Revenue Management: Hotel Full But Pockets Empty?
Revenue management is a core element in working to build direct website bookings, setting out the right goals to achieve this, being committed to implementing the strategy and staying the course when doubt creeps in. Ultimately it is about optimizing the revenue potential of a given asset through all market conditions, the consequence of good revenue management is direct bookings.
According to a phocuswright white paper
- 27% of UK guests booked their stays directly on the hotel’s website, versus 32% through an OTA,
- 34% of US guests booked their stays directly on the hotel’s website, versus 25% through OTA.
So although OTA channels are ever present there is not only the capacity to build direct bookings but also the demand for consumers to book direct.
So let’s delve into the reasons good revenue management helps build direct bookings.
5 Reasons Revenue Management is Essential to Building Direct Bookings
- Set KPI’s to keep the team focused on the overall strategy
- A key indicator is the profit per channel
- You have a wealth of data available so analyse this and gain knowledge of booking patterns per channel and segments
- Decisions will be made with facts and will identify the things that are most profitable to you
- Strategic decisions made on facts are much more likely to deliver positive results and are a source of competitive advantage
- Having knowledge will allow for a more informed approach
- You now have a strategic plan of how to deliver the right bookings through the right channel
- Based on the information you have collected you will be able to predict consumer behaviour optimise availability and price
- A clear revenue management approach aims to remove departmental silos with the goal of increasing direct bookings and profit
- It gives rise to the sales and reservation teams working together and being fully aware of each department’s goal, which is, of course, the same goal isn’t it…
Identify where the issues are
Understanding what the data is really uncovering is crucial to implementing the correct decisions which are focused on the fundamentals of the overall goal – build direct bookings. Your team needs to be able to access and analyse that data at hand. Your P.M.S. and channel manager should provide management reporting applications/tools to automate the deep analysis of bookings per channel so that the end goal can be identified. Remember that the most relevant KPI’S to drive direct bookings are easier to identify when the unique property issues are identified.
Understand where bookings are coming from
Know and understand what bookings you are getting from each channel. Set out the criteria you want to analyse and compare the findings for each channel. The booking patterns analysis should include but is not limited to the following parameters per channel:
- What customers book through each channel
- What market segments both through each channel
- Split between Midweek Vs Weekend bookings
- Identify the lead in times
- What is the Length of stay per channel
- Cancellation % per channel
- Peak booking periods for each channel
- Geographical breakdown of each channel
- Bookings per channel for dates that are subsequently closed out
- Denials per channel
Understand your customers
Data analysis of customers is necessary to identify your key customer segments. Different consumers from different market segments and booking channels will be willing to pay different prices. Analysis should include but is not limited to the following parameters:
- Conversion ratio
- Lead time
- Average Room Rate
- Value propositions
- Preferred channels to book
- Most popular tariffs booked
- Total revenue spend
- Size of segment
- Geographic location
Understand your Opportunities and Gap Dates
- Examine your demand calendar in detail for at least 3 months in advance
- Daily Pick up report – review next 6 months in detail and all key demand dates for the next 12 months
- Stay controls & restrictions. Monitor and measure the source of all bookings on your close out dates
- Benchmarking, bear in mind: price, product, location, service
- Invest in a rate shopping if necessary. Monitor your competition and overall market prices you find dates where you have an opportunity to grow your rate
- Market share reports
Setting the Right Goals
Are you looking at the right KPI’s?
Once you know what issues you are facing you can then set the most relevant KPI’s you need to achieve your goal and build direct bookings. The actionable decisions being made and implemented are then based on the KPI results. It should always be based on the end goal instead of making reactionary decisions. You have to be clear about the end goal and then set relevant KPI’s to measure how effective the change in strategy is.
With the goal specifically to build direct booking you should be looking at these 4 categories:
1. Hotel Website Traffic
- Measure traffic per source
- Measure traffic per device
- Measure ratio of New v Returning visitors to the website
- Measure traffic per location
2. Hotel Website Conversion rate
- The conversion rate of visitors to bookers
- The conversion rate of searches to bookers
- Don’t forget – Look at the drop off points in the sale funnel
- Identify the key pages at the start of the search funnel
3. Bookings per channel:
- Set a target for direct bookings especially on key demand dates
- Maximum bookings through each other channel
4. Profit per channel
- Net ABV per channel
- Net ARR per channel
- Max commission you are willing to pay daily – link these to rate bands if possible
- Note: ReviewPro analysis showed commission costs growing at twice the rate of total revenue in 2014
Implementing Your Strategic Plan
The implementation of the revenue management strategy should be viewed as the most important of hotel operations. It can be a change in work practice and thought process. All team members have to buy into it, to be fully committed to it – from top to bottom and everyone in between.
Strategic elements which need to be considered when implementing your revenue management strategy include but are not limited to:
Control of Inventory:
- Having first room availability on your own site
- MLOS restrictions on higher cost channels on key demand dates
- Closed to arrival restrictions for OTA channels
- Limited / closed availability on high cost channels for high demand dates
- Be clear about what differentiates each room type
Dynamic Pricing Strategies:
- Identify what different segments price points are
- Understand customers reason for travel – it affects the they are willing to pay
- Don’t overload with package options, the more choice the more confusion
- Sale and discounted rates should be exclusive to hotel site and promoted as such
- Only have BAR rates on other channels
- Monitor market conditions these will have an effect on price elasticity
- Review reputation especially compared to local competition effects rate capacity on some channels – use Tripadvisor as a gauge of how customers are likely to view property
- Present the customer with a compelling reasons to book direct, best price promise direct, add benefits and value for booking direct – express check-in, free Wifi, etc.
- Note: A Trip Tease recent survey found 72% of people would book directly with the hotel if they could be sure they were getting the best deal.
- The collaboration with marketing becomes crucial at this point, as the online marketing active needs to reflect the goals of revenue strategy
- During this book direct course we will be looking at all things online marketing and covering all topics needed for a successful online marketing plan.
Don’t forget – KPI’s need to be reviewed on a regular basis to ensure the strategy is on track and growth is visible.
Hoteliers need to realize the potential of their revenue managers, of the true value they hold and how they control one of the core revenue sources for a hotel. They need to be afforded the resources to carry out their role to its fullest. Have you ever seen a chef go without essential equipment to make their job efficient? For a revenue manager to sell the idea that a channel manager system or business intelligence tools are necessary to improving the efficacy of the department can be much more difficult.
Remember it starts out with thorough data analysis on bookings, customers and the opportunities in the marketing place. Knowledge from data analysis enabling relevant KPI’s to be set and implementation of the plan based on the goals.
Hotels do need to work harder than ever to build their own bookings, work that done correctly is well worth it – financially!