Author: Rafael Gómez / 5 minutes read.
History reminds us how was the beginnings of the Revenue Management in the aviation industry. Subsequently, it began to be implemented in the hotel industry with Revenue Management techniques individually, focused mainly on pricing, without considering other areas that are very popular nowadays in the hotels.
We have new moments, there is no doubt about it, and we must adapt ourselves to the evolution of the Internet and the rise of online Marketing tools, which have brought the world of Revenue Management even closer to hotel Marketing and, specifically, to define a strategy with Sales and Marketing.
In previous articles I focused on Revenue Management, drawing some strategic actions, including its evolution to `Total Revenue Management´, where we saw examples in other areas of a hotel that could improve revenues. Honestly, the thought in Revenue Management cannot be other than revenue optimization globally, as a member of the executive committee of the hotels.
However, in this post I will focus on a very recurring and popular question, which is the synergy between Revenue Management with Sales and Marketing. First, it is important to mention that any position strategy in Marketing, SEO (Search Engine Optimization) and SEM (Search Engine Marketing), would not work without a correct pricing strategy. Everything is much linked. When I mention pricing strategy, I am not only referring to the price against the competitors after a product-quality matrix analysis. I am referring to the global pricing strategy defined for the different distribution channels. It is useless to invest in marketing positioning campaigns to increase direct channel if there are lower prices that cannibalize us. In my opinion, this is still the main issue for Resorts mainly, where agreements are signed with redistributors not offering added value to the Hotels. It is even more difficult considering the absolute opacity in the complex distribution.
There is no doubt that an important factor to consider is communication. If we want to achieve inventory optimization, we must go further. Strategy meetings should be planned, where not only past results are analyzed, but mainly the future situation. Therefore, a unique strategic plan needs to be developed. The famous phrase `we are in the same boat´, is like this… all together we go further.
This is why my personal formula for success is as follows:
1+1+1 = 13
Yes, it is one of the few operations where the sum of 3 units has to result 1, but a 1 cubed. Although it is still 1, this 1 is bigger, it is a real 1. It is about the common strategy between the three departments and never about three different strategies. It looks simple; however it is the base for any organization, aligning positions to maximize opportunities.
Let’s give an example of why we need this 1 cubed, the real 1. In Marketing, in general, the results of a specific campaign is measured by its ROI result (Return Of Investment), creating a variable between the production and investment. For this reason, the result of a certain online marketing campaign is analyzed based on its past production, but this should not be the reason to consider a new future campaign. If a specific campaign has worked in the past, it should not be the main reason to launch it again, since very important parameters could be ignored. For this reason, before making a move, I would ask myself the following:
About the past campaign:
- How and in what way has the campaign been produced and in what specific period of the booking window? Have spikes occurred for some reasons?
- Instead of just focusing on ROI, why not compare the results to a date in the past where we had not a campaign under similar demand and market conditions? Here we may get surprises…
- In addition to production, how positively impacted the hotel’s Mix by driving volume to the direct channels and what is the impact on GOP?
- Finally, we must analyze the result not only considering the bookings produced but also the costs of the campaign (diluted ADR). Here we also may have surprises! If we deduct the marketing investment to the production generated and divide it by the rooms booked, the real ADR will be different. It would show the real performance of the campaign, susceptible of comparison with the costs of other distribution channels.
However, in addition to it, we must consider some basic questions before making a new decision about the future campaign, considering that questions would be different attending to the campaign:
- How is the pace, pick up and ADR trends? When comparing moments we see at what point of demand we are (validating past strategies). This is an essential point to establish new strategies. It is like putting the thermometer to our business.
- Do we have a pricing strategy that helps the campaign? If it is not adequate, we will never get optimal results.
- What campaigns focused on direct segments push the Mix more and increase the GOP of the hotel?
- Are there dates in that Booking window with higher demand that can be excluded from the campaign? It also depends on the type of campaign we want to design.
These are some of the questions that undoubtedly link Revenue Management with Sales and Marketing. We can say in a simple way that Revenue Management focuses on visualizing and anticipating the future demand, while Sales and Marketing mainly analyze the past by looking at the performance of the campaigns.
In addition, nowadays, thanks to new technologies, there is a strong progress on online Marketing for Hotels (Google leading the growth). We keep learning and just when you think that you know, there’s a new tool or a change to an existing tool.
In any case, in the weekly strategy meetings, the interaction of the Revenue Management in the hotel must also consider the General Manager, Operations and F&B, including the Director of Finance, where relevant data is provided, such as variations in CPOR (Cost Per Occupied Room), GOP or P&L. In addition, the increase in costs that we have today requires a detailed analysis to anticipate a breakeven point for ADR to increase the GOP, because a 5% increase in ADR could negatively impact the GOP due to the increase in costs.
Therefore, as a conclusion, a person individually would never add more than a team. A strategy based on group decisions has always more positive financial impact than unilateral decisions. Nevertheless, it is important to mention the positive influence on motivation, and as I always say, “when there is motivation, there is positivity and with positivity there are always better results!
