Revenue Management is around the corner of its biggest evolution in 30 years

Way back in the bygone era of the 1990’s I chose to do my thesis on Revenue Management as it was a relatively new concept in hospitality and I thought I might get away with a ‘light touch’!

As a part of the process, I undertook some ‘first-party research’ which consisted of face-to-face interviews with General Managers to ascertain their understanding of Revenue Management, how it was being implemented, who’s responsibility it was and what results had been achieved.

At that time there were no Revenue Management Systems or even Revenue Managers, no real data benchmarking and the term ‘aggregator’ was not yet a dirty word.

Broadly the extent of Revenue Management was a top line understanding that business travellers, leisure travellers and groups could be segmented using rate codes that offered different rates with different restrictions.

THE ADVENT OF THE INTERNET CHANGED EVERYTHING

Suddenly hotel rates were appearing on websites you have never heard of and previously opaque rates were suddenly fully transparent and open for all

Hotels were caught flat footed and scrambled to try and get some control back of their precious inventory, Reservation Managers suddenly became Reservations & Yield Managers as they were closest to the mess and with little training tried to understand what was going on and put some structure to their precious inventory.

Things have come a long way since then.

In my view Revenue Managers are now the rock stars of the industry, have the greatest opportunity to determine a hotels commercial success and their relationship of constructive conflict with the hotels Director of Sales is crucial.

Most hotels are now offering dynamic rates where distinct rate buckets are created and then opened or closed to offer the optimum rate at any one time depending on the customer, market trends and competitor pricing. Additional benefits are then added to the base rate to create tailored packages similar to this structure:

Standard Room

Rate type                                                            Formula

Non Refundable                                               X

Non Refundable rate with Breakfast        X + €20

Fully Flexible rate                                             X + €30

Fully Flexible rate with Breakfast               X + €20 + €30

There are additional supplements for upgraded rooms with the same static charge for ancillary items such as dinner, parking, F&B credit, on site activities etc… i.e. the room rates are dynamic based on demand but the ad on’s are typically not

This dynamic pricing model has served the hotel world well but it is time to evolve

In a previous article on Jargon in the hotel industry I highlighted that one of the biggest opportunities for hotels increase revenue and profitability was to move from being RevPar centric to a total revenue culture.

This bodes true for the use of pricing in revenue management …… just as we have dynamic pricing for rooms we should also have dynamic pricing for ancillary items and just as we have continuous movement in demand we should react to this with a continuous pricing model.

A move to continuous pricing is where hotels move from rate buckets to infinite price points allowing them offer an incredibly granular pricing structure that can adapt to supply and demand at each moment in time, satisfying the entire demand curve. 

The natural step from continuous pricing is to continuous bundling where offers are created dynamically which include room and ancillary, and the bundled offer price is based on the existing internal and external revenue management contexts. A step further would be to utilise conversational commerce such as chat bots where the more information that is shared between the parties the better the offers can be personalised but let’s walk before we run.

Conceptually a move from Revenue Management to Continuous Revenue Offers sounds great (in my view anyway!) but there are some challenging elements in continuous pricing with regard to its implementation and getting it to work within the sometimes very rigid architecture of hotel Revenue Management Systems, GDS and aggregators.

There is also the higher incremental volume of data, the higher data depth and the higher frequency of delivery and the number of systems and sources from which it is aggregated from that will all cause problems for integrations.

It is beyond the scope of this article but one way the airlines are looking to adapt to this complexity is the IATA rolled out New Distribution Capability (NDC) protocol. It's an XML-based data transmission standard created to enhance the capability of communications between airlines and travel agents.

Whilst it is still early days this standardisation has allowed airlines to regain ownership and control over their customers in indirect channels by offering consistent offers via different channels, whether it be metasearch, OTAs or dotcoms. HOTELS – WATCH THIS SPACE!

There has been a tremendous evolution in the use of pricing in the industry but I believe that this massive evolution is just around the corner.

The true vision of continuous pricing can only materialise with dynamically priced rooms and dynamically priced ancillary services being bungled together into one unique and personalised offer.

This obviously brings in the whole question of data with the frequency of price selection and the number of data points used for dynamic pricing will grow creating a massively data rich environment … but let’s leave that for another day.

Have Hospitality Industry Acronyms become Bullshit Bingo?

A few years ago, I was asked to do a talk on Conversion Rate Optimisation for websites with other practitioners in the digital world. It was not something I had done a lot of before but I had always enjoyed it so was happy to oblige.

It turns out that those that do a lot of this sort of this sometimes play a game called ‘Bullshit Bingo’. It works like this … all the speakers write a word on a piece of paper, fold the paper so the word can be seen, you then have to randomly pick up one of the pieces of paper (that isn’t yours!) and the word you get is the word you use. The rules are quite simple … you have to use your chosen word in your presentation and the winner is the one who uses that word the greatest number of times in the presentation without anyone calling them out.

I sometimes feel that that is how some hoteliers use industry acronyms …. Used a lot of times, out of context and nobody calls Bullshit.

Part of the reason for this is that as new people come into the industry, I feel that sometimes they can be overwhelmed by the amount of jargon being used and may not have a full understanding of its meaning.

In this article I will focus primarily on revenue acronyms rather than financial or operational although there is some overlap.

This is how I believe best to use the terms but I don’t expect everyone to agree!

Some Basic ones to start off with:

% Occupancy

This is the percentage of available rooms that you have sold over a particular time.

If you have 120-bedroom hotel and 80 of them are occupied last night, you were 67% occupied.

There is no industry standard in calculating the number of ‘available rooms’ for sale but I would include rooms that are off for minor issues e.g., deep cleaning and exclude rooms that are off for significant repair e.g., bathroom retiling.

The other consideration is whether you use complimentary rooms in the number of rooms sold, my view is not to, as there are no prizes for inflating your occupancy % by giving rooms away.

ARR / ADR / HAR

This is the Average Room Rate (or Average Daily Rate) that you are achieving over a specific period and is calculated by the revenue from the rooms sold divided by the total rooms sold.

I like to use gross rates and again exclude complimentary rooms sold.

For example, Last night I achieved €10400 in gross revenue from 80 rooms sold the ARR or ADR is €130.

If I had 2 complimentary rooms on that some night, I could also calculate my Hotel Average Rate which would be the same €10400 in gross revenue but this time from 82 rooms giving a HAR of €126.83.

As you can see the ARR and ADR will always be at least as high as the HAR.

RevPAR

Revenue Per Available Room brings into account both occupancy and Average Room Rate by multiplying the two of them together and is a helpful performance indicator specially to understand whether revenue strategies are working as it is a combination of the two-core metrics.

RevPAR = ARR x % occupancy.

So, if last night I had an average rate of €120 and an occupancy of 75% my RevPAR would be €90.

A word of caution …  you must be consistent in you inclusion or exclusions of complimentary rooms (either both out or both in) for your RevPAR metric to be correct.

Although these are basic calculations it is important to see the idiosyncrasies about what to include or not, bearing in mind that your competitors who you benchmark against my use slightly different calculations due to this.

Some valuable but underutilised performance metrics

ALOS

An oldie but a goodie … Average Length of Stay is a very underutilised performance indicator. As the name suggests it calculates the average number of nights an entity stays. Due to the cost of turning a room, administration costs for check-in and out and the average total spend increases for longer stays it makes sense to look at this through a number of lenses:

• Strategies should be in place to increase the average length of stay overall

• Corporate and leisure accounts should be benchmarked against this

• Some origin markets can prove more worthwhile if their ALOS is longer

• Understand the different ALOS from each of your Distribution Channels

GOPPAR

Gross Operating Profit Per Available Rooms takes into account the cost of the sale of the room.

In this instance GOP = total revenue – (total departmental expenses + total undistributed expenses)

Total departmental expenses = Rooms expense + Food and Beverage expenses + other operated department expenses.

Total undistributed expenses = Administrative & General + Information & Telecommunication Systems + Sales and Marketing + Utilities + Property Operations and Maintenance.

Depending on the granularity you want to get to and how your hotels market and operational costs differ I would suggests taking the following as a minimum into account when calculating your GOPPAR:

• Commission to aggregators

• Commission the travel agents

• Commission on your own booking sides

• Proportionate costs for manual reservation input

TRevPAR

Total Revenue Per Available Room is another underutilised beauty and in my mind the performance indicator that hotels should spend a lot more time analysing as it takes into account all sources of revenue within a hotel.

All hotels would benefit from a refocus on this but resort properties in particular with the additional revenue centres available should pay particular attention.

RevPAG

Revenue Per Available Guest is similar to TRevPAR but divides the total revenue by the number of sleepers rather than the number or rooms … this gives a better sense of revenue contribution on an individual level.

True Occupancy

We talked about occupancy earlier with selling 50 rooms of a 100-bedroom hotel being 50% occupancy… right? Well not really.

What if, a guest arrives at 9pm and leaves at 9am the following day. We would have traditionally seen this at 100% occupancy as the room was occupied overnight. However, the guest only stayed 50% of the total time available for the day in that rooms (12 out of the 24 hours in the day), therefore the true occupancy could be seen as 50%.

Whilst this is a departure from how we have traditionally seen occupancy, if you redefine the time units available it opens to opportunity to transform the use cases of our finite physical assets, currently called bedrooms!

Understanding of performance metrics is essential in the effective running of hotels. Over use, out of context and misunderstanding leads to confusion and misalignment of goals. Choose the ones that are the most relevant to you and be consistent in your approach.

There is a real opportunity for hotels to redefine their performance metrics and move on from the more traditional Occupancy, ARR and RevPAR. TRevPAR and RevPAG especially are much more guest centric and require the whole hotel team to contribute, focussing on high levels of upselling and customer service as well as the more traditional ARR and occupancy %

Redefining relevancy in a new world

The over 65’s has never been a prime target for online marketing as they have tended to prefer more traditional forms of communication.

However, one of the fundamental behavioural shifts during this pandemic has been their online coming of age.

Whether this is online grocery shopping, cocooned video chat with family and friends or online banking their enforced learning curve has given them a new lease of life.

So, what now for the evolution of your 65+ marketing strategy?
Will you keep it traditional or can you show the same agility as our digital seniors and talk to them in their new world? 

Opportunity of a lifetime?

Whilst we experience what will hopefully be a once in a lifetime pandemic, there is also a once in a lifetime opportunity.

For those of us who are fascinated by consumer purchase behaviour, right now we have a rare insight into crisis stimulated behavioural change. Have you noticed a surge in customers switching brands due to specified marketing influences? For example, Dettol cleaning products specifically mention that they kill Coronavirus, among other things.

Or are customers more comfortable with the brand they bought a couple of months ago because it is tried and tested? Have you noticed customers switching to well-known reputable brands from store branded items? Are certain brands deemed as more trustworthy in times of crisis?

We all know that correlation does not imply causation, but in this case can we make that inference?