Mr. Kohlmayr

Revenue Management

Total Customer Value Contribution: Do You Know Your Guest's True Worth?

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

How often have hoteliers around the world faced a scenario where your marketing department begins to complain that: “Our high value customers are not being taken care of – we’re going to lose them”? And, your Revenue Management department comes back with: “Too often we are giving our product away when it’s not necessary”. Or, the Marketing department is griping: “Our spa is either empty or overbooked”. While, Revenue Management is baffled that: “They filled up half the property with low value guests.”

Well, it may be surprising, but you are not alone. While there have been many advances in revenue management throughout the years and market segmentation and channel management strategies have become more targeted in identifying and reaching guests who could add revenue to a hotel, the full integration of intelligent demand forecasting with campaign management strategies is still yet to be realized by some in the industry. In today’s highly competitive hospitality market, a heightened understanding of a guest’s preferences and total worth will enhance a guest’s experience, maximize revenue and ensure loyalty, while establishing market share for your company. Asian hotels and integrated resorts need a true holistic view of their guests.

For the sake of ongoing revenue optimization and to enhance customer loyalty, it is vital that hoteliers gain a holistic view of its guests from all of their interactions with the firm, not just their room spend. Data from all transaction systems need to be integrated to provide a true picture of a guest’s preferred activities and their overall value considering all ancillary spend, from: online reservations to check-out, from food service to spa services , from guest rooms to gift shop and more.

In addition to making more profitable decisions about which guests’ reservation requests to accept, a deeper understanding of guest preferences leads to better decisions about promotions, service offerings, inventory levels, food and beverage options, and spa layouts. Furthermore, this integrated customer behavior data supports wiser pricing decisions, supplier choices and financial strategies. Forecasting and optimization then provide controls to ensure that revenues are optimized and costs are minimized.

The path to sustained profitability and growth has taken a turn for hotel organizations. Room rates still brings in a healthy portion of revenue, but retail, food and beverage, spas and entertainment are increasingly important sources of income. With disparate systems for each arm of the business, it is difficult to get a complete view of total guest spend. A regular guest may not be worth as much as a short stay patron that spends freely on a variety of activities within the hotel or resort. The decision of which reservation requests to accept not only impacts room rates, but also property-wide profitability.

The importance of knowing a guests’ true spend also means that revenue optimization practices usually reserved primarily for hotel rooms, must also be applied across whole properties and all service or products offered to guests. To underline this point Siv Forlie, Director of Corporate Revenue Management at Shangri-La Hotels commented that, ‘Pricing is and will always be an extremely important aspect of revenue management. The question is whether you want to do it the easy way or the hard way. Pricing is not only about fluctuating your BAR rates according to demand and the competitive landscape – but it encompasses every aspect of optimization; all segments, room types and products.’

Given the rise in revenues being generated by hotels through conferences and events, revenue managers should also be looking towards increasing their focus on this important part of the business – especially in Asia. Conferences and events have not been a focus in the past by revenue managers due to the higher level of complexity of revenue managing function space and a lack of data standardization and availability. Additionally, the overlapping nature of the revenue streams across catering, function spaces and sleeping rooms add complexity to the overall business opportunity identification. However, considering that conferences and events involve different business streams from catering, to function-space, to sleeping rooms, these elements must also be considered when looking at a guest’s total value to a hotel or property.

By leveraging a holistic view of a customer, leading hotels and resorts are maximizing their chances of not only winning, but keeping their best customers. This is achieved by increasing the relevance of promotions to those customers most likely to have the greatest lifetime value. Instead of sending blanket marketing campaigns, your customer base only receives relevant offers they are likely to be interested in, based on their product preferences and previous purchases. And you know enough about your customers to send the offer only to the “best” set of customers who are most likely to respond. Customers appreciate this individual attention and reward you with increase in loyalty and purchases.

Loyalty and increased purchasing from satisfied guests are challenging concepts to gauge in the hotel sector. It goes without saying, but we all know that the more satisfied a guest is – the more likely he or she is to return to a hotel or resort. A recent report coauthored by Gina Pingitore, Dan Seldin and Arianne Walker, for Cornell’s Center for Hospitality Research, looked at the topics of guest satisfaction and spending. The study, “Making Customer Satisfaction Pay: Connecting Survey Data to Financial Outcomes in the Hotel Industry” found that of the 24 per cent of guests who said they were satisfied and would definitely return, 19 per cent actually did within a year. The report said that, ‘while the actual rate of return may seem small, hoteliers understand the substantial financial implications of increasing return rates by even one to two percentage points.’

Importantly, the Cornell study also found a direct correlation between a satisfied guest and increased spending. The report noted that, ‘the findings also held true for ancillary spending during the subsequent visit, with Delighted guests increasing their ancillary spending during subsequent visits by an average of (US)$10.’ Again, while this may seem small, an extra $10 per satisfied customer has significant overall implications for the bottom line.

To help attract the right guest at the right time to bolster revenue and breed satisfied guests savvy hotel operators should also aim to achieve improved timing and targeting of campaigns, based on forecasted demand by market segment and property, so that demand is generated when and where it is needed and rates are protected during peak periods. Integrating this marketing data with your revenue management data means that both departments have the information they need to make the right decisions about pricing and promotions placement.

Hotels operators need to consider whether their information strategy is providing enough information to make the right choices. Does your hotel truly know:

• Who your most valuable guests are?
• What pricing strategy should be used for rooms in order to maximize profits for the whole property?
• How marketing resources should be utilized to attract the most profitable customers with offers that are tailored to their particular interests?

Traditionally, the answers to these questions have been forged by simple query-and-reporting tools, coupled with instinct and intuition. In order to stay ahead of the competition, today’s market demands more advanced decision support solutions with predictive analytics and optimization capabilities.

The next generation of revenue management systems consider not only the optimal set of prices to offer, but also who to offer those prices, which guests are most valuable and most likely to develop a long term relationship with the company. This demand-centric view of revenue management results in long term, sustainable revenue performance, but relies on centralized credible and accurate guest information, predictive analytics and strong integration between customer intelligence and revenue optimization systems.

Revenue Management must be guest-aware and take a holistic view. It should integrate a complete customer revenue profile, including their overall ancillary spend and set hotel room control and pricing based on the enterprise profit contribution of each customer.

As those in the industry are all too aware, informed decisions can lead to increased guest satisfaction, loyalty and profitability: whereas assumptions, or poorly planned decisions, can mean sending your best guests to a competitor.

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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