In the decade when Marriott International was credited for adapting American Airlines’ yield management practices for the hospitality industry, the Internet barely existed, Expedia was still a decade from launching, Mark Zuckerberg was just a baby and Google was 20 years from changing the world.
Suffice to say, customers back then booked hotel rooms very differently. Today, a significant portion of consumers book through third-party online travel agencies (OTAs) like Booking.com or Expedia, marketing and technology companies charging up to 20% and 30% commissions. Even those customers booking a room at the hotel’s own website are likely visiting several sites beforehand — many of which are getting a piece of the pie. A “direct booking,” therefore, is hardly so.
New channels, social media and mobile have changed the industry for good. But they have made the business of distribution, and ultimately revenue management, far more challenging for hotels.
Alongside these new marketing channels are more and more online travel agencies – both traditional and non-traditional. Google, Facebook and Apple are some of the non-traditional companies becoming more involved in the travel shopping and booking process.
In Asia, this trend is on the fast-bullet train. Late last year, Expedia debuted an Expedia-branded website in China, following others in Korea and Taiwan. Priceline Group and Booking.com, TripAdvisor, and China’s own Alibaba Group, Qunar and Ctrip are also in the fray.
Leland Pillsbury, the man credited with launching the first hotel revenue management system while with Marriott in the 1980s, describes the emergence of OTAs as “the invasion of the value snatchers.”
The writing is on the wall. Hoteliers need to recognise that the same revenue management systems and strategies they started with are no longer effective today. Best-available-rate pricing is no longer acceptable when open and truly dynamic pricing is a viable option. Managing (and pricing) to meet budgets and mistaking inventory management for revenue management can be costly mistakes in today’s environment.
The solution is not to go out and get another revenue management solution or tool without first considering the philosophical changes that should be adopted. What must first change is the overall approach to revenue generation. No longer can revenue management be done in a silo, separate from other departments such as marketing that are tasked with stimulating demand.
This new revenue strategy must include the sales, marketing, distribution, revenue management and loyalty departments. In fact, every department that contributes to revenue must be roped in and be working together toward the same goal. And that goal has changed too as top-line revenue is no longer the same as it used to be. The new focus must be on profitability and net revenue, because not all revenue is equal today. The cost of acquiring a customer must be carefully considered. Think about the money being paid to intermediaries and metamediaries like Qunar, Skyscanner or Kayak. In some cases, customer acquisition costs can be as high as 40%.
So where do we begin? Market intelligence from revenue management forecasts should serve as a starting point for developing revenue strategies. Then get everyone involved in the conversation.