Today, a revolution is happening in hotel revenue management as hoteliers with the highest profit expectations are beginning to follow the customer instead of the product. They are using advanced analytics to dump their dependence on the crude “Per Available Rooms” (PAR) averages and have begun the move to measure their world by predictive indicators based on “Per Available Customers” (PAC). This is the Big RM Reset. It is a seismic shift that is reframing the Hotel Revenue Manager’s world view from PAR to PAC. Here are the steps required to profit from this transformation.
Step 1. From Property to Purchases
The conventional PAR measurements were inherited from a time when data collection and data access was limited. Since a property’s number of rooms rarely changed, they became the simplest gauge by which to measure changes in the world. Thus, “after-the-fact” averages like room capture rates, RevPAR, and TRevPAR became the benchmarks for evaluating the success of “what” happened. Ironically, while PAR is great for investors looking at how one property compares to another, it is almost irrelevant for hotel managers trying to make the great decisions that create value for those same investors. In fact, for most managerial functions, PAR does more to obscure problems and opportunities than to reveal them, often allowing unprofitable trends to go undetected. As an example, while an outlet’s capture rate may have remained unchanged over several years, the mix of guests actually making purchases may have completely shifted from a higher value to a lower value guest – a clear indicator that the product or service of that outlet needs attention. To truly understand your hotel’s unique demand rhythm, you have to listen to data at the most granular levels. Diving down to individual purchases is the first step in exposing the important patterns in the guests’ actions that truly drive or destroy profit. This is the spark that ignites all successful Total Revenue Management initiatives.
Step 2: From Myths to Measures
PAR is easy to calculate, but its simplicity often forces managers to make assumptions about the real drivers of profits. In time, these assumptions become powerful myths which then become the basis by which many critical business decisions are made. PAC, on the other hand, cuts through biases by illuminating what matters most – the customer. For this reason, it is critical to establish a set of PAC measures that will be used to establish “guest-centric” goals, objectives, budgets, bonuses and other performance indicators. From RM to Marketing to Human Resources, every department will now be evaluated by one version of the truth. For example, instead of just looking at the traditional PAR capture rate to evaluate an outlet’s performance, you can instead track the number and type of guests that actually used an outlet. Empowered with this PAC intelligence, managers can then identify the true sources of good and bad trends, move quickly to take immediate action, and track the impact of their decisions.
Step 3: From Flow to Footsteps
Flow through analysis, or how much profit changes with changes in revenue, is a time-honored tool in the PAR world. Similar to PAR, however, Flow is irrelevant when trying to identify and evaluate the variables that actually create additional profit. To gain the clarity of the PAC world, you need to trace how profit is affected by every guest choice. Footsteps analysis is the process of mapping the series of choices and actions made by each guest and the impact they produced. Identifying each guest’s unique booking pattern, marketing response, outlet choices, and even their food preference will reveal which of your hotel’s touchpoints is delivering real value, which need tweaking, and which are unnecessary, thereby allowing you to enhance the interactions that drive loyalty and profit and eliminate those that are obsolete. Here is where untapped opportunities begin to reveal themselves. Naturally, the sheer scale and complexity of following each guest action is beyond the ability of any human. Luckily, the mathematics of Decision Rules, Network Analysis, and Market Basket Analysis can be employed to monitor the significant choices made by each of your guests and expose the areas where making changes would yield the most immediate and long term impact.
Step 4: From Classes to Clusters
The traditional classes used for guest segmentation in the hotel industry are centered around billing instead of behavior. This is because, in a PAR world, RM only needs to focus on the mechanics of booking instead of what motivates it. Hence the term “heads in beds”. For instance, an “OTA” label says a lot about how the guest booked but nothing about how much they are willing to spend. However, a “Relaxation Weekender” tells you a lot about both. The insights gained from Step 3 are used to scrap the traditional hotel classes for smarter Behavioral Clusters. PAC is then measured at the behavioral cluster level. Here is where you begin to see constellations where you had only seen stars. Your new guest segments will open up limitless options for designing rates, packages, and incentives that drive single stay and lifetime value, forever redefining your approach to RM and Marketing.
Read the full article at: Origin World Labs