is falling and where it isn’t, and they continue probing until they learn where, in which markets, and with which customers and which product lines there is cause to be confident.’ (2)

For sensible operators, there are two key strategies which need to be put in place to ensure a successful 2010:

1) Ensure that all revenue opportunities on the customer journey are taken advantage of.

2) Be flexible with revenue management, adjusting revenue optimization tactics as demand changes.

Ensure that the customer journey is maximized.

While it is undoubtedly a positive sign that Revpar levels are stabilizing, it may be some time before the industry has fully recovered. However, even with lower occupancy levels experienced in the wake of softer economic conditions, there are plenty of opportunities for Hotels to increase revenues from existing customers.

“In developing a strategy for the 2010 pricing year, the executive team at any hotel needs to ensure that they really have a full understanding of the revenue opportunities available to them. More than ever, it is a time for ‘total hotel’ revenue management so that all sources are maximised” commented Bernadette A Davis, Managing Director of the Asia Pacific Chapter of the Hotel Sales & Marketing Association International (HSMAI).

“Through a greater understanding of the needs of the customer, and the different financial drives around customers needs, hotels can provide good value and meet their revenue budgets” Bernadette Daviswent on to explain.

A ‘race to the bottom’ is a short term pricing strategy with a potential long term impact. Once a mass discounting strategy is implemented, it is hard for a hotel to return to normal rates when demand increases, given lost brand prestige and market position.

Given the softer operating environment that the industry experienced in 2009, Hotels need to be smarter about how they price themselves and what incentives they are using / giving away to attract business. Overuse of incentives to attract guests can actually reduce the revenue coming into a particular a venue. According to Bernadette Davis, Hoteliers should be asking themselves: “Why provide an upgrade to the executive or concierge floor when the customer will pay the price difference from a standard room because they want use of the lounge for business meetings?”

Maintaining flexibility to adjust revenue optimization tactics as demand changes

With 81% of procurement departments of multinational companies believing that cost reductions in travel can be achieved mostly from hotels, the pressure to further reduce or at least maintain corporate rates for 2010 and beyond will only increase. A recent study by CWT in the US market confirms this expectation, with negotiated rates to fall by around USD 10.00 from current levels (3)

Organisations (and savvy consumers) with knowledge of the hotel industry will know that the early part of 2010 will be there last opportunity to take advantage of significant rate reductions and will be looking to capitalise. As long as demand remains weak, Hotel Sales Executives will continue to suffer from a lack of pricing and negotiation power, making any proposals for rate increases in most markets nearly impossible.

At the same time, with the future being more uncertain than ever, the appropriate negotiation strategies must be set to enable the Hotel to increase rates when eventually demand increases. Just as this year, corporate accounts returned to the negotiation table when demand declined, Hotels must insist that they should be able to do the same when and if demand increases.

For fixed rate contracts, this could take the form of offering time-restricted promotional rates, setting terms and conditions to at least review rates at either a certain time in the future (ie end of the December, end of Q1, 2010) or through negotiating multiple rates (and room types) that come into effect under certain conditions. In any case, negotiating flat or reduced rates should always include specific volume commitments by the client.

While this might be difficult for many - especially larger - companies to accept, dynamic rate contracts should be offered as an alternative. While dynamic pricing in the past has received a negative reception by many companies, this year’s round of multiple re-negotiations by corporate clients has resulted in an increased interest of dynamic pricing as a cost and time saving alternative within the industry, with more buyers already adopting de facto dynamic pricing arrangements for travel this year.(4)

Through putting in place sales strategies that maintaining flexibility and by adjusting revenue optimization tactics as demand changes, along with a focus on how best maximize revenue opportunities throughout the entire customer journey, the hotel industry will ensure it is best preparing for any market rebound and maximizing all opportunities.

References:

(1) Marketing: How to Price Smarter in Uncertain Times - John G. Hanson, George L. Coleman and Raymond C. Florio
http://www.accenture.com/Global/Research_and_Insights/Outlook/By_Issue/Y2008/HowTimes.htm
(2)http://www.hotelmarketing.com/index.php/content/article/uk_business_travel_survey_offers_new_hope/
(3) CWT Forecasts 2010 Airfare Increases; Hotel, Car Rate Declines
http://www.btnonline.com/businesstravelnews/headlines/article_display.jsp?vnu_content_id=1004004943
(4) Buyers Redefining Dynamic Pricing;
http://www.btnonline.com/businesstravelnews/headlines/frontpage_display.jsp?vnu_content_id=1004003459

Klaus Kohlmayr currently holds the position of Senior Director - IDeaS Consulting for IDeaS Revenue Solutions, the global leader in Hospitality Revenue Optimization. (www.ideas.com) He is responsible for leading and growing the revenue management consulting and advisory division assisting clients in the Hospitality and Travel sector worldwide to develop, implement and enhance best practice revenue optimization, pricing and forecasting strategies and tactics. Mr. Kohlmayr can be contacted at 612-840-3301 or Klaus.Kohlmayr@ideas.com Extended Bio...

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