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The Revenue Manager of the Future

We have confirmed that the hotel revenue management is constantly evolving and in this article Hotel Business Review offers a list of skills that describe a revenue manager. This is a list based on Sherri Kimes’ research from Cornell University and Kelly McGuire’s experience from the SAS Institute.

Here the list of skills for the revenue manager:

Analytical: revenue management is a science and even if we are now surrounded by new revenue management software, we still need the person who understands the results, who is able to translate them and to create the right strategy. Someone who really comprehends numbers and statistics.

Good communication skills: the revenue manager is a “geek who can speak” (S. Kimes), because it is essential to be able to explain, sometimes complex strategies, to the rest of the team, who does not speak “numbers, analysis and statistics”. This person needs to clarify the importance of concepts, of actions taken and at the same time be able to be influential and successful.

Data-minded: it is critical that the data are understood – their origins, their reasons to be, their strengths and weaknesses and gathered and analysed to develop the successful strategy.

Technology-savvy: the revenue manager needs to have a technical knowledge, to be able to deal with the hotel software, their integrations. He/she needs to have a good expertise on web page and social media as well as new mobile applications.

Negotiator: the revenue management is not only for hotel rooms, but all the departments that bring revenue to the property. Working very closely with the marketing team, the revenue manager becomes the middle person between the operations and the management, working in […]“political waters to drive results”[…]

Education: courses and trainings in revenue management are really important, they give the right fundamentals to the coming experience, to grow in the right direction.

To conclude, revenue managers need to be really empowered and free to make decisions, they need a good knowledge of numbers, statistics, technology, but they need some operations background.

Hotel managers need to create new incentives for the sales team, no longer based on volume!

Cluster offices are not always the right solutions.

Technology is essential nowadays and we need to stay on top of it to be more competitive.

Just one simple fact experienced lately. I have been talking with a lot of people, from the hospitality industry, and many of them, after I stated my profession, have smiled at me and said that they are doing “revenue” since the beginning of the millennium. It sounded really interesting, and then I asked what they meant and the answer was, “we open and close rates and availability many times during the day”. Still confused I asked “what else?”. During the various conversations, I have realised that there is still a little misunderstanding on how the roles are covered among the departments of sales, marketing, reservations, even front office and the management itself, everybody is doing something that should be part of the revenue manager’s job description!

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How to create a better comp set

Many properties, especially independent and small boutique hotels, have no ideas how to look at their competitors, they raise a few questions, they are not sure whom they need to recognise as competitors, if by location, size or style, brands, chains or independent…and if it is really necessary to “waste” so  much time on it. Yes, it is important to have a significant understanding of the comp set, it is one of the elements that helps to create a better strategy.

In this article HotelNewsNow offers a very clear description of how to understand the competitors’ list, how many different sets of competitors the hotel can choose from and how to benchmark them.

Here are a few points to refine the comp set:

  1. Understand comp set composition – the average suggested is five or six properties. I personally worked most of the times with eight, depending on the area, at list for the primary list.
  2. Consider multiple sets – a second or even a third one can be added:
    • Regional – when the typology of our property can really compete with the entire region. E.g. I used to work for a property located at 1500m and nothing else around, so we used to look into other similar properties over an area over 4,000kmq.
    • Local – hotels that are not necessary of the same style.
    • Aspirational – hotels we would like to become, maybe after a renovation.
    • Niche – hotels that are not in the same location, but of similar characteristics.
    • Seasonal – properties open during the same time.
    • Group and transient mix – for properties with a great group business, it is important to focus on what the competition is doing exclusively on the group segments.
  3. Understand how to benchmark your comp set – STR can help on grading the properties to understand which category is better for the hotel:

                […]The grade is based on nine criteria:

  • Comp set average daily rate spread
  • Class variance
  • Nameback percentage
  • Occupancy standard deviation
  • ADR standard deviation
  • Revenue per available room standard deviation
  • Average distance
  • Room count variance
  • Age[…]
  1. Recognize opportunities to improve – it is important to keep an eye on the comp set and to update it, if new properties are added in the area or of a similar category, if some hotels have been refurbished or have been going through a particular change. Waiting years before changing the comp set does not give us the right information.
  2. Use all available tools – the right comp set is a tool and if it is not up-to-date it will bring no help to our strategy.
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How will OTAs evolve in 2016?

Hospitality is a world in continued evolution and we have to keep up with it. Every day we are amazed by a new technology and we are constantly thinking of how we can make our guests’ stay an unforgettable experience, how to make our time more valuable, how to get surrounded by more professionals and experts and how all together we can improve our revenue and at the same time decrease the costs.

Evolving is part of the growth, but one question is constantly recurrent, how do the OTAs can play a smaller role in this process? How can we get to keep more of the earned revenue without bleeding commission to them?

The opinions and the suggestions on how to act to get better, more healthy and keep more money are countless, but in reality – and here not to be pessimistic – deep deep down we all know the answer and nevertheless we are all in denial. Opinions are very important, but revenue managers, financial controllers and marketing directors, as well as general managers, can read numbers and figures are not opinions, are facts.

Frederic Gonzalo, a strategic marketing consultant, briefly explains on eHotelier, the OTAs domination and their future, asking everybody to add their point of view. He presents a summary of what the OTAs have been up too in 2015. Facts that have happened between the giants of the hospitality industry. Expedia which became the biggest OTA with the acquisition of TraveloCity and Orbitz as well as HomeAway, leaving Priceline behind on the second place with its best known brand Booking.com. He also mentions Airbnb, TripAdvisor as well as Google’s stories.

The point is that we cannot compete with the OTAs or think to cut them out, what we need to do is to learn to live together and to accept that part of our business depends on them; they are bigger, they are stronger and definitely they have more capital to invest.

My point of view: either we try to invest as much as they do in PPC campaigns, advertisements of any kind and we know that independent properties cannot compete with that, or we save in the investment and we pay them a commission. In one way or another we have to spend to have a return of investment, it does not happen if we simply want to save. We only need to make sure that the “big boys” do not abuse their power with us.

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Price Positioning Strategies

This week I would like to address another great topic of revenue management: the price positioning strategies. I usually take the subjects from interesting articles on hospitality magazines, today I would like to be a little bit more academic and mention an article published by Bill Carroll on the eCornell blog.

We know that the OTAs offer an endless range of prices, however hotels and restaurants still need to come up with the best price strategies. A price decision is influenced by many different factors like competitors’ rates, events and different markets. Here Bill Carroll offers a price-value matrix to help us to position our product or service. This is possible when we know the targets we would like to achieve. Those could be short term revenues, higher profit margins as well as to stand out from the competitors or just to survive.

Here the five different price positioning strategies to apply:

  • Skim – we position ourselves higher than the competitors, to attract the crowd who is willing to pay more, however high price is equal to extremely high value and guests are still wondering why they should pay more in our property.
  • March – we sell one of our rates like our competitors and the others slightly higher, in this way we can be competitive without beating the other players.
  • Surround – we get one rate lower than the competitors and bring in the market who has a limited budget, but at the same time have higher rates with great products / services and added values for guests who are willing to spend way more.
  • Undercut – we can potentially get more guests, if we offer the same rate like our competitors and one even lower, personally I am not a fan of this one.
  • Penetrate – we stay lower than the competitors, cutting prices and increment offers, but this can take to a price war, depress the price market, lower margins and reflect bad on our property reputation.

Pricing strategies are more complicated than that, however it can be a really good start.

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Pros & Cons of the Commonly Used Booking Restrictions

We are all aware that there are a lot of “ingredients” in revenue management to create the right successful and efficient pricing strategy. Today I would like to offer a special attention to a subject that is not often mentioned, the booking restrictions. Here the RevParGuru explains the Pros and Contras of the commonly used booking restrictions.

When economics started to see some difficulties, the demand has drastically dropped pretty much all around the world, whilst the offer did not follow right away. A lot of inventory and no guests, the prices have decreased, discounts were offered all over and of course nobody has thought to set up restrictions, not even during the major events. Hoteliers did not want to risk and decrease the opportunity of selling.

Since then we can say that the use of restrictions have been quickly reduced and if we look into the consequences of those restrictions, we probably do not want to use them very often, even if I am always opened to exceptions and flexibility. Many are still the factors to consider before eliminating an element for good.

When we talk about the most frequently used restrictions, we refer to the minimum length of stay, the close to arrival or departure and the maximum length of stay. They all used to have a great part on driving revenue, however nowadays because most of the bookings are made online – OTAs and Hotel website – they have a great part on reducing visibility and potentially losing a guest who cannot find any availability for the desired dates.

The best restriction we can put in place on the current market is price, we can increase it on the dates we would have added a restrictions and give to the guests an extra chance to think about that property and maybe to call. This will offer a constant visibility and a better ranking. Once again we will proceed with caution, the increase should be reasonable.

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7 reasons to consider revenue management

Nowadays we are talking a lot about revenue management. The big hotel chains have been in the game for many years taking advantage of this science or art, it depends to whom we are talking, however many independent hotels are still at the first stage, the reason why they have to change. Independent hotels are often small boutique hotels that have been on the market for generations and they still survive. Many of them are really lucky to have repeat guests, who are so happy that they spread their enthusiasm to friends and neighbours.

Surviving is good, but living is better. What can we do to make this little step from doing well to do better?

In many European cities is now becoming a fashion to employ a revenue manager, but it is really vital to understand who they are employing and what revenue management can really do for them.  In this article Eric Stoessel, from frontdeskAnywhere will bring up the main 7 reasons why a hotel needs to consider revenue management with the knowledge and experience of one of the leading market companies on revenue strategy, Duetto.

Create the right strategy is like “playing chess, applying a sophisticate calculation, learning from experience, recognising the patterns, building a position, analysing variations and moving in for the win”. The article describes in a real straight forward and simple explanation the common pricing mistakes and what the hotel needs to do to become a winner:

  • Stop selling out too soon
  • Start changing your rates
  • Stop pricing by “gut feel”
  • Stop reacting to sudden price changes from your competition
  • Stop selling rooms on a first come, first-serve basis
  • Stop linking your different price points together
  • Stop shutting down pricing decisions at the end of the day

Driving revenue is at the base of any activity, however most important is increasing profits and controlling the costs in the process.

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Distribution should be mission critical for hoteliers

One of the subjects under the spot lights in the hospitality industry is “Distribution” and in this article John Burns shares his thoughts with Ed Watkins at Duetto on how “Distribution should be mission critical for hoteliers”. It is important to create the right balance between hotels and OTAs. They should not be overused and on the other hand not completely ignored. The hotels need to understand which extranets to turn to, which ones are the right choice for their market segments, not only to decide how much inventory to offer. The powerful worldwide channels are significant, however it is also essential to get to know the local and regional ones.

It is vital for hoteliers to know the importance of distribution and how to deal with it. The right strategy must be in place and above all it needs to be consistent with the hotel’s vision and the right person should deliver that, the necessary expert should be part of the team.

The main issue here is that the extranets have all the means to convince their audience. They know when to talk, what to say, how to say it and how many times. The OTAs use 100% of their resources to sell, hotels use 95% of their resources for operations, to offer the best service and only 5% to sell. Clearly there is a disadvantage.

It is also significant to understand how the revenue management, a pretty new discipline, is evolving very fast. This role is crucial in a hotel team, as a head of department its responsibilities are constantly growing.

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The fundamentals for forecasting success

You will usually expect that your revenue manager can achieve your targets and more, submitting the winning strategy, an accurate forecast and getting the right response from your market. This is possible, however it is not a one man job. In this article Alicia Hoisington, Managing Editor at “Hotel News Now” presents a very clear and straight forward discussion among a few panellists of “Forecasting fundamentals” panel at the Hotel Data Conference in Nashville, TN. It explains that to produce an accurate forecast the management team must work together; sales, marketing, finance, front of house and of course the general manager and the owners. Data must be gathered, as well as everybody’s experience brought to the table.

Here the highlights described in the article:

“[…]When it comes to forecasting via data, accuracy is key[…]”

“[…]Revenue managers need to have goals that are measurable, and they need to hold people accountable[…]”

“[…]A must for forecasting is a marketing plan that is not a static document[…]”

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Tower Bridge London

Hotel growth to slow in 2016, says PwC

In 2014, London has been considered the only city worldwide that has seen a consistency of new hotel openings while at the same time none have been closed down. They have been sold and they have seen different management teams come and go. However, the doors have been kept open.

According to a PwC forecast for 2016, it is interesting to see that the market for hotel growth is likely to still increase, albeit at a slower pace. You can read more about it in this article written by Tom Davis and Michael Northcott in the hospitality magazine “Hotelowner”.

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