The Art of Revenue Management: Correlation to Marketing
By Mihran Kalaydjian, CHA
The internet Tsunami has changed how consumers buy and hoteliers operate. Increased adoption of technology means revenue managers are more easily able to “make the right room available at the right price at the right time”. However, facing a multi-channel customer who will switch channels (computer to mobile to tablet) several times a day, identifying the ‘right guest’ at the ‘right price’ at the ‘right time’ is the secret sauce that every hotel is trying to find the recipe for.
Before the advent of internet the revenue success of a hotel largely depended on the success of its sales and marketing team, and the revenue teams took help of marketing insights when making rate decisions. Following the explosion of the internet and the emergence of revenue management as a crucial discipline, the roles have been reversed. Revenue management systems access numerous rate and occupancy reports as well as guest related data to produce rate strategies, which become the foundation of marketing promotions, packages and even publicity.
Marketing plays the role of the demand generator. In order to appeal to the customer, they need to know the customer demography, their preferences and purchase behavior. Revenue management department sits on the other side of the coin, managing demand through rate and inventory manipulation. To optimize revenue, they must have a deeper understanding of potential guests such as their price elasticity, their seasonal behavior and their likes and dislikes. In other words, revenue management and marketing complement each other, and when working together in a coordinated fashion, they can produce winning results. In recent years, leading hotels have built a culture where both departments work together to create a compounding impact on organizational profitability. There is no short cut to this and it all begins with the two departments talking to each other.
Talk, Listen, Share
So what does the marketing department know that the revenue managers are not aware of? Guests! They know who the customer is, where they come from and what interests them. They also know the finer nuances of each customer segment – leisure travellers can be over 55 or family with two kids or honeymooners and business segment include destination, in-transit, conference attendees or incentive travelers. For revenue managers, detailed information on customer preferences should be a gold mine, as it can help them to diversify their product offering and rate structure to attract the right people with right value proposition. One of our customers, Warwick Denver Hotel has successfully integrated their marketing and revenue management teams, and has created customized romance and drive packages for specific market segment which has brought them immediate results.
On the other hand, revenue managers have access to reservation reports which will help the marketing team to understand customers better with details –such as how they booked; where they come from; how long do they generally stay; etc. Answer to each of these questions lies in your historical customer data. By sharing this information, revenue management team will help the sales and marketing team to understand the hotel’s high value guests. An enlightened marketing team can create personalized campaigns relevant to different target markets and drive demand that is not solely based on price.
Each department has key pieces of information, which when shared between the two will help fill the hotel with high value customers. Without proper co-ordination between the two teams, the marketing team which is often pressured into creating perpetual campaigns, might send out communication that dilutes the hotel’s value proposition, while revenue managers might prematurely close off promotional offers to the hotel’s loyal guests which may result in negatively affecting revenue performance and guest relations.
Forecasting is the key to the success of revenue management – its basic essence. Revenue Managers know when and from where demand is expected and needed. By bringing this information to the marketing domain, promotional strategies can be developed to drive necessary demand. For example, if marketing is aware of the lean week, they can create an offer or giveaway generating demand for the ‘right’ customers to book during this period. Similarly, if the marketing team is informed about periods of the high demand they can create innovative campaigns around it to garner a longer booking window or increased hotel spend.
The industry is littered with examples of hotels, in an attempt to increase occupancy, creating price promotions and thereby attracting price sensitive guests that abuse the facilities, run operations staff ragged with unrealistic demands and disrupt the status quo with traditional guests.
Higher Rankings in Third Party Channels
The days of working with one agency are over. The internet means that competition for guests is fierce but channel selection is critical in reaching the ‘right guest’. Finding the right channel is a balancing act between the mass appeal of the global online travel agents and the tailored proposition of the niche and local websites. According to a comScore – Cornell Hotel School Study (Search, OTAs and Online Booking: An Expanded Analysis of the Billboard Effect), an average consumer makes twelve visits to an OTA’s website, requests 7.5 pages per visit and spends almost five minutes on each page. Hotels need to understand their guests and how consumers are researching travel, with many spending up to 30 days looking into holiday options before making a reservation. Revenue managers need to ensure that properties are visible at every touch point available to their target audience.
However, customers will only book a hotel that has a strong online presence and reputation. The marketing team needs to make sure that the content in third-party sales channels is always up-to-date, complete and compelling. The most recent hotel information, photos, room amenities and policies should be accurately displayed on each listing. Further, hotel information across all third party channels should be same to maintain a uniform brand message. Strong online campaign around need dates will help revenue management team to tackle occupancy issues.
Right Package for Right Channel
One size does not fit all. A person buying through Mr&MrsSmith.com would have different preferences from the one booking through HotelTonight.com. The product proposition and promotions must be developed keeping in mind the unique selling point (USP) of the channel. Revenue management team needs to assess and reassess customers. Are they targeting the right clientele at the right channel? Could they attract higher spenders through a different campaign? In the days of social media, a discounted offer might be promoted in Facebook and Twitter to entice travellers to book from direct channel. By closely working with the marketing team, revenue managers can create package and build promotions to attract right customers.
According to a recent study by Market Matrix, loyalty programs now rank fourth among reasons why consumers select a hotel (the top three reasons are “Location”, “Price”, and “Past Experience”). By accessing the historical data available with revenue management team, marketers can identify a loyalty programme and create special packages catering to those who are going to return. Introducing loyalty programs is also beneficial for hotels since members often act like brand advocates and recommend the hotel, spend more per room and are less sensitive to price increases compared to non-member guests. At a time when increasing distribution costs are giving revenue managers sleepless nights, creating a loyal base of customers will not only help to reduce distribution costs, but also negates the cost and effort involved in acquiring new ones. As travelers spend more time and visit more resources when researching hotel rooms, hoteliers need to stress the importance of evaluating each channel for the opportunities they present. Using different pricing strategies for different channels—all the while staying within rate parity constraints—hoteliers can optimize their demand to produce the best profits. At a time when customers are switching channels multiple times a day, finding the ‘right’ distribution channel is a puzzle everyone in the revenue management department is trying to find a solution of. There is no fixed formula, but one thing remains constant. The revenue management team needs to work closely with the marketing team for finding the optimal distribution mix.