Kokua Hospitality Employs New RM System and Grows STR Index Score by 8%

By Phil Tufano Partner & Chief Operating Officer, Kokua Hospitality | August 09, 2015

Kokua Hospitality, LLC, an innovative leader in the hospitality industry, has been managing the DoubleTree by Hilton Chicago Magnificent Mile in Chicago since 2007. Being an older property, the hotel was not performing as well as its competitors. The hotel's main competitor was also part of the Hilton family, so it was difficult differentiating itself from a product perspective next to its competition. As a result, the DoubleTree by Hilton Chicago Magnificent Mile was not capturing its natural market share of demand or revenue. Kokua Hospitality has a wonderful reputation for turning underperforming hotels into market leaders. However, in this particular case, the firm knew that to be successful they had to customize their revenue management technology and approach. The leadership team at Kokua Hospitality decided to develop a proprietary platform in-house.

Near the end of the Great Recession, Kokua saw an opportunity to emerge as a leader in the industry. It was clear the economy was improving, and we wanted to make sure we were best positioned to take advantage of a surging economy. As a third-party hotel management company, I knew the "one size fit all" of current revenue management systems did not work for a company like Kokua Hospitality with a diverse hotel portfolio. To address this problem, I decided to develop a custom, proprietary system in-house with the help of a seasoned RM consultant/developer that could fit their current needs.

The solution was to reinvent the approach and technology behind how hotels set prices in the market place. Up until this point, the focus was solely on using historical data to forecast demand and optimize prices. The third party solutions and hotel brand revenue management solutions were all doing essentially the same thing. This model was outdated in the new economy and Kokua knew that in dynamic markets like Chicago, it needed to utilize multiple data sources as well as utilize a much more sophisticated forecast and optimization engine. The RM Advantage platform that they designed is customized to the specific systems and qualities of each of Kokua's branded and independent properties to offer insight into customer booking preferences, destination demand tracking, market intelligence, providing automated price recommendations, and more.

The initial development phase was 6 months, followed by an extensive 6 month testing and proof of value phase. As a third party management company, Kokua manages many different types of hotels in many different locations. The firm wanted to test their concept, technology, and process with each of these to ensure their solution was solid. Every quarter, Kokua continues to release new features and can do so because of their agile technology and the company's culture of innovation.

When creating any new system, especially a revenue management or pricing optimization system, one always wants to start with the end in mind. Specifically, it is important to know what a successful implementation would look like and how it will be measured. In other words, how will we define success and when will we know it is successful? This seemingly simple question is not as easily answered in the hotel industry. In traditional businesses, measuring success is usually defined by a variety of internal metric. Examples includes beating an internal budget or forecast number. Traditional businesses are always keeping an eye on competition but often do not have access to the data to know how they are faring compared to their competition on any given day.

The hotel industry also looks at these traditional internal metrics, but owners, executives, and managers base most of their success on how well a given hotel is faring relative to a select set of hotels that it feels are direct competitors (competitor set). Thanks to the Smith Travel Research company (STR), hotels also have access to the daily performance of their competitors, providing benchmarking data. One of the key metrics that the STR Company produces is a competitor set's RevPar metric, which is defined as revenue per available room. This metric shows how well a hotel has maximized its revenue relative to its available room inventory. By comparing the hotels RevPar to the competitor hotels RevPar, a new metric is created called the Revenue Generation Index (RGI). This metric has become the gold standard of what success looks like in the hotel industry.

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The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.