What Makes a Successful Revenue Strategy for Independent Hotels?
Independent hotels face a unique set of opportunities and challenges when it comes to developing and implementing their revenue strategy.
The independent hotel doesn’t have the negotiating power or marketing budgets of multinational chain hotels, so they’re in a more vulnerable negotiating position with OTAs. There are also often issues with investing in and integrating new technology.
However, independent hotels can react more quickly to changes in the market, and have the freedom to offer unique experiences to their guests.
We want to address what we see as the main challenges and opportunities for revenue management in independent hotels in 2017.
First and foremost, hotels must have a clear revenue strategy in place.
Later in our Challenges for Independent Hotels series we’ll be discussing implementing it and the challenges that come with that, from hotel company structures to the power of technology.
Today, though, let’s focus on what makes a successful revenue strategy:
4 Things to Address Before You Create Your Revenue Strategy
In a market as competitive, fragmented and swiftly changing as the travel industry, an intelligent, flexible revenue strategy is the only path to success.
As technology and guest behaviour changes, you must be able to adapt your distribution strategy. Additionally, your strategy must be able to cope with the many layers of today’s complex distribution landscape.
If not, you’ll find yourself falling behind and your guests turning towards what they see as more easily accessible hotels.
Here are 4 key areas to keep in mind and monitor before and during strategy development: setting the right goal, removing departmental silos, getting agreement for consistent investment, and driving profitability.
1. Properly Setting Business Objectives: Start with the Right Goal
From a strategy perspective, hotels must start with a goal, not with key performance indicators. For KPI’s to be useful, they must follow from your goals. Metrics only matter when you’re looking at them for a reason.
Whether your goal is driving direct bookings at a lower CPA than other online channels or something else (like driving wedding or corporate bookings), your goal is your starting point.
Once you have your goal, you can consider which KPI’s naturally follow from that goal. For instance, if your goal is driving more bookings through your brand website, you should look at:
- The overall conversion rate of ‘lookers to bookers’ on your own website
- Levels of bookings coming through your direct website from various marketing campaigns
- Direct bookings vs other online bookings – are you able to increase this ratio over time?
However, how do you get agreement from every department on what that goal and the KPI’s should be?
2. Different Priorities from Different Departments: Removing Silos
Unfortunately, many hotels have departments operating in rigid silos, each with their own priorities, communication methods and way of doing things. This is a major hindrance to any strategy.
For example, Sales & Marketing may be strictly focused on generating business, without looking at the fine details of where and when that business is coming from.
Revenue Managers, however, are focused on generating profitable business, but need sales and marketing to position themselves to greatest advantage on the channels they want, and at the price points they want.
Meanwhile, your hotel’s front office is likely focused on simply making sure all bookings fill on a night, and avoiding issues like overbooking situations.
These priorities aren’t necessarily in conflict, but they need to be properly aligned before you sit down and hammer out your strategy.
Removing departmental silos, then is the first step in resolving different priorities.
3. Getting Agreement Up Front for Consistent and Substantial Investment
While you won’t know for certain your strategy will be successful, especially if it’s a new one for your hotel, you still need to get the agreement for the spend up front. You can’t go month to month with unknown budgets. That’s a recipe for uncertainty, tension and potentially many lost opportunities.
Present the benefits of consistent and substantial investment clearly, from projected ROI in different areas to the necessity of “pay-to-play” on most platforms today.
The sooner you get your budget secured, the sooner you can get started.
4. Driving Profitability
It’s a known fact that independent hotels and smaller brands simply can’t outspend OTA’s. So, instead, independents must focus their efforts where they can most successfully drive profitability.
Which channels are preferred by your target markets? Which target markets suit your property type, prices and location? Once you’ve determined that, you can develop a strategy that looks to capitalize on those inherent advantages.
You should consult with a good digital agency, or technology partners such as your booking engine provider, PMS provider or channel manager provider as part of this process. They’ll have insight across a broader segment of the industry than you’re likely to have alone, and you’ll have the narrow but deep insight into your own property and competitor set.
Together, you’ll be able to get a clear picture of where you stand and where you should be focusing your efforts.
4 Keys to a Profitable Distribution Strategy: The Path to Positive Guest Experiences
Those 4 items above are the basics that underlay every good revenue strategy, and they are what you must consider before anything else.
Once you’re ready to create a strategy, what should your strategy focus on and include? Here are 4 key areas to address once you’re actually sitting around the table and ready to plan:
1. Analysing Acquisition Costs
When you create your annual sales strategy, you must look at the past, present and future.
At the end of the day, what are your hotel’s strengths? How do you create value for your guests, and what competitive advantages do you hold over your competitors? (Phocuswright)
On a more granular level, which channels have been ‘successful’ for you over the past 12 months? Has business increased, decreased, or held steady (accounting for seasonality) in that time?
Dig a little deeper and understand the costs of acquisition for each channel. How does each channel take its fees? When you account for those, are the channels giving you the most bookings doing so at a reasonable CPA?
For example, if two channels give you very similar levels of business but one comes with a much higher price tag, consider limiting the number of rooms you give the costlier channel, especially on high demand dates.
Prioritize the channels that consistently offer you the best value, and where your hotel’s goals are most closely aligned with the channel’s.
2. Driving Direct Bookings
One very profitable goal for your online presence is driving direct bookings at a lower cost per acquisition than third party bookings.
Direct bookings give you a measure of control over an online distribution landscape that’s experienced radical change over the last few years. Everything from channels, segmentation, technology, devices and the messages you send and guests receive has changed.
A good book direct strategy is key to reclaiming your control over your distribution strategy.
It’s a strategy many hoteliers favour: According to SiteMinder’s Global Hotel Business Index, the highest priority for hoteliers this year is increasing volume of direct online bookings.
(It’s worth noting that the lowest priority is exploring new hotel technology and systems. This is fairly counterintuitive, given that a) the majority of hotels do not have automated revenue management software, and b) the huge advantages RM software gives you in driving direct bookings)
What are the benefits of booking direct? There are 3 main ones most hotels consider: a lower cost for direct bookings, the chance to capture loyalty, and opportunities to upsell.
High fees and increasing OTA strength in recent years has prompted hoteliers to promote alternatives. It’s typical for OTA’s to charge 15-20% in commission.
Direct bookings, when actively managed, allow hotels to get those online bookings at a much lower cost. The key lies in carefully tracking and optimizing campaigns, promoting a book direct message throughout your advertising and on your website, and following through on any guarantees you make.
Major hotel chains are making a big push with loyalty to drive direct bookings. They rely mostly on points-based programs.
Independents, however, are being a little more creative. They’re focusing on immediate rewards and unique offerings, which are instantaneous and offer more value to customers.
There are undeniably challenges to setting up a successful loyalty program. However, once up and running, they offer incredible value to independent hotels that leverage them properly.
For a thorough guide the key factors of a successful loyalty program and the benefits for your hotel, click here.
When guests book direct, you have their details and contact information from the word go.
This isn’t the case with most OTAs, which are infamous for withholding guest emails. This creates a wedge between you and your guests, and gives the OTAs the chance to capture loyalty by providing pre-stay information and offers. If you don’t capture the email on check-in, you’ve lost the chance to contact them altogether!
Email guests to make contact, reassure them about your booking, and upsell them.
Let them know about onsite amenities, and take the chance to offer relevant upsell options. These might include making a restaurant reservation or booking a few spa treatments.
3. Keeping Channels Open
Consider how you’re going to manage pricing in your revenue strategy. We believe that open pricing, an alternative to BAR, fixed-tier pricing, is the best pricing strategy today to maximize profits.
Duetto, for example, writes that “hotels are severely limiting their revenue potential by using a fixed-tier strategy centered on Best Available Rate or other length-of stay restrictions. It’s basic economics: The more price points you have available to meet your demand, the more potential revenue you can capture.”
Truly open pricing is, it’s true, difficult to achieve. It requires some investment in technology and potentially upskilling (alternatively, a monumental level of manual data entry – we’d recommend the tech!).
However, the current strategy of closing off discounted channels when a certain level of demand is reached, instead of intelligently scaling back the discounted amount – and potentially shutting out customers who, for example, wanted a longer stay that included a closed off date so only saw ‘no availability’ on their chosen channel – isn’t efficient. It’s losing you revenue.
For a deeper dive into the topic of open pricing, check out Duetto’s article here.
We’d highly recommend hotels who aren’t considering open pricing to do an analysis on how much extra revenue their hotel might be capturing by introducing open pricing.
4. Optimising Your Hotel Website With Clear KPI’s
Your marketing campaigns and your presence on third party channels are important. They expose you to new audiences, remind those who have seen you before that you’re still there, and play an important part in the path to purchase.
However, your work across the web means nothing if your own website isn’t doing the job. Your KPI’s must clearly monitor and measure each part of your revenue strategy.
Take a very close look at your analytics to see how users behave on your site, and on other channels.
Look at your hotel website’s conversion rate. Of all the visitors to your site, how many are successfully completing booking? If your conversion rate is low, look at:
- Availability on your website
- How many users ‘bounce’ off your website as soon as they land from an ad. This can tell you whether the page you’re sending them to from ads is doing the job
- Whether there are pages on your site with a high exit rate – are people navigating away to other sites very often from a particular page?
- Pages that users often click ‘book now’ from: are they your room pages? Your gallery? What are those pages doing right, and how can you replicate those results across your site?
Apart from your own website’s data, you should also be monitoring:
- Cost per channel
- Volume (bookings per channel)
- Cancellation rate per channel
- Net revenue per channel
Creating your revenue strategy is the first step on the road to revenue success, but it might be the most important one.
If you do the research, lay the groundwork, and know exactly what your goals are and how to measure them before you start, you’ve got much better odds of finding success down the road.
We’ll be discussing challenge that arise when implementing your revenue strategy, also known as the point where “the best laid plans of mice and men often go awry” in our next Revenue Management Challenges article – keep your eye out!
Words by Tayor Smariga