During COVID-19, ownership groups and management companies took organizational decisions that impacted the effectiveness of Revenue Management.
NB: This is an article from Cayuga Consulting
As business ramps up and we observe changes in the segmentation and channel mix, we need to quickly shift gears, and not just to how it was before. A deep dive in our labor model and our approach to Revenue Management systems is key to effectively support the discipline and increase hotel revenues on the long term.
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The impact of the COVID-19 crisis resulted in hotel employees wearing many hats, and this is no different for Revenue Management leaders. As the crisis hit in March 2020, many management companies and owners assumed that no topline revenue meant no need for Revenue Managers. In a way, that seemed like a reasonable assumption as the primary role of Revenue Managers is indeed to maximize revenues. Whether or not these decisions had merits at the time is irrelevant now, but we need to acknowledge them and understand the short and long-term consequences on the discipline. Lastly, as the World changed, we need to analyze how to allocate our resources to set Revenue Managers up for success and focus on the long-term ROI.
Organizational Shift in the Hotel Reservation Department
One of the first decisions made when hotels started laying off their employees was to furlough the whole in-house Reservation Department. For branded hotels, that meant relying solely on call centers and give the responsibilities of reservations managers to Revenue Managers still employed. The list of duties included making reservations, preparing arrivals, processing commissions, handling guest requests and complaints. For independent hotels, this decision sometimes meant stopping overflow call center and filtering all calls to the Revenue Manager and Front Office.
This change impacted on-property Revenue Managers and therefore mainly full-service upscale hotels. This may have been a necessary decision but it remained a risky one considering the skillset from revenue managers are different from the ones needed to be good reservation managers.
Although demand increases, the overall topline revenues are still low and the Delta variant put a halt to the hiring process fearing another wave of layoffs. A few hotels still rely on their Revenue Manager to handle in-house reservations either because they consider group business is low and call centers are cheaper or because they struggle hiring back. As most hotels stopped using systems to measure call volume and abandonment, it may feel like the call volume is under control and this set-up remains a good solution to save costs and minimize the negative impact on guest satisfaction.
Deep Dive into Segmentation & Channel Mix
As business ramped up, guests started to call hotels to inquire about hotel services as well as surrounding attractions because they did not trust the information on the entities’ websites anymore (were they really open? Did the offering change?). Additionally, guests who started to travel again were very often celebrating either an anniversary, a birthday, a wedding, a honeymoon or just the pleasure of being out of their home after months. This resulted in more direct bookings, suite bookings and a higher share of packages in the revenue mix.
Companies improved and updated their websites as much as possible to give accurate information to guests and provide better pictures of higher room types to make guests comfortable booking online. They also analyzed guests needs and created relevant packages and offers around the experience guests were craving. But a good offer and a good website is only a portion of successful sales and this was very often and still is overlooked.
Leisure guests, whether they are coming individually or as a SMERF group (wedding, Bat Mitzvah) require a lot more time and “hand-holding” from the Reservation teams. When they call to make a reservation, they are paying out of their pocket and they want to make sure they are choosing the right hotel, the right room type and the best offer possible for their stay to be unforgettable. The shift in the mix of business means Revenue Managers needs to be taken off the phone as soon as possible while being much more involved in Reservations than before the pandemic. Hotels need to revisit their approach for the use of a call center and their hiring process for the Reservations Department.
Now more than ever, all efforts need to be focused on making a sale for every phone call. This requires Revenue Managers to be much more involved in the Reservations Department while hiring and training in-house reservation team members, so they are not order takers but sales people. This is a slightly higher investment than using a call center but the short and long-term ROI from a trained team to sell guests the experience they are looking for is exponential and requires:
Strong knowledge of the hotel room types and services
This will allow the teams to match guest expectations with the best room types and sell premium rooms and suites. There also needs to be an emphasis on cross-selling hotel services and amenities. Having the team take over restaurant and/or Spa reservations may help convince ownership to hire and will have a very strong impact on overall top revenues through Total Revenue Management.
Empowerment and Revenue Management understanding
Revenue Managers need to stay close to the teams and guide them when it comes to concessions on rate based on key criteria (F&B spend, length of stay, repeat business potential, online rate parity issues). We do not want the team to negotiate with every guest but it is important that they have the tools to make sure they can close the sale while keeping the hotel revenues and profitability as high as possible.
Evaluation of the base pay and the incentive programs
As we can now see the potential from direct hotel bookings when handled by strong reservation sales individuals, we have to reevaluate their compensation. Indeed, if they are bringing as much revenue as a junior sales person right now, why would their pay not reflect their contribution to the hotel topline revenues. If not with the base pay, building strong incentive programs established by Revenue Managers based on contribution to the hotel revenues will benefit both RevPAR and TRevPAR.
Listening to the feedback from guests through the Reservations Team
Now more than ever, trend are much shorter and the fastest way to get feedback on an offer or to identify a shift in guest behaviors is to talk to the teams who are on the phone with dozens of guests every day.
Scrutinize the Tools and Systems to Support Hotel Revenue Managers
Another immediate decision was made when COVID-19 hit: lay off Assistant Revenue Managers or Revenue Analysts and have Revenue Managers take care of their exports, data entry, auditing and all other support duties they were delegating before. This was an understandable decision but again, a risky one, considering it is a very specific discipline and hotels feel a massive hit on their strategy when their Revenue Managers leave without continuity. To make things worse, another decision was adopted after the first wave of layoffs: complexing Revenue Managers to share costs among multiple hotels.
As business ramps up, Revenue Managers cannot do it all and provide the same level of details and scrutiny to maximize revenues while being responsible for 3 times more than they were before. We are thankfully seeing positions posted for Assistant Revenue Managers or Revenue Analysts but most previous employees left the industry and it will take time to train new team members. So until then (and it may take a while to get to levels we are comfortable hiring more), what do we do?
Many hotels have an answer to this question: they use technology and more specifically, Revenue Management Systems. More and more properties and groups adopt these systems today as a quick fix to get “back in the game” and not miss any opportunities. As they evaluated the pros and cons of each team member during these difficult times, it is important they scrutinize the features they are looking for when buying these expensive systems to ensure they are investing in the right ones.
Using technology is key considering labor shortage but systems need to be scrutinized
A few years ago, we started investing in Revenue Management Systems as the environment became more and more complex. Although connectivity and reservation systems improved, it is almost impossible for a Revenue Manager to continuously optimize every channel, segment and room type for the next 365+ days in a very active market. Revenue Management systems are able to look further out consistently and adjust pricing, rate open/closure, and provide detailed operational 30-60-90-day forecasts.
The plus for Revenue Managers: “fewer Excel spreadsheets to build” to allow more time for establishing a global strategy. The plus for owners and senior leaderships: the comfort to have an A.I. that can question, validate and/or supersede the decisions and the forecast from Revenue Managers. Indeed, the Revenue Management profession remains a very unique discipline that many do not know how to audit or question, and RM systems give that second opinion that reassures executives.
Unfortunately, the reality is often that Revenue Managers now spend their time feeding information to the systems to make sure they learn correctly and adjusting decisions when needed. They do not spend more time analyzing the data and working on a long-term strategy.
Evaluate Hotel Technology
As we are scrutinizing the duties of each employee in hotels, it may be time to evaluate what technology features are actually helpful now before getting costly full optimization systems.
- Pricing adjustments and rate closures.
Revenue management systems pricing decisions are typically questioned and adjusted by many Revenue Managers, especially when there is low demand. Although demand remains low now, there are still opportunities for higher rate, especially for specific segments. If a Revenue Manager has to manually change rates or spend extensive time adding parameters and information for the system to learn and have a relevant pricing, the ROI from this feature may be limited. Additionally, Revenue Management systems minimize the risk to optimize revenues for future dates when there are constant changes in the business activity and the market is highly compressed. Considering the current climate and the outlook for the next year, Revenue Managers should not need a system to alert them in activity shifts.
- Level of details for the analysis
Not all Revenue Management systems allow very detailed analyses but instead provide “big picture” outlooks, i.e. market segment analyses (versus rate type) or room class analyses (versus room type). This may be acceptable prior to COVID-19 but understanding the potential and the behavior of specific room types or specific rates (mobile-only, packages, geo-targeted rate codes..) has proven to have a real impact on the hotel revenues. This needs to be a key feature of the systems you choose.
- Forecast accuracy
This has been a feature liked by Revenue Managers as they also have a sense of comfort from having a “second opinion” when presenting to leadership and ownership. As we remain in an unstable environment with market trends evolving quickly, it is difficult to feed all relevant information to these systems for them to produce forecasts. This may be something owners want to keep and run in parallel but should be looked at as a “second opinion”, not a certainty.
There is a true benefit to using Revenue Management systems but they remain costly in an environment where hotels are trying to save money. Some hotels may benefit a lot more from using detailed analytical systems at a much lower cost (or ask to only use these features) and make pricing decisions as well as forecast on their own. This may free up some money to hire and train an assistant to make sure the hotel is ready when business comes back in full force.
The definition of Revenue management is the “process of understanding, anticipating and influencing consumer behavior in order to maximize revenue and profits from a fixed, perishable resource”. Having a robust Reservation Team at the heart of guest needs to guide their experience with a strong understanding of Revenue Management is key to hotel profitability. After difficult organizational changes during the crisis, we now experience the consequences of these decisions: labor shortage. Investing in technology is certainly helpful to fix some of the issue but we should spend the same level of scrutiny on what we need from these systems to ensure we allocate our reduced resources in a smart way to support Revenue Managers on the short and the long-term run.