A relative lack of sophistication can make revenue management more difficult for economy and midscale hotels, but sophisticated rate strategies are effective for those who do prioritize them, sources said.
REPORT FROM THE U.S.—Revenue management in the midscale and economy segments can be a tricky proposition, given the relative lack of sophistication among many properties operating in the space. But those who make the effort can really set themselves apart, sources said, by developing cutting-edge rate strategies.
Strong revenue management is a focus for economy, extended-stay brand Extended Stay America, according to Tom Buoy, the company’s EVP of marketing and revenue management.
“That’s one reason I joined the company in 2011,” he said. “We saw a significant opportunity to transform our revenue management practices.”
Buoy said ESA has a few advantages when it comes to revenue management, including a segment-leading automated system, and the fact the company owns and operates its properties.
James Bethany, corporate director of revenue management for Peachtree Hotel Group, said success in the space comes down to setting reasonable goals and doing what you can to attain them.
“In the economy scale, some owners don’t look at (STR data),” Bethany said. “That’s an important thing to have no matter what scale you’re in. You’re making a mistake if you don’t have intelligence on your competitive set.”
(STR is Hotel News Now’s parent company.)
Bethany, who previously worked in a revenue management role with the midscale La Quinta Inns & Suites brand, said hoteliers need to take that information and figure out where they want to rank in their competitive set.
“We all want to be No. 1, but you can’t always be,” he said. “So it’s a matter of finding your natural rank. Ask yourself ‘should I be number three or four?’ That way you know when you’re at six there’s a problem and when you’re two you stole someone’s share.”
Jesse Ostrum, VP of revenue management at Red Lion Hotel Corporation, said his company is in the process of melding two different cultures of revenue management, following RLHC’s September acquisition of Vantage Hospitality.
He said the two companies already operated in a similar fashion, and he’s optimistic about their strength together based on RLHC’s strong technological capabilities and Vantage’s strong culture of education and working with member hotels. He said this work will ultimately benefit the company’s entire portfolio, including its midscale and economy brands.
“The key principals you have to look at are education and training,” Ostrum said. “Revenue management touches on all aspects of a hotel, especially at those lower levels. For economy brands, we focus on training operators on all the aspects of revenue management instead of just price adjustments and automation.”
A variation in competition
Sources said hotels in the lower-end segments, particularly in economy, vary greatly when it comes to revenue management aptitude.
“Some are better than others in the economy space,” Bethany said. “It’s all about engagement with the management team on property. I suspect some kind of set (their rates) and forget it, and it is what it is, but I’ve known owners with economy brands that are so involved they know every reservation booked.”
Buoy said the best strategy for counteracting that, from a brand’s perspective, is educating management teams at the property level to help raise “the revenue management IQ of franchisees or managed properties.”
Ostrum said part of that involves educating economy operators on not just how to improve revenue management, but also on why it’s important and can ultimately help them drive more profit.
“We do see some resistance (to revenue management practices),” he said. “A lot of mom-and-pop operations are very set in ‘this is how I’ve done things in the last 10 to 15 years.’ And they are questioning why they’d take their time to have meetings on all these different aspects (of revenue management). I’ve found the best way to overcome that is from personalized interactions. We’re not just emailing them a how-to handbook and plugging in a black box.”
Ostrum said the education process also includes teaching hoteliers that cutting prices isn’t the solution to all problems, even though they have an economy hotel. He said it’s important to focus more on value than price.
“People are not looking for the best price but the best value,” he said. “In most cases, our hotels have two or three things that are significantly above what other hotels (in their area and comp set) are doing, and people don’t mind paying $7 to $12 more.”
Sources agreed that price erosion is a problem in lower chain scales due to the lack of sophistication, but strong revenue management practices overall represent more of an opportunity than anything.
“We view it as competitive intelligence,” Ostrum said. “It gives owners the tools and information to make better business decisions.”
Managing the channel mix
Because economy and midscale hotels are favored by more price-conscious consumers, sources said there will always be a reliance on online travel agencies, but adopting good revenue management practices means recognizing that not all demand comes through OTAs.
Peachtree’s Bethany said the fact that many economy hotels are small helps in this regard because they don’t need to find as diverse a group of demand drivers as larger full-service properties do.
“In economy, we don’t need to do that because most are pretty small boxes anyway,” he said.
Buoy said hoteliers can’t accept a less favorable channel mix just because they operate at a relatively low price point.
“In principal, the approach is the same,” he said. “The goal is to maximize profits. The approach for us really varies depending in the channel’s ability to be accretive or deliver incremental demand.”
Buoy said he’s excited about the possibilities of further innovations in the economy space. He said his company hopes to benefit from things like marketing automation and the growth of artificial intelligence and machine learning to improve its outreach to potential guests.
He noted some other companies are wary about the effects of automated systems like the ones ESA employs, but he said the company’s system and the support team behind it offers a big advantage across the portfolio.
“I believe we are category-leading in our approach,” he said. “We’re able to invest and apply capital (to revenue management) in ways competitors cannot.”