8 Challenges You’ll Face When Implementing a Revenue Strategy [for Independent Hotels]
Implementing a revenue strategy comes with a unique set of challenges. Hotels need to remember why they are focusing on optimising each channel, and how direct bookings reduce costs and produce a higher lifetime value for each guest.
In the second article in our Challenges for Independent Hotels series, we cover difficulties often faced by revenue managers who are trying to implement robust revenue strategies.
These difficulties come from two directions: the role and the hotel, and externally from the market environment.
Here’s a look at both sets of challenges, and ways to overcome them.
Challenges from Within the Role:
1. Expansive skill set needed:
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.
So, getting the right skills as an RM is the first challenge. You may already be an expert, with 10+ years in the field – or you may have just swapped from another department, and don’t have your feet under you quite yet.
Either way, training will give you the fundamentals you need and 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.
Whatever you need, invest in the training needed for quality revenue management. It’s the fundamental you need before you’ll be able to successfully manage implementing a revenue strategy.
2. Technology that isn’t always up to dealing with multiple online channels:
Technology – or lack thereof – has become a major barrier for many revenue managers today, especially ones at smaller or independent properties.
Many independent hotels, even those with expert RMs, are facing serious, expensive technology hurdles in the race to keep up.
Issues can range from having different technology systems that don’t communicate well with one another, to not securing the budget to invest adequately in the technology your hotel needs.
Without technology, most RMs are staring down the barrel of hours of spreadsheets each day to keep up with their online channels. The job can be overly manual without the right tools.
Implementing a sophisticated revenue strategy on multiple online channels will, at some stage, require an investment in technology. When it’s difficult to get that, or to find the right technology, it can hinder your progress. Make as compelling a case as possible to find and purchase the right technology for your hotel.
Approach it in a logical manner. Fetail out the time spent per day and per week on manual tasks, show what pro-active work could be accomplished if the manual admin task were not taking over each day. Include work in relation to pricing and inventory per channel, detailed forecasting and analysing marketing segments.
3. Communication between departments:
General managers or your sales and marketing team might have goals that don’t align with yours in revenue, or you might not have discussed goals and challenges together. Make sure you’re reaching across and breaking down those departmental silos.
Where does the revenue manager sits in the company structure and the communication structure in your hotel? This ties back to how well the strategy is defined, and how well all team members embrace the plan.
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 ones (brand website, OTAs, Google’s Hotel Ads, etc.) can make it complicated to discern true costs. For example, if a customer sees your online ads and visits your website before calling to book, how do you know? How can you properly attribute that 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, paid efforts on social media, etc.) can make direct bookings more expensive than they’ve been in the past, but those same paid efforts contribute to brand awareness.
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 contribute to your overall brand image, and even offline bookings.
As a revenue manager, focus on costs for each channel. For the marketing efforts that lead people to book on these 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 gives you estimates of which channels are actually costing you the most, and whether you can affordably push those bookings to a lower cost channel.
At Net Affinity, we provide in-depth, intelligent reporting to assist hotel revenue and marketing teams. Our goal is to help hotels see their online strategy clearly, and focus on the most important areas for their brand.
Challenges within the Hotel Industry
Those are some of the internal, individual challenges you’ll face. What about external factors, though?
Here are the industry-wide factors that will affect your revenue strategy, and a few tips for coping with those:
1. OTA dominate online sales
In 2015, according to Phocuswright, OTAs represented 71% of all online sales in Europe. In the US, OTAs held 52% of online sales. This trend is, unfortunately, only growing.
Distribution costs are increasing twice as fast as room revenue, and OTA booking shares are increasing as well. New, important channels are appearing as well, demanding that hotels increase their channels offerigns to include Google Hotel Ads, TripAdvisor and similar channels.
You can’t afford to underestimate the importance of OTA’s and metasearch sites, and the way they affect both your paid marketing strategy, your organic strategy, and your distribution strategy.
A crowded distribution landscape makes it more difficult for your direct 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 focus your efforts on the channels that, over time, prove to be the most profitable for you.
Independents don’t have the budget of an OTA or a Hilton, but they have the advantages of being unique and flexible in their approach.
2. Pricing factors and strategies:
Pricing factors include both macro and micro issues.
An example of a macro issue is the uncertainty caused by Brexit in the UK and the so-called “Trump Effect” on US tourism. Both markets are major ones for Ireland, and it’s likely that hotels will have to take these economic and social effects into account when 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, it 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. Still difficult to keep up with, as you still need to monitor for errors and incorrect rates, but potentially more profitable.
Finally, internally, what pricing strategy is your hotel using? You must 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 happens
Hotels claim they want more direct bookings, but aren’t investing adequately in the technology they need to make it happen.
Siteminder’s Global Hotel Business Index included a survey of 2,100 global hoteliers, from both independents and groups. It indicated that the highest priority for hotels in 2017 is increasing volume of direct bookings, and the lowest priority is exploring new hotel technology and systems.
The also list “hotel staff recruitment and training” as the lowest spend area. However, “revenue-generating strategy management” is the highest spend area.
We would argue that staff training and new technology are key to managing your revenue strategy and driving direct bookings. Without a 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, at the end of the day, 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.
What are the top challenges your hotel faces when it comes to your revenue strategy? How do you overcome them?
Words by Tayor Smariga