Many hoteliers struggle with the same revenue management questions, especially during times of significant market uncertainty, like we are currently experiencing.
NB: This is an article from Lybra, one of our Expert Partners
Never fear; I’m here to answer hoteliers’ top 10 questions about revenue management in the times of COVID:
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Q1). What is your view on the importance of revenue management in times of COVID?
Revenue management is equally important today, as it was before the pandemic; however, today there should be a much greater focus on improving cost control and profitability, as well as a significant focus on demand generation.
One of the areas where revenue managers should be focusing is online marketing/advertising; specifically, any investment in online marketing must have solid data to support that investment and, if it doesn’t, it should be cancelled to contain costs.
One other crucial area where revenue managers must focus is demand generation, as global travel has come to an almost complete standstill during the COVID pandemic. To generate demand, your property must understand upcoming trends and be able to adjust accordingly.
One of the best indicators of the intent to travel is flight search data so understanding flight search demand is crucial. When you know which countries (or even, specific airports) have the strongest flight search demand for your property’s destination, you can leverage this information to adjust your marketing and revenue management strategies to reach and capture more of the pre-existing demand that is already planning on traveling to your destination.
Q2). How can you forecast effectively without relevant historical data?
Because we have lived through a completely unprecedented year, historical data should no longer be the primary focus of RMS algorithms, because there is no ability to do a direct comparison. Historical data should not be completely factored out of the forecast algorithm; instead, the weighting of historical demand must be greatly reduced in the algorithm, but not completely ignored. Most importantly, the revenue management forecast algorithm must be updated to incorporate and prioritize real-time, demand-centric data points, such as:
- Market demand data
- Hotel competitor prices
- Flight search demand data (which will be especially important for hotels that are in an area where guests typically travel by air to reach the property)
Q3). Are you expecting new segments to develop from COVID?
Absolutely, but I think that it’s more important to understand how guest behavior has changed, post-COVID, rather than using the traditional segment categorization, to be most profitable.
Here are two examples…
I, personally, do not expect MICE (Meetings, Incentives, Conventions and Exhibitions) business to return to the levels of 2019 for at least 3 to 5 years – and perhaps, never. (Of course, this is just my humble opinion and I do hope I’m wrong.) As such, MICE businesses have had to adapt to appeal to consumers’ post-COVID behaviors; when the world opens again, hybrid events (a mix of in-person attendees and virtual attendees) will become the primary format for most MICE events. Unfortunately, hotels who had relied upon those large-scale events to supply most of their revenue will be negatively impacted by this because, obviously, even when an event happens, less people are arriving, in-person.
This is the perfect opportunity for business and city-center hotels, who used to rely on MICE business, to really think about how they can position themselves to best cater to new consumer behaviors, by developing a strategy to use your pre-existing space for a different activity that will attract in-person guests (from a different demographic).
Another great example is the rise of the digital nomad lifestyle; today, many people are in a fortunate position to be able to travel around the world, while working remotely. These newly empowered remote workers are a profitable demographic, and all types of hotels should adjust their marketing strategies to appeal to/fulfill this type of traveler’s needs.
To be successful today, hoteliers must try to identify new consumer behaviors that will drive new segments of travelers, and then adapt their revenue management and marketing strategies to reach that segment.
Q4). What is your view on the future role of data analytics in revenue management?
In the future, data analytics will continue to be a much more important development in hotel revenue management systems, and the key differentiator between RMS will be data quality and data integrity. In addition, RMS algorithms must be designed and optimized to use real-time demand data to ensure that a hotel’s room rates evolve, as the market does, instead of only a few times a day.
I expect this trend to continue as hoteliers realize the importance and value of all kinds of real-time demand data, including rate shopping data, hotel reputation data, flight search data, and events. These metrics will be very important to maximize revenue optimization, so RMS should have this data integrated, in real-time, into their algorithm to enable hotels’ success today, and post-COVID.
Q5). How can hotels win the war with OTAs, post-COVID?
“Make friends, not war!” Isn’t that how the saying goes?!
Most hoteliers perceive OTA commissions to be really high and are obsessed with any advice that promises more direct bookings, but to me, this debate is like comparing Amazon to Etsy.
For example, if you operate a very guest service-focused hotel – meaning, you consistently deliver great service to your guests and you really have an outstanding hotel business – then you are in a very strong position to receive more direct business, and obviously, more repeat business. Even so, you should not completely remove your property from the OTAs; the OTAs are there to add to or complement your online distribution, in addition to the direct business that you already secure – even if just for the sake of the Billboard Effect.
On the flip side, if you are a standard hotel, without a strong service culture, you have a very limited ability to drive more direct traffic or repeat business, so you should absolutely prioritize the OTAs to earn as many bookings as possible.
Now, I’m aware that I’ve just described two very extreme cases – amazing service culture, zero service culture – and I acknowledge that most hotels will fall somewhere in the middle of the two – again, meaning that a mix of direct and indirect online distribution will be important to maintain profitability.
But if hoteliers do want to increase their direct bookings, there is one very simple way to do it: by prioritizing guest service, above all else. If a hotel delivers an amazing hospitality experience to every guest, consistently and predictably, they will have more power, over time, to gradually shift more bookings to the direct channel (versus indirect). Unfortunately, the error that many hotel operators make is on focusing too much on the rising cost of third-party distribution, rather than focusing on what their business is all about (and what will make their property more consistently profitable, in the long run): true hospitality.
Q6). What’s your view on Google’s step into Distribution via Google Ads?
It’s great! Google have been offering an online advertising program for hotels since 2010, gradually adding more and more functionality over time. Recently, Google made it possible for hotels to get free organic listings, which would be listed next to the paid display ads; this initiative was Google’s way to support the return of travel, post-Covid, so that’s a fantastic opportunity for hoteliers to boost their visibility online, for free. Today, Google is really in the ideal position as they command so much online traffic, and are in the ideal position to continue innovating in this area; in my opinion, Google’s innovation is only going to benefit hoteliers more and more, over the long term.
Q7). What’s your view on Total Revenue Management (TRM)?
Total Revenue Management (TRM) is a more sophisticated level than standard revenue management, in my opinion, but it’s not necessarily one that will benefit every hotel type and size. TRM is more beneficial to hotels or resorts that have large-scale, multiple revenue streams (i.e., extensive F&B operations, spa services, meeting and conferencing space, etc.). These properties have the greatest potential benefit from applying TRM, as it gives a clearer picture of overall profitability, rather than just evaluating earnings solely on room revenue.
Q8). What’s your view on new revenue management metrics such as Net RevPAR (NRevPAR)?
Net RevPAR (NRevPAR) is a very good metric to incorporate in your hotel business, but it’s a very difficult one to calculate precisely, in terms of the total costs for all online bookings.
Why is it so difficult?
If your property confirms an OTA reservation, is the cost for that booking only the cost of the commission? Or does it also include the booking fee paid to your booking engine vendor? There are many other things to be considered that can have an effect on the total cost of each booking, including:
- What if the guest booked a package, with room, breakfast, spa, golf; how will you cost those components?
- What about the labour costs for your reservation staff, your marketing staff, and sales staff?
Of course, those are just two examples of potential costs that could impact your ability to accurately calculate NRevPAR, but there are many others; in short, NRevPAR is a really good metric to work with, even though it is difficult to calculate a precise figure for each booking. Even if you are off by a few Euros, or miss one of the revenue streams in your calculation, you’re still getting a more complete picture of your hotel’s overall profitability – and that’s never a bad thing.
Q9). How do you see RM playing a more strategic role in hotel businesses?
I’ve seen the Revenue Manager role growing in influence over the years, evolving to become a commercial leader in a hotel’s business, who oversees sales, marketing, revenue management, and e-Commerce or online distribution. In contrast, the traditional general manager’s job description has evolved to become more operationally focused, which is obviously very important; however, I see Revenue Managers having a very clear career path towards becoming the Director of Commercial Enterprise in the very near future.
Q10). How do you see Revenue Management Systems (RMS) evolving, as it relates to data science?
Today and in the future, data quality will be the key differentiator between revenue management solutions; more and more, RMS will need to move towards offering real-time data updates, rather than once or a few times per day. Eventually, this is going to be commonplace in all high-quality RMS; whereas, today, it’s still quite uncommon.
I also see a move towards more cluster-based demand or market-wide demand, so that the Revenue Manager will have a better understanding of location-specific demand. I also can see flight search demand evolving to provide more and more information, such as guest profiles (i.e., solo travelers, couples, families, or small groups). It is important for hotels to consider how the search behavior of each guest profile varies, by city/country/airport of origin.
For example, a revenue manager might want to know how many potential guests were interested in traveling to their destination from Tokyo, Shanghai, Hong Kong, and Taipei, AND how do they vary or differ in their search behavior, in the first week of July 2021. In addition to the demand or volumes of search from those geographic origins, revenue managers would also want to know how the booking windows vary, what length of stay (LOS) are they searching for, for potential guests from each geographical origin.
As a result, in the near future, I see RMS evolving to a fuller spectrum of demand data, integrated into their algorithms, for better performance and greater accuracy in pricing.