In meetings with other professionals, who represent businesses of different profiles and hotel categories, I listen to analyze the different strategies they apply. And it is at that moment when, from my professional point of view, I detect actions that I consider questionable and can produce undesirable effects. For example, sometimes I hear colleagues who think that having more contracts with tour operators increase their production and therefore they offer better conditions for this reason, or hotels that always follow a certain competing hotel.

Being aware of the difficulty of understand the reality and peculiarities of each hotel, a priori I firmly believe that there are a series of basic lines between expectations and reality in Revenue Management, supported by numerous studies. In this context, there are many widespread myths in the hotel industry, however, I will focus on those that I consider most relevant as they have a greater impact on a hotel’s profit and loss account:

 

  • CONTRACTING MORE INCREASES SALES. This is a commercial myth that we can only give credence to at an initial stage. Without contracts we cannot increase visibility in the main markets, however, there is a moment where contracting more will not improve sales. Let me explain, there is a complex and secret distribution, and even more in Resort holiday destinations, where our partners share their rates and always end up offering the lowest, whether it is their own rate or the one they receive from another channel. Therefore, once we reach a point of balance with full visibility in the issuing markets, we have to break the myth and say that contracting more will not increase sales. At this point we must ask ourselves several questions: with whom do we contract, what do we contract and especially, for what purpose and what is the impact on the general distribution strategy. What is more, if bed banks also come in place, surely everything together will cause us to lose control of our pricing in channels, and as a result we will have cannibalization to our direct channel strategy. Generally, contrat more than necessary or optimal will generate an uncontrolled distribution, where we will end up selling the same volume, however, at a lower price or in less profitable channels that negatively impact the hotel’s GOP.  If we also offer better conditions to certain accounts due to their higher production, what we do is feed the vicious circle and further complicate our positioning in channels. In Resorts, where each tour operator also applies a different mark up with different prices, complexity is served and breaks the direct pricing strategy in such a globalized world. For all these reasons, I break the myth and assert that contracting more does not always help to sell more.

 

  • WITH OTAs, WE SURVIVE. Sadly, I have heard this on numerous occasions. It may be easier and more convenient to sell through OTAs, but it is not profitable, and we should not put so much focus on them. It entails a high cost due to the payment of commissions or in ADR if we are talking about net prices. As a premise, an OTA should not offer a lower price than our website, it should be just the opposite. We must guarantee better conditions to our loyalty program members to encourage direct bookings. Let us not forget that OTAs also have their programs, where they offer additional benefits, investing a large part of their income in online marketing and positioning. Even some OTAs pay for the taxi to the hotel from the airport depending on a cost scale for the stay, something that, in case anyone has not noticed, comes out from our commissions. Many practices are proliferating outside of hotels that should always be discussed with the hotels before. It is true that, due to the large investment they make in online marketing, OTAs get where a hotel website alone cannot, especially for independent hotels. However, this does not mean that we must leave a clear direct segment strategy. In my opinion, if we also systematically use their programs and offers to design our strategies, we will always be redirecting additional traffic to OTAs, giving them greater visibility. They will always get more out of their consolidated own actions than us by replicating them. The ideal scenario is to offer advantages in our direct channel using our own tools, maintaining a controlled volume in OTAs. There are success stories in hotel chains where the change in mix in favor of the direct segment is more than amortized. Profitability is assured!

 

  • WITHOUT DEMAND, WE HAVE TO REDUCE THE PRICE: This common practice is a classic behavior. It is a correct assumption in as a first price positioning within the market, where in the low season with less demand the prices are lower. However, it can be a dangerous practice with a brutal impact on the results if its negative effects are not considered. This is because a strong price reduction will always penalize the hotel’s results and not only in the short term. It must be considered that, if all the hotels lower their prices, we will be at the same starting point and then, do we lower the prices again? There are numerous studies showing that a reduction in price below the competitive group negatively impacts the RGI or RPI. However, the worst comes from the impact that a price reduction has in the long term. When demand recovers, the strong price reduction of the past will penalize the price increase, losing opportunities and seriously impacting GOP. In times of low demand compared to historical market data, the recommendation is always to offer added value or, as I often say, hide the discount. This also applies to regular customers who always put more pressure on exceptional demand situations, but without losing sight of the fact that they are the most loyal customers to our product. If we reduce the price further, they will surely not understand future increases, taking the discount as granted. Another option in times of lower demand is to consider only promotions to certain niches or business segments, which we can control with limited booking windows not to impact the hotel’s general pricing strategy.

 

  • THE MORE RATES THE BETTER: Although it may seem that showing more options to the customer is better, the truth is that we should not offer the same product with different prices. Also, if they have identical prepayment and cancellation terms and conditions, we are simply repeating the same option, something that confuses the customer. In this case I would say that less is more. We look for simplicity to help the customers during the reservation process since they are probably not familiar with our booking engine. We must think that the success of certain channels is precisely simplicity with a very intuitive booking engine and fair rates. Generally, it is enough to offer 2 options per meal plan (flexible and prepaid), and another 2 for the loyalty program with a discount. We must first analyze in which rates the demand is concentrated to minimize the risks. However, I think that we have not made much progress in the descriptions, where experiences are currently in demand. I would therefore recommend moving away from the widespread “bed and breakfast” or “half board” concepts, focusing on experiences that provide added value and differentiate us from the competitors.

 

  • CHOOSING BETWEEN OCCUPANCY OR ADR: This is a widespread myth. Throughout my professional career and teaching in Courses and Masters, I always hear from hotel managers how they focus only on one of these parameters. Some on occupancy justified by maintaining fixed costs, and others on ADR because of the value proposition. In my opinion, focusing on only one parameter is totally wrong. Both are closely related and acting on one of them always ends up impacting the other. Actually, it is simplistic to consider that the strategy should focus only on ADR or only on occupancy. We can be happy with a high occupancy but probably getting a poorly optimized ADR or a high ADR that has impacting occupancy. Therefore, we should talk at least about RevPAR in hotels, or even better about TrevPOR or GOPPAR, including total Revenue and the impact of distribution costs, monitoring its growth. The Revenue Management environment must move in the relentless search for GOPPAR maximization, reaching the point of balance that best optimizes the hotel’s GOP. It is no longer enough to sell, we need to do it in the most profitable way and to do so, sometimes, we have to make decisions that may seem not very commercial, however more profitable.

 

  • COPYING THE STRATEGY FROM COMPETITORS. This practice is quite widespread in our hotel industry, and I hear it on a regular basis. I believe that following a certain competitor, being an external factor, is not at all recommended. The pricing strategy must be established by the real positioning of the product in the marketplace and modulated based on the pace and pick-up situation that allows us to achieve our objectives. For example, if we have the opportunity to take certain measures, we have to take action regardless of what our competitors do. Obsessing over what others do can distance us from the reality of our business, and that is why I consider it a myth. I always say that we should just keep an eye on our competitors. We must focus on internal data and analyze our situation in the market, knowing their strategies and identifying the risk that changing our strategy entails. I have always been more in favor of analyzing the final results vs a competitor group to understand the variations and learn for the future.

 

  • METASEARCH ENGINES DO NOT AFFECT US. When I hear this, I always think that the power they have is underestimated due to their ability to expose our pricing strategies with a couple of clicks. In fact, we often pay to be present in Metas and then, due to inadequate contracting and pricing strategies, websites emerge that are cheaper than our online price. This harms direct sales, also increasing costs. In Metas, we can see who cannibalizes us behind certain accounts or websites, which we have previously contracted. Being aware of the difficulty of knowing who is behind this secret distribution, one of the things we can do is verify the reservation vouchers upon the client’s arrival. Although they make it difficult, we can find crucial information about the sales channel in order to compare it, to analyze it and take actions. The secret to their production is simple: they offer the contracted prices at a low margin, looking for volume, and do not doubt that they will do whatever it takes to get the sale. It is worth remembering that more than 70% of clients first search on a metasearch engine before booking, which demonstrates its importance. The solution is to take care of the contracting and especially the distribution to avoid this situation. In the end, the result of an uncontrolled distribution impacts the hotel mix and therefore our most beloved GOP.

 

  • WORRYING ABOUT THE LAST AVAILABLE INVENTORY. Hotels often focus too much on the price for the last available rooms. Although it makes sense and it is correct to do so, I turn this practice into a myth because it puts too much focus on those last available rooms, without thinking about how we have sold up to get that point, which I consider much more important. We must anticipate the sell out potential days in advance, consider which channels and how we have sold, if free upgrades have been made, if we have filled too soon, etc. Only at this moment is when we give the importance to the last units, when we have optimized correctly and in an organized way from the first room. Focusing only on the last inventory is usually a widespread concern and underestimates the existing potential that we have had up to that point. Sometimes I have seen prices that are totally out of the market for the last units with almost zero sales. However, if it also occurs in high season when we have the highest prices, there is a cost in the annual RevPAR and GOP. Thinking about the annual objective, if in the low season we would like to sell that same room 30% cheaper, why do we sometimes limit the sale in high season with very high prices where nobody will book?

 

In the hotel industry, as in other industries, we maintain certain procedures from the past without questioning because it has always been done that way. In the actual volatile and active environment, we must always analyze what we do to act with flexibility and agility. Having the ability to modify and redirect our business is a guarantee for the future, adapting ourselves to the market. Opportunities are waiting for us, let us discover new paths and only then will we become more knowledgeable and successful.

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