Use performance data for a competitive edge
10 FEBRUARY 2016 7:10 AM
The most effective management companies are flexible, and by making fact-based decisions they are constantly prepared to adjust strategies to capitalize on market trends.
In today’s world of revenue management, there are several industry resources that provide critical insights into both past and future performance for a property or group of properties. Integration and utilization of these data sources is important in the daily decision-making process.
At the core of these data points is the access to measure the effectiveness of a pricing and market segment/channel mix strategy. Validating past decisions in an effort to make adjustments to future decisions must be based on current and relevant data, and this is happening at a more rapid pace than before.
Pricing decisions have become more complex, due in part to transparency and necessity to ensure price parity across the Web, as well as access to more data points relevant to those decisions. Price positioning and average rate rankings should integrate the expectations of hotel owners, while day-to-day pricing decisions made to realize those expectations should be left to the property’s revenue team (general managers, directors of revenue management, directors of sales and marketing and directors of e-commerce).
Decisions taken in the property revenue-management meetings should focus on deploying a pricing strategy that achieves the overall performance targets for the property while ensuring those decisions are in line with the overall performance expectations defined with the owners. The most effective management companies are flexible, and by making fact-based decisions, they’re constantly prepared to adjust their strategies to capitalize on current market trends.
For owners, market share can provide insight into how effectively their hotel management company is performing. For management companies, delivering positive year-over-year metrics is the key to giving owners confidence in your strategies and your ability to execute those strategies.
What’s indicative of how critical the function has become is that on-site directors of revenue management typically report directly to the general manager. Management companies with a large portfolio are likely to have a system-wide revenue-management team that sets overall policy and procedures. In larger markets with a high concentration of properties within that portfolio, there might be a cluster revenue-management team.
A clear understanding of a property’s optimal performance targets is critical when establishing a competitive set. In most cases a hotel has multiple comp sets. Depending on the market and dynamics of that market, some properties will rely on multiple competitive sets to measure their performance.
Understanding how these markets have performed in the past will better prepare the property sales and revenue-management teams to define market expectations in the future. Mix of business, segment rankings and index targets can be defined and strategies deployed. As periods materialize, the effectiveness of those strategies can be measured and adjusted as needed.
In some cases, aspirational competitive sets are used. These sets typically are a shared vision where ownership and management companies have identified hotels in the market that best reflect the end state. Once gaps are clearly understood, longer-term plans can be deployed to begin the process of closing the gaps in product, service and performance.
In other cases, destination competitive sets are used. For hotels and resorts with significant group demand, the property might benefit from a competitive set that includes properties in competing cities or destinations. A resort in Arizona, for example, might find itself competing not only against other resorts in Arizona but comparable properties in Nevada, California, New Mexico and Texas with similar attributes, including the same basic group capacity and cost structure.
Many corporate groups and associations with a national scope also make it a practice of following an East Coast-West Coast rotation for meetings. Consequently, an Arizona resort might find itself competing in the broadest sense against a property in Florida or the Caribbean. It’s always worthwhile to discover what top-performing properties are doing to win their business, particularly the sweeteners they are offering to close deals.
Finally, competitive sets are valuable tools for evaluating a capital improvement program. Among other considerations, the management team will likely advise that the owner renovate “to the comp set.” In other words, at the beginning of the process, the operator should have a clear understanding of the impact the improvements will have against the comp set.
When considering a capital expenditure, questions to ask include:
- Will the investment create a competitive advantage?
- Will the investment generate additional revenue?
- Or are the improvements needed just to ensure the property stays even with its competitors?
Operators need to focus on ensuring renovations are comp set-based. Some owners have a fixed-dollar figure in mind when it comes to costs. The usual assumption is that the operator then makes the case the figure is insufficient and argues for more.
This, in fact, might be how it plays out in a majority of instances.
But it’s also possible for the operator to argue the opposite and counsel the owner to reel in the scope of the work. A more modest capital investment can be sufficient to leave the comp set in the dust.
Joseph (Joe) Berger is Executive Vice President & President, Americas for Hilton Worldwide. He is responsible for the operations functions of over 300 corporately managed Hilton Worldwide hotels and Hilton Grand Vacation resorts throughout North, Central and South America.
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