All Revved Up
While a revenue manager’s mission is to sell as many rooms as possible at the best rates conceivable, their ultimate focus remains a healthy bottom line
By Vinita Bhatia
There was a time when revenue management was a fairly straightforward task in the hospitality business. It was about getting the right customer at the right price from the right channel for the right product at the right time. Hotels were focused on increasing the room occupancy, irrespective of the price positioning or the channel.
Then arrived the digital era, where reservations started coming through numerous channels. These included online travel agencies (OTAs), negotiated contracts, direct bookings, walk-ins, etc. Each had a certain cost associated for customer acquisition and management. Revenue management, thereby, evolved to getting the right customer as per their purchasing power and their stay needs from specific channels.
Complicated much? Well, Rahul Tondon, cluster revenue manager of Hilton Jaipur simplifies this with an example. A corporate hotel in key gateway cities like Mumbai or New Delhi will rely heavily on GDS and the hotel’s website for clients. On the other hand, a leisure hotel in cities like Jaipur or Agra is heavily dependent on the hotel’s website and OTAs for business.
“Out of all the three channels mentioned above, the hotel’s website is the most profitable channel of business. This has led to many chains promoting their brand website, attempting to shift customers from a third party website to their own site,” he said. The reason is simple – it reduces the cost of the booking and customer acquisition, thereby increasing the profit for the hotel.
TAKING OTAS HEAD-ON
While a revenue manager’s mission is to sell as many rooms as possible at the best rates conceivable, their ultimate focus remains a healthy bottom line. According to Archana Bhawan, revenue manager at Alila Fort Bishangarh, a significant way to drive profitability is to steer guests away from OTAs and encourage them to book directly with the hotel.
“This increases brand recall, loyalty and generates repeat business. It also offers the hotel a platform to market its products via direct communication with the customer, offer deals and upsell additional services or room upgrades,” she opined.
Once the revenue manager is through with number crunching and analysis, the success of channel optimisation relies on three key factors – best rate guarantee, digital marketing and loyalty programmes. Gagandeep Hanjra, director of revenue, Novotel Hotels & Resorts Goa stated, “All three have one objective – to get the customer to book direct with the hotel given that revenue managers maintain rate parity across all channels, rewarding customers booking direct via value add-ons and working closely with loyalty teams to ensure acquired customers continue to book direct. And digital marketing creates the reach and visibility across platforms.”
Anil Swain, director of revenue at The Westin Kolkata Rajarhat presented another perspective to the story. In his opinion, the increasing traffic towards OTAs is not a good indication for hotels and smaller brands, since it allows for coupon discounts. “OTAs shell out a lot of money into offering these discounts, which make their brand stronger and they are purchasing loyalty at this point of time. At a later stage, this could be used against the hotels to increase commission percentages,” he warned.
THE RIGHT CHANNEL
When it comes to distribution channels, almost each one is equally important from a revenue manager’s perspective. However, a hotel’s website takes priority, since it brings in maximum profit, which explains why revenue managers rely on it the most.
At the same time, they cannot afford to overlook third-party channels such as OTAs and GDS as they have larger reach. “We constantly have to update all channels with the right content in order to shift share and achieve our objective,” Tondon said.
In the hotel business, each business channel contributes differently at different times. In this scenario, it is extremely important for revenue managers to be aware of the pros and cons of every channel and visualise its effect based on its individual permutations and combinations. These numbers can be extremely difficult to monitor and process on an ongoing basis. Thankfully, though, there exists technologies that can aid them in this.
Deepak Khusalani, director of rooms, Grand Hyatt Mumbai pointed out, “Technologies like artificial intelligence allow revenue managers to forecast and model the business impact of various combinations of channel mixes. These software are not only able to plug-in different channel combinations and forecast (with reasonable accuracy) the resulting impact, but also layer these forecasts with distribution costs across each channel as well.”
While revenue managers have to keep one eye on optimising Revenue Per Average Room (RevPAR), they cannot lose sight of gross operating profit per available room (GOPPAR), which they arrive at after taking into account departmental and operational expenses. This gives them an overall profit in relation to occupancy rate.
Manas Banerjee, general manager of Hyatt Regency Ludhiana elucidated, “Unlike RevPAR, GOPPAR is not concerned only with revenue generated by selling rooms, but includes total revenue (for instance, F&B and miscellaneous revenue). This gives them a rounded view of overall performance, including how effective the business is at making money and filling rooms. As a result, it can give an idea of how valuable a hotel is as a business.”
Apart from ensuring occupancy, revenue managers have to continuously pay close attention to inventory management on each channel to better understand which are the profitable sources. Additionally, they need to keep a regular check on demand, competitive market pricing and analyse the booking behaviour of guests.
Explaining why this constant monitoring is imperative, Tarun Singh, director of sales and marketing at Crowne Plaza Pune City Centre said, “It is also important to consider the demographic behaviour and geographic source of business from every channel and segment. This crucial market information can be used to profitably adjust rates based on when the demand is high or low.”
Revenue managers often follow various methods to determine the optimum cost of business acquisition from different channels. Ankit Pradhan, cluster revenue manager at Hilton Chennai revealed, “Return on investment (RoI) is the guiding factor to determine the optimum cost of doing business from any channel. Hotel brands are currently spending huge amounts of money in digital marketing and ecommerce activities to support hotel growth and drive optimal segment mix.”
Prateek Pathak, general manager for digital marketing and e-commerce at Bloom Hotel Group added that there are different types of revenue management systems (RMS) that give the optimum cost of business acquisition from various channels, which are used by most hospitality companies. “We have developed an in-house system for this exercise. We realised that the Indian market is very diverse. To analyse the optimum cost we customised these systems to answer all our questions. This is a very important exercise for us because it helps us develop all channels with a data-driven approach and understand the profitability from each channel. For each of our hotel we have a different strategy, which helps us to not only maximise the revenue but also have a long-term growth plan for the brand,” he added.
While different properties use varied versions of a RMS, revenue managers focus on the cost of channel report. It takes into consideration the commission percentage paid to a third party, the manpower cost, the commission paid to the credit card company, etc.
Tondon said that these costs vary from company to company and hotel to hotel. Keeping this cost of channel report updated and reviewing it on a monthly or quarterly basis is absolutely essential as it keeps the revenue manager focused on targeting the right channels.
Khusalani said that the team at Grand Hyatt Mumbai has developed a set of questions to determine the channel that needs to be focused on. This includes basic questions like what is the current business scenario, where the hotel stands on an YTD basis, how it is placed with respect to the competition, is there enough business in the market, what is its current business mix, is it over-relying on any one channel, how do the prices compare against each channel, how is competition faring channel-to-channel, what is the cost of acquisition for the piece of business, etc.
“Depending on the answers to these questions, we draft a detailed action plan across each channel. Once our plans are deployed, there’s the final step or the moment of truth – where we monitor the numbers as they play out and continuously optimise the mix real time,” he added.
While it is important to measure the optimum cost of business acquisition, this is easier said than done. The reason is that while multiple tracking capabilities are available, discerning the paths of customer booking journey online is still a gray area in most cases.
Hanjra pointed out, “It is dubious to figure out how much of your online and offline activities have truly contributed to the decision making and conversion. Having said that, majority of the business can be measured, tracked and monitored closely with the system capabilities and analytical tools available at the hotels now.”
Hotels currently use a range of tactical methods to ensure that each channel is generating optimal results. Member fidelity is promoted by offering exclusive loyalty programmes and member rates on websites, maximizing the OTA presence with a well-defined descriptor page and attractive hotel photography, all of which leads to better conversions.
Singh said, “It is also important to focus on search engine optimisation tools to drive more direct bookings and acquire a higher conversion through brand websites. Bookings that come from direct channels are the most valuable as they help in upsell opportunities as well as in generating profitable returns.”
Alila Fort Bishangarh has already started implementing this and is increasingly working out newer ways to combine KPIs with specific data types. “Our price optimisation models factor in three critical pricing elements: pricing strategy, the value of the product to both buyer and seller, and tactics that manage all elements affecting profitability,” said Bhawan. “We also believe in the forecasting process that keeps track of acquiring new businesses and its cost. This process assists in making more measured financial decisions, better preparation for any financial problems and adjusts to maximise revenue and minimise damage.”
COMING BACK FOR MORE
Repeat guests tend to spend three times more revenue than one-time customers. Therefore, it is critical for revenue managers engage with them often to drive loyalty. In Pradhan’s viewpoint they can play a critical role in providing revenue penetration amongst non-members, who can then become potential repeat customers through rate contracting.
Tondon revealed that Hilton Hotels & Resorts has even invested in a technology lab that continuously tries to enhance guest experiences, which plays a pivotal role in increasing repeat guests. “As revenue managers, we have lots of data at our disposal, which helps us analyse guests booking patterns, which includes new and repeat alike. With targeted email campaign or even tele calling, we can touch upon a guest’s specific needs and help them plan their holidays or even a quick weekend getaway,” he further added.
Historically, it is cheaper and easier to influence existing customers to make a repeat purchase than it is to find new customers. Alila Fort Bishangarh has been doing this by helping customers save their money and showing them some appreciation (and generating sales at the same time) through exclusive promotions. A case in point is the ‘Welcome Back Offer’ with discounted prices and welcome back gifts that is organising for July 2018.
The way to proceed with such initiatives is to work in tandem with other teams in the organisation. Like Hanjra pointed out, revenue managers no longer work in isolation or just with the sales teams. The role has evolved and branched to various other departments specially marketing and loyalty. “We may not be directly involved in these activities, but data capture and analytics play an important role for pricing and value add-on strategies for loyalty programmes,” he added.
Increasingly, revenue managers have moved out of the back offices to engage with the front-line staff. This helps in ensuring that all revenue-related protocols, like retention charges, re-confirmations, etc., are religiously followed, and they too get to understand guest expectations better. These measures will help them to further come up with strategies to maxmise rates as well as upsell the inventory and boost their hotel’s profit margins. All in a day’s work!