Mr. Gilbert

Revenue Management

Key Points in Revenue Management in a Down Economy

By Robert Gilbert, President & CEO, Hospitality Sales & Marketing Association Int. (HSMAI)

Playing on an old proverb, we'll soon see why revenue managers are like tea bags: We don't know how strong they are till they're dropped in hot water. Many of today's revenue managers never have had to deal with low demand or zero growth. The water doesn't get any hotter than that.

Revenue management can be distilled into two simple strategies: maximizing rates when demand is high or maximizing occupancy when demand is low. For the past five to six years before the current recession, the task has been fairly straightforward, focused on maintaining rates in the face of seemingly ever-increasing demand. Destinations prospered from seasons of year-over-year growth measured in double-digits. Would the good times never end?

Alas, the economy moves in cycles. For every peak there's a valley. Our industry - like many other sectors - now toils at a low point. Targets for revenue per available room (RevPAR) are declining. Luxury travel is stung by the AIG effect. Lodging stocks continue to vacillate.

Good revenue managers will evolve. They'll innovate and seize opportunities.

To boost forward-thinking throughout 2009, the Hospitality Sales & Marketing Association International (HSMAI) Revenue Management Advisory Board has outlined strategies that will help revenue managers brew new ideas through this challenging time.

Pricing

The current market tempts managers into the default position of dropping prices to spur growth. But a downward spiral helps no one; recovering price cuts can take a long time. What do you do when there is downward pressure on rate in your competitive set or market? There are valid points in the argument to hold rate, so now is the time to analyze potential price shifts and examine your STR report to understand your rate index versus your occupancy index.

Forecasting

Forecasts, which are always difficult, are more vulnerable today. Operations must change to keep revenue flowing, but adjustments must be based on realistic forecasts. An inflated forecast may lead to less-than-optimal targets in pricing, market segmentation and distribution. It may also lead to over-staffing and over-ordering. Accurate forecasts can lead to higher revenue as well as better management of labor and expenses. Key stakeholders should come together and agree on forecasts that are realistic based upon current facts.

Connect Marketing and Revenue Management

After your realistic forecast is completed, a strategic revenue management team should review projections with the marketing team to identify periods of need or opportunity. This communication should result in the generation of customer-focused, revenue-generating offers. Both teams should work together prior to the launch of marketing efforts to make sure the campaign goals are clear. Messaging needs to be focused on the business needs of the hotel and appropriate tracking should be established. Once the campaign begins, regularly review results to make sure the property hits a desirable return on investment (ROI).

Consider Third-Party Internet Partners an Extension of Revenue Team

Properties should be doing this in any economy. If there are unused or underutilized channels, this may be the time to throw all the switches and ensure that you're participating in all available programs. Make sure demand is flowing to you. Consumers have become conditioned to seek value and ask for the deal, especially over the last 10 years. Make sure that pricing and inventory channels are open to allow a broader spectrum of customers to reach you. Good market managers have their fingers on the pulse of the overall market and can provide great insight into broader trends that you may not see.

Be a Brand Expert and Expect the Best

Some brands have been around for many decades and have thrived during downturns. If your property has brand support, tap into your internal resources. Brands that are taking a proactive stance by focusing on revenue-generating plans and actions are earning their fees. If you're not already, you should be on a first-name basis with your regional support person. Find out what is working for other hotels. Ask what they are seeing and hearing on a global level and if there are any initiatives being discussed that your hotel could beta-test for the company. Make sure you understand all of the audits, reports, training and marketing opportunities available to you.

Make Revenue Management Meetings More Strategic

Anyone can read report data and see what happened. But the revenue manager should explain why something happened. Take a deeper dive with the team to gain that insight. It is no longer good enough to say that a market segment is up or down from last year. Understanding causes will enable the revenue-management team to adjust strategies going forward. At a tactical level, discuss what is going well and what could be improved in the effectiveness of the meeting. Review the agenda, the attendee list and the flow of the meeting. Look for opportunities to make changes that will shake things up in a positive way.

Displacement Analysis Not What it Used to be

Much of this is based on knowing your incremental costs and understanding how low you can go to drive incremental profit to the bottom line as opposed to avoiding a particular business opportunity altogether. If you still are using last year's numbers when running displacement analysis on groups or base business, reconsider your strategy. With circumstances changing rapidly, it is wise to use very recent history as well as your realistic expectations when reviewing business. Don't throw away the idea of displacement analysis all together as there are still times of medium and high demand.

Conduct Comprehensive System Audit

Throughout 2009, make sure that you know exactly what is selling, how it is selling, when it is selling and through what channel it is selling. See things as customers see them. Test your availability for multiple dates and lengths of stay on your own Web site's booking engine and on the third-party Internet sites. Test all "book now" links from promotions and other parts of your Web site. Ask your corporate account travel managers to do the same; they'll appreciate your concern. Take the step of befriending a travel agent and see how your hotel is appearing on the global distribution system (GDS).

Start Self-funded Revenue Generation Incentive Program

Go beyond a traditional focus on rooms. Evaluate whether there is a catering, restaurant or retail opportunity that can yield increased revenue. Look for places to focus energy. If you get the entire hotel team - from the front office to the housekeepers to the restaurant staff - focused on what they can do to drive revenue, at the end of the day they'll realize they're creating hours of work. That produces a good mindset. You could set aside a month and declare it "Revenue Generation Month." Ask all staff members to provide revenue-generation ideas, which could be range from a short-term group or catering lead from personal contacts to late checkouts for $25 on low-occupancy nights.

Excel at Customer Service

Be memorable in this area - in a positive way. This is more important than ever. Basic customer service skills are a valuable asset in guest retention, word-of-mouth advertising and maintaining and increasing hotel demand. You can share guest feedback with the staff and discuss the hotel's strategy for responding to online customer reviews. Social networking sites featuring customer reviews produce a major impact on how guests choose their hotels.

Increase Market Acumen

Increase how smart you are in the market and focus on what is going on outside of your hotel. Market acumen falls into two main areas - competition and potential demand opportunities. Reviewing the current STR competitive set to see if it accurately reflects the hotels with which you compete can help in both areas. If it does not, assemble a competitive set that you can use as a true benchmark of performance.

Increase Intellectual Capital

Training and preparation are essential to prepare for and pull out of times of crisis - be it engine failure or economic turbulence. It may be tempting to cut expenses by cutting training, but it is not how smart organizations will thrive. Continuing education doesn't have to be expensive to be effective. Low- or no-cost initiatives include mentoring, peer coaching and informal best-practices sharing.

For the last decade, Bob Gilbert has been guiding HSMAI through an exciting period of change. At the helm of what has become the definitive hospitality and travel marketing association in the world, he has made tremendous strides and enjoyed great successes as he’s worked to establish HSMAI as the industry champion in identifying and communicating trends in the hospitality industry. Prior to joining HSMAI in 1995 (in an executive capacity), Mr. Gilbert was the vice president of marketing for Richfield Hospitality Services, Inc., at the time, the largest hotel management company in the world. Mr. Gilbert can be contacted at 703-506-3280 or bgilbert@hsmai.org Extended Bio...

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