New York – Revenue managers and others involved in the process of making hotels money convened at the Affinia Manhattan for the 2014 Revenue Strategy Summit to discuss ways and means to be profitable amid a hyper-fragmented environment, and one thing is certain: the focus must always be on the customer.
While the historic nature of revenue management has been about selling the right product to the right place, at the right time, at the right price and at the right cost, it, too, is about selling it to the right person.
“It’s about delivering the right message, to the right person, at the right time,” said Tim Harvey, CEO of Core Ideas.
The times are changing, Harvey said. “Empowered buyers demand a new level of customer obsession. Companies must be customer obsessed,” he said, adding that the customer holds the advantage and is in firm control because of transparency.”
And, unfortunately for hotels, the industry has low barriers of entry, making it seemingly easy for anyone with a smart idea to enter the mix and disrupt. “There are new companies in the distribution space all the time. They can get right to what the customer wants,” Harvey said
A panel on disruption tried to parse it all out. The panel, “Disruption 2020: Vision & Implications for Travel and Hotels,” was led by Mark Lomanno, partner and senior advisor at Kalibri Labs, who told the audience that hotels have a higher cost of customer acquisition than many other industries, including airlines and car rental, at 15-25 percent higher.
He added that, in 2013, net income for hotels was only slightly higher than OTA costs. “ADR recovery is not as strong now from 2008 even in the face of record demand. We are paying more to acquire customers and can’t charge as much,” Lomanno said.
He then posed this question to the panel, which was composed of Ash Kapur, VP, hospitality revenue management and distribution, Starwood Capital Group; Tom Seddon, CMO, Extended Stay America; Minaz Abji, EVP, asset management, Host Hotels & Resorts; Shafiq Khan, SVP, channel strategy and distribution, Marriott International, “What’s the single biggest challenge for the industry going forward?”
Khan made the case that it was staffing issues. “Potential unionization,” he said, though admitting that intermediation costs were also a large part of his concern.
For Kapur, it was about not being creative enough. “We have technology challenges,” he said. “How the consumer shops and our systems need investment, constantly, but in a fragmented industry as ours, raising capital is tough.”
Meanwhile, Abji lamented on the fact that the industry had lost pricing power. “We used to have it,” he said. “Now we don’t,” pointing a finger at the online travel agencies and placing some of the blame on legacy infrastructure. “We used to not have disruption. Why do we do the stupid things we do?” he asked.
In a moment of intrigue for the audience, Abji said that the hotel industry could learn from the airlines. “What they do is when you make a reservation, you pay up front. When you cancel or change, you pay a fee,” he said. Abji added that ancillary fees are around 30 percent of airline revenue.
Khan pushed back. “We don’t want to be like the airlines,” he said. “Who likes flying? Unionization is why the airlines are bad. We don’t want that.”
But Abji then went on to suggest more, even somewhat revolutionary changes. He addressed what he called the “big brands” and their loyalty programs, thusly: “You want to allow loyalty points for customers? Make them only available when they book directly,” he said, specifically meaning that customers could only receive loyalty rewards or points if they booked though the hotel’s website or other direct method. “If the industry did that, it would be a game-changer,” he said.
Seddon, again, invoked the customer—and creativity from different channels. “A lot of innovation will come from outside the industry,” he said. “The industry hasn’t done anything to create competition. There is better value through a different channel. The customer will tell us what they value. Hotels can control their own destiny with simple stuff, like Hilton’s move to let customers pick their rooms. That will increase direct business and it’s not too complicated to do.”
➔ “You want to allow loyalty points for customers? Make them only available when they book directly.”
Minaz Abji, EVP, asset management, Host Hotels & Resorts
Part of the difficulty is because the barriers of entry are so low in the hotel industry, Kapur said. “Why are there so many start-ups?” he asked. “In a noisy environment, you have to find reasons why a guest will come back and communicate that. The front desk needs tools to recognize guests. We don’t have those systems. We have to get down to the reason why guests want to stay at your hotel.”
The shifting landscape: New players, new models
In one of the more innovative sessions at the Revenue Strategy Summit, three intermediaries presented their models to a panel of brand and ownership executives. Then they got feedback. The three providers were Nor1, which offers upsell solutions; Hotel Tonight, known for its last-minute bookings; and tripBAM, a tool that searches for rates that dip below a preset level at the hotels selected by the traveler. Here’s a taste of the feedback.
* “This is the scariest one yet—but genius. It’s great for customers, horrid for us and bad for the RFP process. I’m concerned.”
Maxine Taylor, EVP of asset management, Chartres Lodging Group
* “Hope it doesn’t detract from our strength in pricing.”
Jennifer Collins, VP, LaSalle Hotel Properties
On Hotel Tonight:
* “The user interface is second to none. But are we training customers to do the wrong thing and messing up rate parity?”
Josh Keller, COO,
* “We are training customers to get the cheapest rate.”
Alise Deeb, SVP, revenue operations, La Quinta Inns & Suites
* “I don’t view it as a channel per se, but more of a revenue-enhancement tool.”
* “We don’t upsell well. This eases the burden.”
La Quinta’s Deeb