The hospitality industry was turned completely upside-down in March 2020 when the COVID-19 pandemic struck, forcing both owners and operators to adapt on the fly to new demand patterns and customer behaviors.
NB: This is an article from SHR
Now roughly a year-and-a-half later, it is clear that the crisis has led to savvy hoteliers employing a new-era revenue management strategy, which is likely to endure even after the threat of the virus fades.
Subscribe to our weekly newsletter and stay up to date
As many properties took a hard look at their practices, staff and strategies in order to stay open these last 18 months, much has changed. Notably, hotels are taking radical new approaches to running their revenue generation teams, while employing new segmentation strategies, rate parity practices, benchmarking methods and data analysis protocols. These evolutions are a true silver lining to emerge from recent events.
How Revenue Teams, Roles Look Different Today
For years, hotel operators have struggled with effectively integrating their sales and marketing departments, resulting in a lack of efficiency and revenue opportunity. Prior to COVID, we saw some progress, and innovative companies began building integrated strategies and measuring effectiveness from common data sources. COVID then became the ultimate accelerant: With leaner staff, hotels have been forced to break down the silos between departments.
Many hotels that traditionally relied on group and corporate business have shifted strategy and are targeting more leisure travelers. This requires coordination between all departments: Revenue must bring the data on reservations, market, pace and pricing; marketing must come up with unique offers to capture families who are looking for safe, socially-distanced experiences and execute the digital strategy; and sales must pivot to finding new types of targets and recalibrate their approach.
The revenue leader of tomorrow will not be solely focused on just understanding supply, demand and pricing. Companies will hire leaders who can drive the digital marketing conversation and report on return-on-ad spend and conversion rates, for example, helping the hotel make smarter marketing decisions.
New Segmentation Strategies
Now more than ever, it is crucial to keep a keen eye on who is booking your hotel rooms, and what channels they are using. As the hotel industry continues to recover from the pandemic, a completely new group of travelers are emerging, so understanding your hotel’s guest and business segmentation has never been more important.
In fact it’s critical to know as much as possible about who is traveling and booking your hotel(s); today through the next year, at a minimum. The general prediction in the industry is that leisure travelers will continue to be the main customer today, with some business travelers and group bookings for dates in Q3 and Q4, and international demand returning in spring 2022. But rather than purely working off these assumptions, hoteliers should be analyzing data to make accurate decisions to shape an optimal revenue strategy.
At a basic level, here is how you should be segmenting your demand today:
- Business vs. Leisure: Looking at your pace and pickup by segment, when does it look like business travel will return? How can you shape your marketing and pricing to get in front of business travelers today?
- By Channel: What channel people are most of your bookings coming from? If it’s an OTA, how can you put strategies in place to shift that demand to your direct channels?
- By Day of Week: How does your mix of weekday versus weekend business look today versus pre-pandemic? Knowing this will help you determine which promotions and restrictions are a good strategy.
- Source Markets: Where are travelers coming from? Domestic versus international will have very different booking windows and stay patterns, which will require specific distribution strategies and cancellation policies to capture your fair share.
- Repeat Guests: What percentage of bookings comes from guests who have stayed with you before? Knowing this will help you “score” repeat guests and make personalized offers.
- Ancillary Revenue Sources: Are the travelers booking your hotel today also booking additional services, such as spa reservations or meeting space? Knowing this should shape your rate offerings, promotions and upsell opportunities.
The Future of Rate Parity
Despite the recent upheaval from the pandemic, rate parity also remains a major concern for hoteliers, since many travelers still consider price a main factor in booking decisions. OTAs continue to dip into their margins to entice travelers with slightly lower rates, and the increasing prevalence of metasearch sites-particularly Google-highlight these slightly discounted rates now more so than ever.
While major brands or chains may have the leverage and alternate sources of business to attack this head on by shutting down entire channels, most smaller and independent hotels should keep the 80/20 principle in mind. Hoteliers must do two things:
First, focus on your own internal marketing efforts and create enticing offers for each of your guest segments. Priority actions include:
- Use data, segmentation and personalization to get to know your guests and serve them timely offers.
- Fenced-rate strategies are successful, so rely on your membership programs to tailor packages to known guests and encourage direct bookings.
- Offer more flexible cancellation and refundable policies for customers who book direct.
- Communicate your COVID protocols front and center on your website, so consumers feel more comfortable when they visit.
Second, consider the resources needed to fight OTAs on their out-of-parity rates. Your time and money may be better spent refining your own internal marketing and pricing strategies, to convert more direct business. For flagrant issues, yes, you should flag them, research them and follow up with your marketing manager. There are several technology providers you can partner with to monitor your publicly available rates and assist in automating parity management, so that you find issues before your potential guest does.
Evolving Benchmarks and Traditional Comp Sets
Many, if not most, hotels have more than one comp set. Depending upon product, a hotel might find itself competing against a different mix for corporate vs. group, vs. transient leisure. One thing that has not changed post COVID is the necessity for hotels to be honest with themselves regarding their product and the hotels against which they are benchmarking.
For example, an 80% index versus 100% on occupancy is not necessarily “underperforming,” if you are a CBD-located independent in a sea of brands looking at midweek performance. Further, a 120% versus 100% on ADR isn’t “outperforming,” if you are not comparing your hotel with a truly similar product.
Traditional KPIs haven’t become meaningless, and benchmarking the percent-change metric is increasingly relevant. But what has changed is the need for revenue leaders to seriously drill-down on the underlying drivers behind this data and evaluate from a more holistic perspective. Forward-looking data will only continue to grow in importance, providing more actionable insights for revenue managers watching their business change in real time.
The Emerging Role of the Chief Commercial Officer
Because generating revenue is critical to future success, more emphasis and responsibility should be placed on the teams and individuals who affect incoming revenue the most. Instead of sales, marketing and yield management departments each operating independently, they should all be connected by dotted lines to a single leader who oversees all aspects of revenue generation.
Some of the most forward-thinking companies are putting a Chief Revenue Officer or Chief Commercial Officer in place to ensure coordination between these three departments and enact cohesive strategies around shared goals and metrics. Here are three reasons to add a C-Suite “commercial” professional who oversees yield management, sales and marketing:
- Brings Sales, Marketing and Revenue Together: Leaders should build a single?minded revenue generation team responsible for acquiring and retaining guests, optimizing performance and increasing revenue. The cross-functional leader of this coordinated team should oversee an integrated revenue strategy across the entire portfolio.
- Centralize Operations: Leaders in a central location-whether at headquarters or a remote location-are taking on more responsibility and overseeing strategies for entire portfolios. A CRO or CCO can rely on tools like video conferencing and digital communication platforms to distribute strategies and delegate responsibilities.
- Implement Data-Driven Approaches: For the CRO or CCO role, companies should consider analytic thinkers with a background in revenue management. These professionals understand data; particularly how to draw conclusions from large sets of numbers and then act on the insights. Every decision and strategy-including segmentation, distribution, guest retention and acquisition, pricing and operations-should be based on revenue data.
Conclusion
If there has been one modest bright spot amid the pandemic, it has been the way it prompted hoteliers to analyze virtually all aspects of their businesses, in order to run as lean and profitably as possible. Many valuable new policies and strategies have been implemented as a result, and these are now likely to remain in place indefinitely. Hotel revenue teams, arguably, have been shaped by these events the most.
Before the COVID pandemic and subsequent travel lockdown, companies were striving for more coordinated, data-driven strategies. That mission has only intensified over the last 18 months, while many agile leaders are taking the opportunity to rethink their organizational structures. Companies that don’t take the opportunity to adapt now will unfortunately find themselves left behind.
