The hospitality industry is enjoying its longest expansion and healthiest growth in a generation, yet some troubling trends are beginning to surface that threaten profitability and overall performance.
One of these trends is related to net room revenue – that is, revenue that remains with the hotel after accounting for distribution costs (online and traditional agency commissions and other expenses).
Net room revenue has been declining steadily over the past several years. For instance, US hotels earned roughly $155.2 billion in guest-paid revenue in 2017 but paid an estimated $25.2 billion to acquire guests in the form of OTA commissions and other distribution costs, retaining significantly lower net room revenue of $130 billion (Kalibri Labs).
The overall growth in occupancy and revenue per available room (RevPAR) that many hoteliers have been enjoying for some time now cannot possibly compensate for ‘the loss of wealth’ through steadily increasing OTA distribution costs. Obviously, hoteliers need to increase direct bookings, which come at a much lower cost, and improve the overall direct vs OTA distribution ratio.
Integrated strategy: The missing piece of the puzzle
“One of the main reasons for the troubling trend of decreased revenue capture and profitability, despite stellar economic performance is the lack of integration, coordination, and singular focus and purpose among the core revenue generation teams at the property or hotel management company: namely, the revenue management (RM), sales and marketing (S&M), marketing, and customer relationship management (CRM) teams.”
Quite often these teams function in a rather disjointed fashion, leading to missed revenue opportunities, over-dependency on the OTAs, alienated loyalty members, and lower profitability.
Often the RM, S&M and CRM teams in a property operate in isolation from one another, without close coordination. In some cases, they even compete with one another to sell the same rooms. In other words, the left hand – one team – does not know what the right hand – the other teams – is doing, to the detriment of marketing efficiency and price integrity, and ultimately overall revenue generation, profitability, and the owner’s return on investment (ROI).
The reality: highly fragmented hospitality
Traditionally, RM, S&M and CRM operate as separate teams with their own goals, technology tools, databases, vendors, and more.
One glaring example of this highly fragmented approach is keeping past guest engagement efforts (CRM) in a silo from new customer acquisition and marketing efforts.
For example, looking at independent hotels, less than a third of hotel guests on any given night are repeat guests, while two-thirds are first-time guests.
This means that the reality general managers and directors of sales and marketing (DOSMs) face every day is having to fill about 70 percent of their rooms on any given night with brand new guests that they know very little about, while trying to ensure they have a pleasant and meaningful stay.
