Revenue-management changes can help boost hotel performance

As revenue management evolves with the industry and the world around it, revenue managers need to stay on top of their game by playing close attention to new trends as they arise.

Some common themes of recent revenue-management trends center on changing consumer preferences and technology acting as both an obstacle and enabler.

Dan Skodol, VP of revenue analytics for The Rainmaker Group, broke down five of the most recent revenue-management trends and what hoteliers should do about them.

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1. Loyalty-based pricing

In an effort to shift direct bookings away from third parties, hotel brands started to offer loyalty members discounts if they book direct.

“What’s interesting is the word loyalty in use in conjunction with discount. Truly loyal customers tend to be willing to pay more for your product,” Skodol said. “You need to think of the potential dilutive effect of this.”

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Skodol said revenue managers need to understand their total channel and marketing costs in order to avoid guests booking with high-commission online travel agencies.

“You have to still compare your own direct booking costs, brand fees and marketing fees from brands. Customers that may have paid full price are now getting a discount, and the brands are benefitting from loyalty effect,” he said, adding that it’s important to understand there are other channel options. For example, negotiated corporate rates might be a better way to go.

“It’s about optimizing your overall channel mix,” he said.

2. Impact of alternative accommodations

It’s no secret that alternative accommodations, such as Airbnb, are putting pressure on hotels. Skodol cited research that shows that U.S. hotel inventory grows 10 percent when accounting for Airbnb’s active listings. Airbnb booking revenues are projected to grow from $7 billion in 2014 to $83 billion in 2020, he added. Meanwhile, he said the estimated annual loss to the New York City hotel industry is $450 million due to Airbnb, and that figure could grow to $805 million in 2018.

“The impact is clear,” Skodol said. That’s why he said hoteliers need to recognize, obtain and analyze the right data to understand the impact on their own hotels. He suggested starting with AirDNA, which scrapes listing data from Airbnb.

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“You can understand the supply out there. Most listed is dormant and doesn’t rent on a regular basis, so you can differentiate from active supply,” he said. “Only look realistically to what you’re being compared to. … Understand product differentiations and how you stand apart and how you can compete. Understand dynamics around special events.”

3. Advances in group revenue management

Traditionally, revenue-management science has focused on the transient guest, but Skodol said there have been recent advances in group revenue management.

“Tools and tech have emerged that help streamlining sales cycle and make efforts to close sales easier,” he said. “Those tools include price optimization models, group forecasting algorithms, lead scoring mechanisms, tools to manage function space as well as some tools to administer catering.”

If hotels have a decent mix of group business, Skodol said revenue managers need to stay in tune with the most recent developments in this field and understand which tools might leveraged to help.

4. Ancillary revenue opportunities

The estimated total ancillary revenue worldwide is $80 billion to $140 billion, Skodol said, citing research from EyeforTravel.

But in order for hoteliers to drive ancillary revenue, Skodol said those products or services need to be relevant to guests. He said 61 percent of hotel guests would purchase add-ons during their stay, but 40 percent need to be convinced. Fifty-eight percent feel the seller is simply trying to make more money off of them, and 63 percent feel the offers aren’t relevant.

“Understand your customer and their needs. Customers will make other purchases but need to know it’s relevant to them,” he said.

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It starts with capturing the right data. He posed some questions: Do you capture data solely via folio charges or do you have other ways to capture ancillary spend? How clean is the data in order to serve needs? Do you provide incentive to guests for purchasing?

“Understand your revenue-management processes and solutions and see if it can be leveraged in effort to improve ancillary revenues,” he said.

5. Personalization to drive direct bookings

The personalized experience isn’t just on-property. A recent trend in revenue management is bringing that personalization to the booking process, Skodol said.

“It doesn’t require a customer database with preferences or specific data on what individuals did on prior stays or the need to be repeat guests,” he said. “You can predict customer needs based on similar characteristics or attributes of a stay.”

For instance, a single traveler staying during midweek for one night will have different characteristics than three guests staying for three nights over a weekend. Look to what booking lead time and rate purchased can tell about the type of traveler.

“Data will drive decisions and actions. Collect the right data in a clean and consistent fashion,” Skodol said.