How to get revenue management right

Features, Back of House

Kempinski Hotels VP distribution and revenue management Rex Demanser and IDeaS Europe, Africa and Middle East major account holder Guy Barnes discuss the science of revenue management, urging hoteliers to place a renewed focus on training and integration in 2010

How have you seen revenue management evolve over your careers in the hotel industry?

Guy Barnes: When I started out we practised inventory management. The priorities were simple – ensuring availability of rooms for sale, that rooms were priced correctly, and simple rate and sometimes length of stay controls were in place. Analysis of bookings, cancellations and even denials was underway, but all too often the quality of data available affected the outcomes.

With improvements in data quality, came a more scientific approach and more useful information. But with reporting lines often into sales and marketing, revenue management was often seen as a constraining factor rather than a guiding light. Today, revenue management is a science, providing powerful intelligence, an early warning system, accurate forecasting and finely tuned pricing and controls. In more and more cases revenue management is now given the profile it deserves, with board level presence, and understood as a function that provides firm direction to maximise hotel revenues. The future is even more exciting, as revenue management has become more than just maximising rooms, but encompasses meeting and events, is seen in managing restaurant space, and in total asset management.

Rex Demanser: I came into revenue management originally through reservations. We were doing revenue management before it was even called ‘revenue management’! At that time we were just using spreadsheets etc to try and pick up trends and in my first hotel where I really applied it (it was a small hotel in central London), we doubled the revenue in two months just by analysing demand. Five or sixth months later, we had tripled the overall revenue. I think our rack rate back then was £75 (US $121) which I kept pushing and pushing, and was relentless in selling it. After that, I became known as ‘Rack Rate Rex’!

What key challenges do you face in your sector?

RD: I guess the levels of knowledge of revenue management in the wider hotel community is the hardest and finding good people that just have a real passion for the numbers is tough. I think there’s also a lot of confusion between what revenue management is as a discipline and data analysts. Some people think that being a data analyst is being a revenue manager and it’s definitely not. Anyone can crunch the numbers. I’ve seen revenue people, across different hotel groups, that think that putting these beautiful colourful spreadsheets together is revenue management. But unless you’re setting a price point for decisions, there’s no value.

GB: I think a lot of people also confuse people in reservations with revenue managers, so you can have someone put into the position of revenue manager when they really don’t have the discipline and the skill set for it. That selection can have an impact on that situation at that time, but also on the hotel’s view on employing a revenue manager again in the future, or another third party organisation looking to evolve that property as well.

Historically there has been confusion as to what revenue management is and where it fits into a hotel organisation. Is the perception of it as a function that needs to sit at high level improving?

RD: I think the enlightened CEOs may not know what revenue management is, but they know that they need it because they’ve seen the results driven by it. In fact, a colleague was at a CEO Conference in Korea around four months ago, attended by a number of leading international hotel CEOs, many of whom said that they expect their replacements to come from the revenue management discipline and that hotel groups should have their revenue management discipline reporting directly to them. So it’s starting to get serious and ‘grow legs’ as a discipline, and it’s definitely improving.

How important was Kempinski’s revenue management strategy and partnership with IDeaS in managing business throughout the 2009 downturn?

RD: I think it goes too far to say that IDeaS saved us in terms of overcoming the economic crisis, but I do think that with the Emirates Palace it was very clear that there was an up lift. However, IDeaS contributes as part of a collection of ordered tools, with other initiatives.

At this time [November 2009] for Kempinski, for our electronic business, we are 17 points down on 2008, primarily hit by GDS. We’ve been in recovery on web business since June, with every month showing year-on-year growth, culminating in October with 13% year-on-year growth — I think double digit growth in the current environment is impressive. Some of our packages and programmes have shown 440% year-on-year growth, which is a large chunk of change, not by changing the value proposition but rather by changing the way we operate online.

In other words, don’t say something in 100 words that you can say in three — say it in three and it will probably sell. But, as of yesterday, we are two points up on web business and we are hoping to finish 2009 up by about 5%. So I think 5% growth isn’t bad, in the current economic climate.

What is your current revenue management strategy and how do you plan to build upon it in 2010?

RD: I don’t know if it’s a revenue management strategy, but I want to look at how we can do more centralised, even though I know our company strategy is regionalisation. Can I get a passionate entrepreneurial business advisor [revenue manager], that really knows what they’re doing, in every hotel? Can they be of the right quality, calibre and passion? Maybe I’m too old fashioned but I used to, when there wasn’t a revenue management system, work 32 hours in a row because I was trying to find some formula, some pattern on pick-up and I wouldn’t go home until I had a number, or a formula or a number of rooms sold two days out, three days out, four days out and I would keep doing it until I saw the patterns.

Finding similar people with that kind of passion, or training, you just can’t beat it — it’s either there or it’s not there — but I’m still as passionate now as I was and so I’m thinking ‘bring some more in’ and find five passionate people and at least have them even if it’s not to revenue manage hotels. I do see a point where I can start bringing it much closer to home and I do think I can make a lot of money that way.

What are you doing to improve the training for revenue managers?

RD: We’re looking at a revenue academy for next year, including a half day for GMs because I also think the general managers need to know more about the important elements of revenue management.

Certainly there are some who know what they are talking about but there are others that don’t. We had it on the agenda for 2009, but given the other projects we had and cut backs and costs etc, we thought it would be better in the first quarter of 2010. So yes, there is a plan to get to a place where people are certified to our level for revenue management.

GB: From my side there are a couple of things. One is that we’re working in partnership with Cornell University, where we’re sponsoring the revenue management course.

We’re also working with the British Association of Hospitality Accountants and Oxford Brookes University, so the more it’s becoming a discipline, the more we’re going to get people coming into the industry with that foundation rather than those coming at it as a reservation manager who has been put in that position.

We’re also finding hotel groups are looking outside of the industry to bring revenue managers in, because they might have different experiences and might be the people able to analyse the data and take the risks rather than the people coming through the hotel ranks at the moment. It’s definitely different interests and different skill sets.

What skills does it take to be a good revenue manager?

RD: With revenue management you need to be more entrepreneurial, you need to be moving all the time, akin to the stock market, adjusting the price points based on length of stay; spotting a new demand as it materialises; identifying a new trend — whether it be up or down — and moving with it quickly. That’s the fun of it! Everything is moving and evolving constantly, and as a revenue manager you need to be able to react and above all capitalise on it.

I think it’s passion but it’s also risk-taking. In growing my career in revenue, I must have risked my neck so many times — I mean, literally, the whole thing on the line and I like living there, on the edge of good. Maybe one day I actually will get fired, but it hasn’t happened so far! I must have gotten close, telling the chairman of Hilton when he called me for a booking once, ‘if you’re telling me to take it, I have no choice as you’re the chairman, but if you’re asking me, my answer is over my dead body!’, and he said ‘No problem Rex’ and he hung up — but what a frightening fight that was.

That particular Tuesday night in the hotel, (they had owned it for about 10 or 11 years), but that particular Tuesday night turned out to be the highest Average Daily Rate (ADR) in the history of the building – the highest single day’s revenue in the history of the building. So they had no choice, the board had to write to me and say ‘congratulations’. But I was watching it for three months and it just shows you what you can do if you concentrate and go with your convictions.

What would be your top three tips to hotels looking to transform their revenue management department?

RD: I think revenue management, as a concept or as a philosophy, operated within isolation within the hotel is a complete waste of time — you may as well go home. If revenue management isn’t a culture across the executive team at a hotel, then you haven’t got everyone on board to understand the power of it, what it can do and what it means. I think it has to be a collective management decision, and I think the biggest challenge to revenue management has always been built in isolation. It’s always one person, in one office at one desk so that would be one top tip — you have to be fully adopted! There is now talk of revenue management in food and beverage and in meetings, I mean it’s still a very un-talked about topic as we are really only talking about revenue management in most cases in terms of rooms. But there is an opportunity and it exists already, if you take the same ideas you can expand — that would be one tip.

The other is that you can do all the revenue management in the world, but if you don’t have integration between a revenue management system and your property management system (PMS), or reservations don’t know what or how to sell on a phone call with a customer, well then you’re lost again. It has to be that they know how to take the pricing output and then sell it appropriately because at the end of the day, the sales are still happening in most cases between two people. I’m hoping that will change over time but it has not changed yet. Some companies are reporting 40% electronic production but maybe, maybe not.

Finally, training! Don’t think the system will be like some magic wand! Wouldn’t that be great? If you just bought a revenue management system and just plugged it in? But it just doesn’t work that way. You’ve got to work at it and you’ve got to keep advancing and I think IDeaS generally is.

GB: Honestly, I think my three top tips would simply be education, culture and training.

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