With so much change taking place in revenue-management (RM), it’s no wonder hoteliers are finding it challenging to keep pace. That said, revenue management has such an extraordinary impact on a hotel business, hoteliers can’t afford to ignore it. Still, if a hotel’s revenue-management effort is largely rooms-centric, focused on a 30-, 60- or 90-day horizon, opening and closing rates, dates and stays and 48-hour specials on Expedia, then such a property is already in dire trouble.
When looking at the field, it’s clear there are first-, second- and third-generation revenue managers. The first generation are those individuals who were reservation supervisors or managers and who were artificially extracted from their reservation environments (or simply handed the additional workload) and given the title of revenue manager. The second generation is predominantly today’s RM professionals who bring number crunching to a whole new level, spurred by an insatiable appetite by senior management, asset managers and owners for tons of data. However, it’s the third generation of revenue-management talent that is needed to handle today’s challenges. It’s this generation that will guide a turbulent evolution that involves metamediaries, big data, value indexes, Total RM and more.
According to a HITEC 2013 Special Report story, written by Cindy Estis Green, Google Hotel Finder is a good example of a metamediary. “[It] emerged as a hotel-specific search engine and had a companion in the Google Flight Search tool — all part of what has been called travel ‘metasearch,’” Estis Green writes.
In addition to Google, certainly other metamediaries could include Tripadvisor, Amazon.com, Facebook, Apple and Microsoft. It’s impossible to predict just how much impact the metamediaries will have on hotel distribution, but when one considers the market capitalization of an iconic brand such as Marriott at $12.5 billion, while Google comes in at $294 billion, Microsoft at $292 billion, Amazon at $126 billion, Facebook at $58 billion and Apple at a whopping $406 billion — it gives one reason to pause. Even Tripadvisor is approaching Marriott’s level at
When the traditional is compared to the new-age purchase funnel, one of the most disconcerting elements of this pattern of consumer buying behaviour is how low in the funnel brand.com appears. The metamediaries are capturing the consumer at the beginning of the purchasing funnel, which gives them a huge advantage over the brand in terms of influence, as they can capture the business early and charge the hotelier a commission or fee to do so. If the industry thinks they “lost control” to the OTAs, imagine what could happen with a metamediary.
Considering Tripadvisor has 200-million-plus unique visitors monthly, with more than 100-million reviews — and consumer feedback indicating that nine out of 10 travellers say that “Tripadvisor reviews help me feel more confident in my decision” — revenue managers must stand up and take note. And, yet, how often are metamediaries being discussed in weekly RM meetings?
At the Revenue Optimization Conference (ROC), held recently in the U.S., during the Hospitality Industry Technology Exposition and Conference (HITEC), myriad references were made to the term “big data.” Naturally, a search for the term in the dictionary leads to a dead-end. Wikipedia defines the term as “a collection of data sets so large and complex that it becomes difficult to process using on-hand database-management tools or traditional data-processing applications.”
Interestingly, the hotel industry is turning out new reports, analytics and market-intelligence tools by the day. And, there’s more revenue-management teams turning to sophisticated business intelligence (BI) tools to manage multiple data sets. For example, at the HITEC show, 28 companies exhibited business intelligence and data-warehousing solutions. While conducting a presentation at ROC, I asked how many revenue managers were using BI tools to support their RM efforts. Approximately 10 per cent of the audience confirmed they use BI tools, a number that is certainly up from a year ago and will continue to be a trend.
It’s unlikely data sets will become fewer or less complicated, and so hoteliers need to be asking the following questions: Is our revenue manager trained in the use of BI tools, and are we prepared to invest in more sophisticated support tools to track, organize and interpret data?’
THE VALUE INDEX
Here is another example of how rapidly changing consumer buying behaviour is impacting revenue-management practices. Buckhiester Management is working with clients to identify and track their value index. This metric looks at the hotel’s value rating (which is a sub-segment of the overall review) and indexes it against the competition — much like a Smith Travel Research (STR) market share index. The metric is then used to track value propositions and guide pricing decisions. If a hotel’s value index exceeds 100 per cent, it indicates that rates could be more aggressive; if the index falls below 100 per cent, the consumer is questioning the value proposition.
Meanwhile, a recent Cornell University Center for Hospitality Research study (compiled in conjunction with ReviewPro, a San Francisco-based company that offers reputation-management software) was intended to triangulate the impact of user-generated content on hotel pricing using data from Travelocity, Smith Travel Research and Comscore. The study, entitled “The Impact of Social Media on Hotel Performance,” determined that user-generated content/review scores are an important part of the research process, that there is a substantive impact at time of purchase and that the impact at time of purchase translates into pricing power, demand and overall performance. For example, an increase in review score by one point (say 3.8 to 4.8) increases the odds of the room being booked by 13.5 per cent and can increase price by eight per cent, while maintaining the probability of purchase and market share.
TOTAL REVENUE MANAGEMENT
The concept of Total RM is not a new notion; hotels have always endeavored to maximize their entire asset. The difference today is the desire by hotels and resorts to make their approach to profit maximization more sophisticated.
In essence, Total RM is about optimizing revenues and profits from all revenue streams (rooms, F&B, parking, spa, golf, retail, et cetera). It is about finding the most profitable mix of business for the entire hotel asset. More often, metrics such as Gross Operating Profit per Available Room and Profit per Occupied Group Room are being tracked.
It’s heartening to see a greater emphasis on this “brand” of RM. Those who manage a limited-service property may be less interested in this concept, but even rooms-only operations must consider how different each market segment and each channel is from a total spend and cost-of-sales perspective.
In today’s competitive marketplace, we’re witnessing a shift in revenue-management practices that considers all revenue streams and all costs of acquisition. The revenue manager no longer spends 95 per cent of his time on optimizing rooms revenue but on finding the most profitable mix of business for the entire hotel asset. So, are you ready for the “revolution” in revenue-management practices?
Bonnie Buckhiester is the principal of Buckhiester Management, a revenue-management consulting firm in North America specializing in the hospitality industry. She can be reached at firstname.lastname@example.org.