Long periods of market uncertainty are becoming increasingly common in today’s highly fragmented industry and hospitality professionals are always on the lookout for better ways to maintain consistent profitability.
Revenue management strategies have played a critical role in enabling hotels to cover their operating expenses during periods of low demand. By employing dynamic pricing strategies based on market variables and accurate forecasting, properties began to witness significant improvements in the bottom-line.
However, guest trends and spending patterns are subject to a high degree of unpredictability in our current digital landscape.
The rapid onset of smartphone technology has seen OTAs capitalize on mobile platforms by offering travelers an unprecedented level of convenience in the form of apps and mobile-optimized websites.
Unsurprisingly, the online agencies now dominate a sizeable portion of global distribution. According to data released by the HAMA Study & Kalibri Labs, while industry-wide revenue had witnessed incremental growth over a three-year period, commissions grew twice as fast.
In fact, revenue management leaders Duetto recorded customer acquisition costs as high as 40%! In light of these developments, it may be time for revenue managers to modify their approach.
Segregating all booking sources
Although it’s a fairly common industry practice among revenue managers, general managers and other hotel decision makers; estimating factors like ADR evolution targets and customer acquisition expenses can be costly if there’s no objective information to back the projections.
Analysis of each of the channels currently in use at the property is the first step to gathering objective data. At most hotels, the prominent channels are OTAs, direct booking centers including the hotel’s website and front desk, corporate relationships, and travel agents connected to the GDS.
All channels need to be studied for three key metrics:
- Gross Revenue – The total revenue being generated by each channel for a specific period
- Customer Demographics – The segment of travelers which each channel attracts
- Channel Costs – The total cost of customer acquisition associated with each channel
With sufficient information on each channel’s gross revenue, demographics and cost of acquisition, revenue managers can evaluate the profitability of individual sources and identify areas that need to be prioritized.
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