The evolving nature of revenue management
NB: This is a guest article by Stefan Wolf – SVP Revenue Management & Distribution at Onyx Hospitality
The act of providing accommodation to travellers has been around for a very long time. But whilst actively selling and marketing hotels and resorts have been going on for some time already, revenue management in that context started only recently.
In addition to being a relatively new function in the industry, the scope of revenue management has changed and increased at an incredible speed. In the past, revenue management focused on optimising RevPAR using the right time, with the right price, right product, for the right customer and with the right channel approach, in isolation of other functions. This is no longer sufficient today.
The merging of the different commercial functions is a trend that has commenced and will see GOPPAR increasing even in the most competitive markets. This article will explore this “new” revenue management, from a case study perspective about the collaboration of different commercial disciplines.
In order to improve collaboration between various disciplines (Sales, Marketing, E-Commerce, Communication and Revenue Management) in our organisation, we decided to come up with a project that would incorporate all functions of the commercial department. This would be an annual project that generates incremental revenues through the improved processes and whose outcomes can be measured. Coming up with a project that would allow everyone to contribute equally and drive revenues at the end of the day is easier said than done.
For traditional revenue management objectives such as restriction setting through yield management, pricing strategies or distribution channel evaluation, it might be challenging to involve all other commercial disciplines. Projects on ancillary revenue management to improve RevPATH (revenue per available treatment room hour) in our spas or RevPASH (revenue per available seat hour) in our restaurants would require inputs from the operations department, but they were not part of this project.
At the end, we decided to focus on the market segment packages, with the objective to drive incremental revenue by strengthening the reflection of our hallmarks in our brand packages.
The first meeting was all about getting to know each other better, particularly about our functions. Each of us gave a brief introduction about our roles in the organisation, in response to the question, “How much interaction in daily life is there between revenue management and communication – sales and branding?” It was quite interesting to hear the different departmental objectives and to learn, for instance, that Sales is very occupancy-growth orientated, whilst E-commerce looks at revenue growth, but only from the online market segments. The focus of Communication, on the other hand, includes compelling storytelling, whilst Branding feels strongly about compliance. Meanwhile, Revenue Management objectives incorporate revenue growth from multi segments and multi channels, but not necessarily giving a lot of consideration on brand compliance or being aware of how communication could support such objectives.
A presentation about our hallmarks was then made by our brand expert, who delved on the questions, “What are hallmarks?”, “Differentiated service experiences that will create a strong identity for the brand – who knew?” and “How familiar are the members of your commercial team with your brand hallmarks?” The knowledge and understanding of the hallmarks, and with it the brand DNA, helps to strengthen the concept.
We decided early on that whilst being a multi branded organisation, we wanted to focus on a single brand for this project and agreed on our core brand Amari, with its three hallmarks – ‘Amari Host’, who is there to lend a helping hand to guests throughout their stay, ‘Better Together’, which is the philosophy by which the Amari hotels facilitate human connections through on property offerings and by extension of this idea we also connect our guests to the local scene through ‘Destination Amari’, a tried and test guide of where to go, where to eat and what to see in each of our destinations .
The four brand packages we already have in place were presented by our e-commerce expert, and we analysed and discussed to what degree the brand hallmarks are reflected. Nobody was surprised that we felt that more could be done in that regard. We specifically agreed that the revised packages should have both commercial and public relations value. Whilst discussing the suggested elements of the new brand packages, we realised that it would have been beneficial to invite a representative from the operations department, as the properties have to deliver on room set-up or menu creation. We also had to be careful not to make the packages too rich in offering, as they would then become either too expensive and not saleable or not profitable. All in all, we had a very productive brainstorming session, allowing everyone to share their views and opinions.
After agreeing on the content, the next step in the process was to select an image to represent each package that would work in every market around the globe. Loading instructions for the properties needed to be written, package codes for the property management system to be created, and a social media strategy to be devised. We learned that offline media for the international markets have a very different lead time than those online.
One of the challenges we faced was the spa package gift, as it should be destination-specific, on brand (Breeze Spa is the spa brand for Amari) and not too expensive to produce. So, we reached out to our colleagues in the spa department to get some help.
We finally decided that a social media and public relations launch of all four packages at once (something revenue management would have done) might generate less coverage than phasing the launch over a period of 16 weeks. So, all packages would be available to book on Day 1, but they would be promoted one by one every four weeks.
At the time of writing, the packages have not been launched yet, so I am unable to share any financial impact (and yes we agreed on a target), but I do like to share that the amount of collaboration was very invigorating.
It goes without saying that at the start of the project, we all agreed to be open-minded. We had heated debates on content, target market and price positioning, but we found a common ground and felt at the end of the day that the sum is indeed greater than its parts.
With increased competition and the resulting pressure on price, a successful revenue management strategy even in the less elastic luxury market can no longer be devised in isolation. This case study touched only a relatively small aspect of the overall revenue generation for our company, but it gave all of us a sense of how things might change in the future.
Tearing down the silos between sub-departments in the commercial world and furthermore increasing collaboration with Finance and Operations would result to the creation of a much more cohesive strategy, a strategy that is also co-owned and therefore easier to implement, manage, monitor and fine-tune.
Revenue management has evolved from the early days of inventory control with yielding techniques, such as length of stay controls, to sophisticated segmentation pricing strategies using data analytics. To proceed to the next phase of revenue management evolution, devising and deploying price by consumer strategies considering a multi-brand lifetime value component using just more big data is not sufficient.
I do believe that improved business intelligence capabilities play a big role in this shift, since we do want to know what “David Jones” spent yesterday in the restaurant, which channel he used to book his room and how long in advance (things we know already). But we also want to know his preferred way to get ideas for his vacation (magazine ads, YouTube, Facebook) and how long in advance of travel dates does he get his inspiration? How can we help him with the research and reservation phase and keep him on brand? Does his value perception match our price offering? Are we providing the personalised enriching stay experience he is expecting? Do we make it easy to share the actual stay experience with his family and friends? Do we encourage it?
To implement a strategy incorporating all of the above, a high degree of collaboration between the departments is required, especially when most of the data about “David Jones” is sitting in various databases owned by various departments. Elements on the above are implemented by various departments already using the knowledge gained from “their” business intelligence. The missing piece, however, is a complete and aligned strategy.
Based on the case study, it is certainly possible to achieve a stage of enhanced collaboration, but moving from influencing the results of four brand packages to a total consumer strategy requires a paradigm shift in thinking. It also requires people with an open mind, who are not afraid of giving up a bit of control, and a leadership that enables and supports the required collaboration.
I have been passionately practicing and training revenue management principles for the last 20 years, and I am still coming across discussions on occupancy versus rate without the RevPAR component. I hope it will not take another 20 years before GOPPAR and LTVC (Life Time Value Contribution) pricing become commonly used metrics and strategies – supported by automated revenue management systems and implemented using an aligned cross-departmental approach. As an industry, we are not known for being particularly innovative and early adopters of a new technology, but the increase in supply in many markets might provide the much needed incentive.