Post-COVID Revenue Management: Have We Skipped a Generation of Revenue Managers?
By Bonnie Buckhiester President, Buckhiester Management Limited | October 04, 2020
For some time now, I've described the evolution of the discipline of revenue management in terms of generations. The first generation of revenue managers were those individuals who were most often members of an on-property reservations team. Their role may have been one of a Reservations supervisor or manager.
As the Internet emerged and electronic reservations became far more mainstream, these pioneers formed the early cohort of revenue managers. They were largely self-taught, still expected to run Reservations, and in many cases ill-equipped to handle the tasks of the intricate and complicated world of online distribution.
As the industry evolved, a second generation of revenue managers emerged. These revenue management professionals became accomplished tacticians. Their primary mission was to open and close rates and dates and stays in order to optimize demand. Their tools were predominantly Excel spreadsheets and their role was subjugated to that of the director of sales and marketing. Fewer hotels deployed sophisticated revenue management systems in those days and system interfaces were definitely a challenge. Many revenue managers were tasked with managing individual extranets and it wasn't unusual for reservations to arrive via email to be re-keyed into the property management system.
Clearly, there is a great deal more that could be said about these early generations, but the crux of this article is about the third generation and whether COVID-19 has forced the industry precipitately to move to a fourth generation of revenue managers.
Before COVID, a third generation of revenue managers had emerged, albeit slowly in some sectors of the industry. The shift from tactician to strategist was underway. Many revenue directors were finding ways to dig themselves out of the minutiae. The importance of the position in the leadership hierarchy was cemented. Large, full service hotels had dedicated directors of revenue and virtually all other hotel classes had some form of revenue management effort, either through shared resources or third-party vendors. Although total revenue management was far from a reality, and the vital connection to digital marketing was sporadic, progress was being made.
Then COVID-19 hit and many in the industry were questioning the need for a revenue manager if there wasn't any revenue to manage. I can appreciate the premise, but now is the very time to reengineer the revenue management role. We often hear that a downturn in the industry is not the time to forego marketing. Well, this is not the time and will not be the time to forego the revenue management effort.
Let's first examine the evolving nature of the role simply in terms of semantics. The first generation of revenue managers weren't even called revenue managers and revenue management was more often referred to as inventory management and/or yield management. The term "yield" was a hand-me-down from the airline industry and made sense in a narrower context. Eventually, the term revenue management emerged and became the conventional descriptor for the discipline.
Today, terminology has morphed yet again with the use of the term revenue strategy. This term is becoming more common and certainly implies an all-encompassing expression of the discipline. So, if one agrees that revenue strategy is the more accurate definition of the role, then what does that mean today in a COVID-19 world?
Six months ago, I would have said that what the industry needed was more third generation revenue managers. The emphasis would have been on the combination of a total revenue management approach and a stronger relationship with the digital marketer. The concept of the convergence of revenue strategy and digital marketing represented a natural progression of the discipline; i.e. the effort to bring the revenue manager closer to the digital marketer, and therefore closer to the consumer. The concept of total revenue management meant an emphasis on all revenue streams and a profit-centric approach.
But what if the foreseeable future rules out several traditional market segments? That is, no conventions, no conferences, no corporate meetings. What if prolonged social distancing rules out spas, traditional food & beverage, and on-property activities? What if there are no amateur tournaments in volleyball, softball, hockey, etc. – i.e. no SMERF business? And what if corporations won't let their employees start travelling again?
Well, today we see market extremes; those that have very little demand, and those that bizarrely have a ton of demand. With traditional market segments evaporating overnight, hoteliers cannot afford to wait for a third generation revenue manager to embrace digital marketing and new or little-used KPI's (key performance indicators). What the industry needs now are fourth generation revenue managers. This means incorporating into the decision-making process a great many more impact factors and KPI's. A shot-gun approach (for example using OTA's to get the message out) is short-sighted and a dangerous way to erode already-stressed profit margins. The old expression of "fish where the fish are" is the key. The question is: are third generation revenue managers fully equipped and trained to do that?
The good news is that we're witnessing the emergence of a fourth generation of revenue strategy directors moving out of their comfort zones. They aren't abandoning their numbers and analysis, but they are looking at many more clues to better understand and characterize demand. They are also increasingly assertive, challenging the thinking of "higher ups" and confidently stating their case with regard to strategies, and tactics to deploy those strategies. In other words, these experts are providing leadership to the commercial thinking of their organizations.
Now, more often, in a revenue meeting the director of revenue and the director of digital marketing collaboratively present data. The digital marketer is able to show searches by search date and by check-in date and highlight conversion ratios to illustrate price elasticity. In many markets, revenue teams are dealing with very short booking windows and want to avoid make pricing decisions prematurely. This invaluable website data, as supplied by the digital marketer, supports pricing decisions.
Revenue teams led by fourth generation revenue managers are examining searches by length of stay and comparing those trends to same time last year. Data that shows when the consumer wants to check in and for how long reveals a marked variance to the previous year. Given the extraordinary nature of COVID-induced demand swings, many hotels that deploy revenue management software systems are having to "retrain" their data-driven automation in order for pricing recommendations to be relevant and forecasting to be accurate. In this regard, the fourth generation revenue manager is the "poster child" of flexibility and adaptability.
In these meetings the digital marketer is taking the lead, sharing data relating to feeder markets and how different the current origins of business are to past patterns. Using Microsoft's Power BI and accessing platforms like Adobe Analytics (Omniture), the digital marketer shares visualizations that powerfully illustrate consumer research and buying behavior. Additional website data is examined that shows which room types are in the greatest demand and ultimately at what average rate these room types are being booked. These teams are also reviewing device usage, comparing the use of different devices (computers/mobile/tablets) to research travel, versus those used to finalize a transaction.
This information provides greater insights into the effectiveness of mobile promotions, particularly since studies show that a ton of travel-related research is done on mobile devices. The fourth generation revenue strategy expert is keenly aware of this as well the tremendous shift in all traveler demographics to leisure stays. All the more reason to stay on top of the most up-to-date market data and trends.
It's also interesting that the digital marketer does not dominate these meetings, but nor does the revenue director. The marketer could launch into extensive Search Engine Optimization & Marketing stats, i.e. SEO & SEM. He or she could discuss paid search vs. organic, device breakdown, keywords campaigns, traffic by channel, paid social results, landing page performance trends, total traffic, and so on and so on. But the fourth generation revenue manager, like a traffic cop, is providing the leadership necessary to ensure a well-structured session that focuses on KPI's that collaboratively inform the team's decision-making. In other words, there is a distinctly balanced approach to the meeting.
What is also impressive is the use by revenue teams of other performance indicators that typically, under more normal circumstances, may not be reviewed. These include data from the Transportation Security Administration (TSA); from Arrivalist, which uses mobile location datasets; from Airdna to gauge the alternative accommodation landscape; from ForwardKeys, a platform that predicts travel patterns; as well as more traditional market intelligence platforms like Demand360. In fact, with the introduction by STR Global of their new product Forward STAR, it's highly possible that forward looking market intelligence will be available to many more hotels.
What is evident is a willingness to acknowledge a broader scope of relevant KPI's and to depend heavily on data sets that provide in-depth, highly detailed information about consumer purchase activities. Instead of focusing inward, these fourth generation revenue individuals are focusing outward. Instead of starting with internal metrics, they are starting with data sets that pinpoint the consumer's initial research and that ultimate path to purchase. This is what digital marketers are trained to do. This is not typically what revenue managers are trained to do.
Some might argue that because of COVID-19 and the fact that virtually nothing is the same as it was, this has forced revenue management professionals to seek out data that does a better job of informing decision-making. This is forcing third generation revenue managers to up their game.
All to say, that it is now essential that the revenue manager "connect the dots" between consumer buying behavior and demand strategies against the backdrop of COVID-19. Ironically, but logically, this puts the digital marketer in the lead role, not the revenue manager. But fourth generation revenue directors are embracing this transition and providing the very leadership that is needed in a COVID-19 world. In this regard, they are actively accelerating the convergence of sales, marketing, revenue management, and online distribution and creating a single, vital commercial team.
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