Hotel distribution has changed a lot in the last 20 years. However, hotel revenue management practices haven’t. This is because the technology used hasn’t kept pace. Revenue managers want to do things differently, but they are held back by technological constraints.
Michael McCartan will expand upon this presentation, “How Can Big Data Help You Get Perfect Pricing,” at this year’s Travel Technology Europe conference. See his keynote speech at 10 a.m. on 23 February, 2017, at Olympia London.
Leading in technology and therefore leading the market are the two largest online travel agents: Priceline and Expedia. They can afford to A/B test and be more agile than hotels. The technological constraints faced by hotels make competing with OTAs a fairly daunting task. Throw in competitors from the sharing economy, such as Airbnb, and it seems there’s a lot racked up against them.
The figures don’t stack up too kindly for hotels either. According to Kalibri Labs, direct hotel bookings decreased by 40% from 2011-2015, while third-party commissions, such as those paid to OTAs, have doubled.
For hotels, ADR and RevPAR may be up, but the profit margins for owners are worse off now than they were just after the recession, because of the rising cost of distribution.
Something needs to be done.
Back to Revenue Management Basics
“Revenue management sells the right product to the right customer at the right time for the right price.” – Robert Cross, 1997
But today, hotels are only offering the right product at the right time for the right price. They are not finding the right customer.
They are not merchandising, just offering. Their efforts are price-led rather than selling the right value to the right customer.
Revenue managers are fishing in a small pool. The problem is, they don’t have the ability to fish in different pools. They have defined their customer and don’t have the technology or data to identify new customer opportunities.
Hotels need to increase the size of the pool and create more opportunities. They need to take a top of the funnel approach.
Working With the OTAs
Hotels need to use the strengths of the OTAs to their advantage. After all, OTAs have made hotels available online, created great visibility for hotels and taken properties to a global market.
But, once that customer has booked a room via an OTA, the hotel needs to own that guest. Customers should never go back to using an OTA again once they have stayed on property. You should create enough of a relationship that they will always book direct from that point on.
Three Pillars to Successful Revenue Management
Revenue strategy is not just about optimising prices. It’s about:
- Breaking down departmental silos
- Utilising alternative data sources
- Implementing Open Pricing
Put these three pillars to successful hotel revenue management in place and you will have a robust Revenue Strategy that will increase both your top and bottom line.
Breaking down silos
There needs to be a collective decision to drive more revenue to the hotel, while also working toward being more operationally efficient.
There is often conflict between the sales and revenue management teams — one is pushing for occupancy, the other is pushing for price. Both need to work together. Only then can the hotel succeed.
Using the right data
There is more data around today than ever before. Yet, this data is in disparate places, and most of it is not useful. Hotels need to leverage it in a meaningful way. This is where predictive analytics and platforms help. They can identify the unusual – this is where the opportunity is.
Traditionally, hotels have looked at historical data. They have used backwards-looking data sets. This is like driving your car with the windscreen blacked out, only relying on the rear view mirror. Instead, they need to add in forward-looking data.
Let’s say, for example, the Rolling Stones announce their last ever concert in your city. It’s announced via social media. There’s no way historical data alone can help you forecast the effect a monumental event like this could have on your hotel’s demand.
Suddenly, your data sets show unusual activity. There is increased demand for a certain set of dates, flight data shows increased booking activity, and your regrets and denials see a spike, as does your shopping data. Even without you knowing about the concert, the data can show you an increase in demand. Once you’ve identified the cause (the concert) you can better understand that demand and test the price elasticity.
The forward-looking data has alerted you to this and, if you are using a revenue management system, it can push the prices up accordingly.
Forward-looking data is invaluable. People generally book flights before they book hotels, so flight data is a great indication of demand.
Hotel revenue managers need a system to crawl through that data to enable them to manage by exception, rather than spend all their time crunching data.
Adopting Open Pricing.
Managing by exception is key to an Open Pricing structure.
Very often, hotels will operate a best available rate (BAR) system. This standardised approach to rates doesn’t take into account market metrics.
For example, your city is to host the Rugby 7s. Your double rooms and standard twin rooms are set at a BAR rate of €200. That’s great, but consider the market. This sporting event is likely to attract a lot of men, travelling in groups of two or more. Therefore, your standard twin is the high-demand product. This should be charged out at a higher rate than the double.
A rigid pricing structure doesn’t allow you to price correctly. What does is a combination of Open Pricing and understanding demand.
When you apply these three pillars of hotel revenue management — breaking down departmental silos, alternative data sources and Open Pricing — you can, and will, drive more revenue.
- Mixed Revenue Fortunes for UK Hotels in 2016
- Why Data Quality Means Price Accuracy
- RSF London: Hotels Race to Convert on Digital Highway
Latest posts by Michael McCartan, Managing Director, EMEA (see all)
- Why Hotels Should Embrace OTAs, Not Fight Against Them - September 29, 2017
- 6 Changes to UK Hotel Market Dynamics - September 7, 2017
- It’s Time for Change if Hotels are to Drive Profitability - April 6, 2017
Tags: acquisition costs, ADR, Airbnb, Average Daily Rate, BAR, Best Available Rate, direct bookings, EMEA, Europe, expedia, hotel distribution, Hotel Revenue Management, hotel revenue managers, hotel revenue strategy, hotel technology, Kalibri Labs, Online Travel Agency, open pricing, OTA, Priceline, RevPAR, Robert Cross, sharing economy, Travel Technology Europe