Mr. Pedersen

Revenue Management

Best Practices for Increasing Conversions, Length of Stay and Average Rates

By Glenn Pedersen , President, Encore Enterprises

An Introduction – The “Roller Coaster” Effect

The hospitality industry is realizing momentum that didn’t exist a year ago. According to a study released by Smith Travel Research (STR) on July 30, 2010, RevPAR in the U.S. hotel industry during the first six months of 2010 increased 8.6 percent over the same period in 2009, where rates were down 15 to 17 percent. While this roller coaster effect in the market is indicative of a recovery in the hospitality industry; we are not out of the woods yet.

The cyclical nature of the hospitality market and the resulting volatility of revenue streams means that hotel operators should continuously reevaluate and update their revenue management protocols and for selling and up-selling. By doing so, they can successfully build and maintain a structure that help keep rooms filled to capacity and increase conversions. This is an opportunity for organizations to implement processes that help their properties not only stabilize in soft markets, but also maximize long-term performance. The following best practice tips explore options to assist hotel operators optimize revenue management efforts.

1. Automate PMS call centers to increase efficiencies and revenue

Call centers are often overlooked pieces of the revenue-generating puzzle. During both good and bad economic times, it is critical to keep rooms filled to capacity. But the sole objective for the senior management of any hotel chain should not just be to simply fill rooms, but rather to implement a series of firm protocols for selling and up-selling, thereby bringing structure and a strategic approach to the process and ultimately improve profitability. Marriott® is one example. The front desk associates at Marriott brand hotels are not trained to take reservations or to up-sell to customers. Rather, the associates refer booking inquiries to one of Marriott’s 16 PMS reservation centers around the world. With Marriott’s worldwide pipeline of hotels under construction, awaiting conversion or approved for development close to 95,000 rooms, it makes fiscal sense to route reservations through the sophisticated network of PMS call centers in order to maximize the chances of increasing conversions via s longer stays and larger profits.

2. Realistic forecasting

Oftentimes, planning ahead is half the battle. To optimize the chances of increasing conversions, it’s important to be prepared with a set of objectives to manage expectations for the short and long-term. Automated call centers are necessary for long-term revenue development. However, forecasting is ideal for the short-term. Operators should spell out their financial expectations, staffing levels, supply needs and expense guidelines. They should make sure to stipulate that information is highly variable, but should not change information based on a fear of documenting low numbers to ownership or because the market may be exceptionally weak. Likewise, management should be careful never to over-inflate their forecasts, which may create over-staffing and over-ordering issues, as well as unstable market segmentation, pricing and distribution strategies. Once the revenue team is set on a plan of action, they can review the forecast with the marketing team to enhance revenue-generating offers so the messaging is consistent for the business needs of the hotel. No one has a crystal ball, which is why revisiting forecasts at least monthly with senior staff is recommended.

3. Periodically conduct system audits

It is critical to ensure that all booking systems are operating effectively. For large hotel chains like Marriott and Hilton®, it would be impossible to function without a PMS or CRS infrastructure in place. To avoid complications, it may be wise to take advantage of the rate configuration reports offered by both a PMS and CRS. These are usually provided free of charge or for a small additional fee.

It is important to have rate sessions built in and bookable through early 2011. Furthermore, hotels should re-visit historical strategies used during various economic cycles to set up channels or discounts that may be able to generate revenue in today’s volatile environment. For example, in the case of Marriott and Hilton, rack rates guarantee that group rooms must sell at the discounted rate for a particular day. When booking systems are up-to-date, it makes for a streamlined, stable reservation environment capable of processing large volumes of end users performing complex and varied reservation queries.

4. Maximize your weekly revenue management meetings

Conduct weekly conference calls with salespeople to make sure that everyone is in agreement to effectively implement the weekly strategic plan. To improve the effectiveness of meetings, review the agenda prior to the meeting and note the attendees, what each person’s role is and how each attendee can make a positive contribution to the revenue plan. You may also consider brainstorming methods of increasing conversions and up-sells via the call centers.

It is also critical to understand why the market has increased or decreased based on year-over-year data. Recent data showed RevPAR for the first half of 2010 up significantly from the first half of 2009. However, it is no longer sufficient to rattle off the figures with no context. To maximize the meeting time, a revenue manager can address the reasons for variations. In the long run, the revenue management team will learn to adjust to these strategies for the future.

5. Leverage customer service to generate future revenues

Front desk associates, kitchen staff and housekeepers make or break the total hotel experience. As with any hotel, these frontline associates are the face of our brands and their superior customer service skills are the most valuable assets in retention, maintaining hotel demand, increasing length of stays and ultimately, yielding higher profits and conversions.

Positively leveraging the customer service team is a great way to increase demand. These front-line customer service personnel should be thought of as the hotel’s liaisons and ambassadors. In addition, front-of-the-house personnel can work with the sales department to assess the guest feedback so the sales team can build proactive guest relationships and ensure their comfort and ease throughout their stays.

Concluding Thoughts

Despite the unpredictable market and the roller coaster that is the revenue management component of the hospitality industry, there are ways and means of taking proactive and strategic measures to drive the top line and increase conversions. All of these recommendations are interconnected – understanding how to forecast is essential before tackling PMS system audits to understand the plan-of-action. Likewise, customer service is one of the most often overlooked but inherently direct methods of generating revenue and persuading business travelers to increase their length of stay.

Finally, make the most of planning meetings by reviewing historical results, taking the pulse of the current trends via senior management, and then determine future courses of action. Hotel operators need to remain flexible and take control of their revenue-generating means rather than allowing unstable markets to control them. Certainly, there are often variables that are out of the operator’s control, but, by continuously evaluating and managing a proactive, strategic revenue management protocol, they can become more effective at selling, up-selling and building a framework to keep conversions high, increase length of stays and grow profit margins.

Glenn Pedersen began his career as President of Pineapple Management Services in 1994. His responsibilities were to oversee hotel development, construction, design and management, including contract negotiations, guest and employee satisfaction, capital expenditure planning, budgeting and the day-to-day operations of all hotels. Mr. Pedersen has been involved in the hotel industry for over 34 years, starting out his career as a Front Office Manager of the Royal Sonesta Hotel in New Orleans, Louisiana in 1976. Mr. Pedersen can be contacted at 214-259-7018 or gpedersen@encore.bz Extended Bio...

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