As the number of hotel distribution channels, marketing tools and rate types increase—and the cost for each booking varies—so does the need for determining a hotel’s optimal business mix (OBM).
But with so much data to process and analyze, coming from multiple sources, the challenge is to maintain a high-level perspective on the hotel’s overall revenue goals and needs.
That’s where the art and science of determining a hotel’s OBM come into play.
To put it simply, finding a hotel’s OBM is the process of finding which sales channels, demand segments and rates work best for the property, factoring in the cost of each customer, during a range of time periods, including daily, weekly, monthly and seasonal patterns.
Without a concrete understanding and commitment to an OBM, hotel marketers cannot apply their budgets and resources properly… leading to misalignment with ownership and missed targets.
“Taking a step back and looking at the big picture is the key,” said Jennifer Hill, vp of business development for Kalibri Labs, a leader in hotel benchmarking and reporting systems and analysis that recently published the special report, “Demystifying The Digital Marketplace.” “It’s hard to see the forest for the trees and understand what is important to the hotel business and the profitability of the hotel during certain seasons and different times of the year, as well as with different demand generators. You can’t look at any of that information—whether it’s channel distribution or rate category production—in a silo.”
Not Your Average Comp Set
One of the primary and most radical aspects of determining a hotel’s OBM is the need to expand your thinking beyond the textbook comp set approach to hotel forecasting and analysis. Hill said that while the traditional hotel benchmarking method compares a hotel’s performance against its competitors’ average performance, optimal business mix benchmarking is not necessarily limited to just those self-selected hotels in a comp set.
“The traditional metric is comparing your performance to an average of performance in hotels that might no longer be your direct competitors and might not actually be comparable hotels for every segment and every channel,” said Hill. “The OBM helps hotels get an understanding of demand and business that is available in their market, and where they can make the most money.”
For example, a hotel may consider its optimal business mix versus two or three hotels on Tuesday or Wednesday for corporate via GDS bookings, compared to another five hotels among which the property competes for OTA business on Friday and Saturday, plus another different six hotels that the property competes with on Sunday. In general, the comp set increases as demand declines.
“We’ve found that sometimes that 800-room hotel may very well compete with that 100-room economy scale hotel for that Sunday business,” said Hill. “The traditional benchmarking method just shows you, ‘Here’s the average performance; if you can manage to capture that, this would be the revenue increase,’ but if you’re looking at optimal business mix, you’re fine-tuning your actions against more specific targets, so you can maximize profitability based on pretty much every combination of channel, rate category and day of week. The outcome of that generally is a much greater realization on a profit contribution basis, not just revenue.”
Decoding Demand Generators
According to the Kalibri Labs report, the OBM journey begins with forecasting demand for each source of business available to a hotel. From there, one must review the gap between the subject hotel and a reasonable target for its market share for each of its demand drivers.
