Implementing a revenue strategy comes with a unique set of challenges, on top of the existing challenges facing hotels at the moment due to the colossal impact of the pandemic. Hotels need to remember why they are optimising each channel, and how direct bookings reduce costs and produce a higher lifetime value for each guest.
In this article, we will cover difficulties often faced by revenue managers who are trying to implement robust revenue strategies.
Difficulty tends to come from two directions: from the role and the hotel (internal), and from the market environment (external).
Here is a look at both sets of challenges, and tips for overcoming them.
Challenges from Within the Role
1. Developing an expansive skillset
The revenue management role requires a set of specialized skills and knowledge. If you don’t have that expansive skill set, putting together and executing a successful strategy is going to be difficult.
Developing the right skills as an RM is the first challenge. You may already be an expert, with 10+ years in the field – or maybe you’ve just swapped from another department, and don’t have your feet under you quite yet. Perhaps you need to refresh your knowledge after dealing with significantly less activity over the last 14 months.
Either way, training, upskilling and refreshing your knowledge will provide you with the fundamentals you need, and will keep you up to date on the latest best practices. This might mean night classes, mentoring under a more experienced RM, or just reading up.
It’s more important than ever to invest in the training you need for a high level of revenue management. If you want to implement a strong revenue strategy, a solid knowledge and skillset is your foundation.
2. Technology that isn’t always up to dealing with multiple online channels
Technology – or lack thereof – is a common barrier for many revenue managers today, especially those working with smaller or independent properties.
Many independent hotels, even those with expert RMs, are facing serious and expensive technology hurdles in the race to keep up.
Issues can range from having different technology systems that may not communicate well with one another, to not securing the budgets necessary for investing in the technology your hotel needs.
Without the right technology, RMs can be left staring down the barrel at hours of spreadsheets each day just to keep up with their online channels. The job can be overly, unnecessarily manual without the right tools.
Implementing a sophisticated revenue strategy on multiple online channels absolutely requires an investment in technology. If there are difficulties finding the right technology, it can hinder your progress, and now is not the time for any additional barriers between you and potential bookers. Try to make as compelling a case as possible to find and purchase the right technology for your hotel.
Approach it in a logical manner by outlining the time spent per day on manual tasks, showing examples of what other kinds of work could be accomplished if the manual admin tasks weren’t taking up as many hours. Include work in relation to pricing and inventory per channel, detailed forecasting and analysing marketing segments.
3. Communication between departments
Communication is often a major hurdle when you’re trying to put an intelligent strategy into place.
General managers or members of your sales and marketing team may have varying, siloed goals that don’t necessarily align with yours in revenue, or you maybe you haven’t discussed your goals and challenges together. Try and reach out to break down any potential barriers to open communication, and give yourselves an opportunity to streamline goals for the benefit of your business.
Where do you, as revenue manager, sit within the company and communication structures of your hotel? This ultimately ties back to how well your strategy is defined, and how well team members across the company collaborate together.
4. Measuring the cost of distribution
Distribution costs must be measured completely. This is, however, easier said than done.
A combination of traditional channels (GDS, phone) and online channels (brand website, OTAs, Google Hotel Ads) can make it complicated to discern true costs. For example, if a customer sees your ads online and visits your website before calling to book, how do you know their specific journey? How can you properly attribute the cost?
These ‘invisible’ paths to purchase can distort your view of how much your online and offline activities are truly worth.
The increasing importance of online paid ads (Google search ads, social media ads, etc.) might make direct bookings more expensive than they’ve been in the past, but those same paid efforts contribute to brand awareness. (Also – did you know Google have eliminated fees for hotel booking links?)
Running advertisements keeps your direct channel at the top of results, even when OTAs are bidding on your hotel brand name, which, if you’re on an OTA – and sometimes even if you aren’t – they are. Running these brand campaigns also contributes to your overall brand image, and even offline bookings.
As revenue manager, focus on the costs for each channel. In order to find out the marketing efforts that lead people to book on specific channels, consult with your sales and marketing team. They should be looking at attribution models to see how people are getting to each channel.
This will give you an estimate for which channels are costing you the most, and will indicate whether you can affordably push those bookings to a lower cost channel.
At Net Affinity, we provide in-depth, intelligent reporting to assist revenue and marketing teams within hotels. Our goal is to help hotels see their online strategy clearly, and as a whole, and focus on the key areas for their brand.
Challenges within the hotel industry
Those are some of the internal, individual challenges you’ll face. What about external factors?
Here are a few key industry-wide factors that will affect your revenue strategy, and some tips for coping with them.
1. OTAs dominating online sales
OTAs have captured an average of 40% of the total global travel market.
Distribution costs are increasing twice as fast as room revenue, and OTA booking shares are increasing as well, although their revenue (understandably) took a nose dive over the last year. New channels are appearing too, which demand that hotels increase their channels offerings to include the likes of Google Hotel Ads and TripAdvisor.
Don’t underestimate the importance of OTAs and metasearch sites and the way they affect both your paid marketing strategy, organic strategy, and distribution strategy. Learn more about metasearch here.
A crowded distribution landscape, along with the fierce competition between domestic markets as hotels all open up again, only makes it more difficult for your website to stand out. Fortunately, good marketing can help you overcome this – email marketing and brand campaigns are good areas to start.
A clever distribution strategy for independent hotels will help to focus your efforts on the channels that, over time, will be the most profitable for you.
Independents don’t have the budget of an OTA or a Hilton! Being unique and flexible in your approach will give you an advantage.
2. Pricing factors and strategies
Pricing factors include both macro and micro issues.
An example of a macro issue is the uncertainty caused by the pandemic on the tourism industry. It’s likely that hotels will have to consider the economic and social impact of the pandemic while setting prices over the next few years.
Micro issues might include prices being changed by third parties due to regional differences, discounts, or errors. Staying on top of those to maintain parity with the direct channel is a time-consuming challenge, although there are tools to help. It’s a major issue – the European Commission found in 2016 that two thirds of travel websites are misleading consumers on price.
The bottom line is that maintaining rate parity is a difficult and time-consuming challenge – and, in some cases, might not be the right one to take on. If you aren’t legally required to maintain rate parity on all your online channels, consider a pricing strategy that allows you some intelligent flexibility. For example, you might want to offer a 5-10% discount on specific channels. This still causes potential difficulty, as you need to monitor for errors and incorrect rates – but it’s potentially more profitable.
What pricing strategy is your hotel using internally? You need to choose a data-driven pricing approach to any pricing plan. When it comes to strategy, you can choose between a BAR strategy or open pricing.
If you have the capability, in terms of technology and time, open pricing is well worth the investment.
Duetto argues that fixed-tier strategies based on BAR or other restrictions “severely limit” hotels’ revenue potential. Open pricing is the idea of raising or lowering prices on different channels based on demand, rather than closing channels out or adding length-of-stay restrictions to discounted channels when demand is high. With open pricing, the door is always open – but at prices that suit demand on each channel.
3. Disconnect: what hotels say they want to do and what actually happens
Hotels claim they want more direct bookings, but are they investing adequately in the technology they need to make them happen?
A study by Expedia shows that while chain hotels (77%) are more likely to increase technology investments, independent hotels tend to prioritize room renovation.
What’s the issue? “Among the small independent hotels surveyed, 1 in 4 cited complexity as their biggest challenge when adopting technology, with 1 in 3 saying ease of use is a priority when evaluating solutions.” Companies like us can help you decide what kind of technology will work together with your website and booking engine to create a seamless experience for you, and for your guests. It’s crucial to your direct booking success.
Another important area to invest in is staff training. It goes hand in hand with investing in the right technology. Without the combination of experienced, well-trained revenue manager and marketers, along with the technology to manage multiple channels, your book direct strategy is unlikely to succeed.
Hotels across the industry must align their goals and their actions. This may mean putting more budget in these areas, or re-evaluating their current strategy and spend.
4. Flexibility over pricing and strategy
With all these challenges we’ve listed, we wanted to include an item that isn’t really a challenge. Instead, it’s a quick summary of the ways independent hotels are uniquely suited to take on these challenges.
Branded chain hotels have strictly defined rules, regulations, processes, and associated costs.
Independents have greater flexibility, providing greater freedom to explore and innovate.
An independent hotel can genuinely distinguish its customer service and property as unique. They can respond to guest needs quickly, delivering a personal experience which gains the hotel greater loyalty from their guests.
Independent hotels have the freedom to play around with their brand. Not having a specific brand standard can be liberating. Marketing teams have the freedom to try different channels quickly, and the autonomy to change strategy as needed.
Additionally, independents have more margin to play with. There’s a smaller number of stakeholders taking a piece of the pie.
Take on the chance to be proactive and flexible as you meet challenges. Your revenue strategy should be solid, but have the freedom to refine strategies and allocate budget as needed.
With challenges coming from both internal and external factors, putting your revenue strategy into practice can be frustrating.
From technology to pricing to simple communication, there are a number of challenges that your team will need to be ready to face.
Hotels should focus on optimising each channel, and driving direct bookings. Direct bookings reduce costs and produce a higher lifetime value for each guest. At Net Affinity, our reporting assists hotels in driving direct bookings and increasing revenue.
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This piece was originally published in 2017 but has been updated to reflect new data and events.