Achieving optimal mix requires unified revenue strategy
 
Achieving optimal mix requires unified revenue strategy
18 JULY 2018 8:15 AM

Going beyond standard hotel revenue-management techniques is an important step to creating team cohesion in the quest for more revenue, according to panelists at the recent Revenue Strategy Summit.

WASHINGTON—Determining an optimal mix of hotel business is one of the byproducts of developing a cohesive revenue strategy rather than using traditional basic revenue-management techniques, according to speakers at the recent Revenue Strategy Summit.

Hoteliers speaking during the panel “Revenue strategy in the digital age” said elevating revenue generation to a strategic level is a must as technology and transparency continue to expand throughout the hotel industry.

“In some ways, that’s as old as talking about pricing—now it’s dynamic pricing,” said Bonnie Amato, chief revenue officer for Fulcrum Hospitality. “As all these brands have evolved revenue-management systems, the revenue-management systems have not created demand. However, they’ve allowed us to understand mix in a way we never understood it before.”

All things considered, achieving optimal mix is about market occupancy, she said.

“We are really particular about talking about segment and revenue because the reality is a big chunk of friends and family of whatever brand can bring your total rate down,” Amato said. “If it’s truly incremental and it’s truly out of season and it’s your lowest cost channel and there’s no commission, you really have to understand that individual, was that decision right or wrong, would you do it again or not?”

Gary Hawkins, VP of revenue strategy for The Sydell Group, said some hotel owners think optimal mix is solely based on having a certain demographic represented by the guests instead of rate because of the image they project. That’s a notion that didn’t surprise Nolan Wrentmore, VP of revenue management and e-commerce at Aimbridge Hospitality.

There are more competitive-set tools available to manage optimal mix, but more and more owners don’t always look at revenue as the ultimate judge, according to Wrentmore.

“It may be that type of guest that is turning up in your hotel—are you attracting guests that are ultimately helping your bottom line?” he asked. “How do you really take that net revenue into account and the type of guest showing up in your hotel? There’s nothing that I’m aware of that you can really measure that. We all can sit here and say it’s the opaque customer, right, but that’s not really a fair assumption. Maybe all those friends and family, maybe they’re the best guests.”

Hawkins said understanding owners’ objectives is the first step to having the best business mix.

“Some want you to maximize rate, some want you to maximize occupancy and sometimes it’s about (revenue per available room),” he said. “When you think about the best way to drive revenue, there’s an aspect that says what are we driving?”

The idea of an optimal mix is easier to digest when looking at a specific time period and knowing the history of the hotel, including when it performed best, added Andrew Jordan, chief marketing officer at Interstate Hotels & Resorts.

Understanding the optimal mix includes things such as not only knowing how many best-available-rate rooms are picked up, but how many were canceled as well, according to Amato.

“That is a new dynamic environment,” she said. “Cancellations have caught almost every single one of our properties off guard. You don’t see it in the net number, so this optimal mix piece is really, really intriguing to me. I’m not saying you don’t have to have one anymore, but I think just trying to use these new systems and understand these numbers to make the best leadership decisions has—at least for my hotels—turned them on their head and they’re just starting to get back.”

Hawkins said he is struggling with optimal mix because it almost sounds too trivial.

“It’s so much more sophisticated today,” he said.

Of course, there’s one way to end the optimal mix discussion altogether, he said.

“The optimal mix would be 100% direct, but that’s never going to happen,” Hawkins said.

Hitting a moving target
The panelists agreed that the hotel revenue discipline is constantly in motion. Moderator Kathleen Cullen, SVP of revenue and distribution at Two Roads Hospitality, said hoteliers have not changed their approach to revenue generation to match the industry’s overall vast change.

“We need to embrace a holistic approach at looking at all revenue-generating disciplines and understand how to drive in a very holistic way versus continuing to work in our silos,” she said.

Most companies today still have sales as one silo, marketing as another and revenue as another—and sometimes digital stands alone, she said. That creates a problem.

Usually revenue management drives rates and inventory, while sales handles corporate groups. Depending on the hotel or hotel company, one of those two will drive the digital efforts, she added.

“It’s critical that we all change our mindsets, start in a thoughtful, well-laid-out way, plan the measurements, plan the resource allocations and have those measurements in place so that we can track success and then adjust in the future,” Cullen said.

Involving other departments and disciplines is an important step to maximizing revenue, according to the panelists.

“Revenue strategy is way too important to simply be left to the revenue strategists,” Jordan said. “When I think organizations that are evolving, it seems like something that is not siloed at all. Sales and marketing and e-commerce, I think it’s partnering with (operations) … that’s how we make money.”

Wrentmore said revenue strategy must be a team effort.

“It’s really about putting together a plan on what we all need to do to achieve a certain goal, whether that goal is as simple as a budget or we’re going after STAR report results, or we’re going after net RevPAR, or whatever it may be,” he said. “GMs or (operations) leaders, they need to be the ones that are really involved. Sales needs to be involved. Whatever you want to put it under, everyone has to be involved and have that common component of understanding what exactly our goal is and how we’re going to achieve it.”

Amato said she quit using “revenue strategy” to describe the function in lieu of “revenue leadership.”

“It’s about defining what the next step (is) and leading to it,” she said.

Jordan said revenue strategists have grown from being someone more technical in nature that was in the background to someone with leadership qualities.

“I think really the sales group is the one that is evolving,” he said. “I don’t want to say it’s a power struggle because it’s not that simple. Somebody who’s got the foresight to sort of allocate the resources to forecast what’s going on in the future, I think the revenue strategist—both discipline and individual—is in many cases at point to do that.”

Establishing a hierarchy
The shift in silos has already started, according to Hawkins.

“I don’t think that long ago oftentimes you see revenue reporting to a sales and marketing person, which, as a revenue person, always seemed backwards,” he said. “It’s not about territory or ego, but I sort of view the sales team as another distribution channel that somebody with a holistic view of the business should be like, ‘OK I really need group here in the same way like I really need Expedia over here and I’m going to turn it on.’

“It’s going to shift the relationship between sales and revenue, and I think oftentimes the best scenario is when there’s a healthy pull between them but ultimately someone who isn’t attached to the segments but overall the top-line success of the hotel and the bottom-line success of the hotel sort of calling the shots,” Hawkins added.

While who’s in charge is important, it’s not the be-all and end-all, according to Amato.

“It doesn’t make the second person any less important,” she said. “One person can’t do it all.”

Jordan said owners and asset managers should insist that GMs get revenue-management training if they don’t already have that experience in their careers.

“It’s not as simple as, hey let’s change our rate from $159 to $179 and hope that’s going to fix everything,” Wrentmore said. “We need to have strategies that are constant and consistent. There’s always been the underlying ‘why we need to do this.’ I don’t really have an answer to ‘why now?’ but it’s risen to the top.”

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