There is no doubt that we live in a competitive environment, where we are always looking for opportunities that increase the profitability of our hotels. In a habitat where the distribution has become more complex over the years, we do not stop breaking down the data, changing strategies and measuring the results by developing the direct channel. However, although it seems that everything has already been invented and there is no room for a new strategy or action, the reality is that we are constantly evolving. This is the role that we play within the current Revenue Management world, we move away from the comfort zone, opening our minds, however, how far are we able to go?
To achieve our purpose and go further, I use the term “revenue engineering lab”, which I define as the constant search of innovative strategies that allow us to optimize our revenue and drain the hotel’s income statement a little more. There is no doubt that if we continue to do the same, we will undoubtedly get the same results.
Where do these new strategies come from?
The first step is to foster motivation and teamwork. We must think that everything is possible, and we can change things with no barriers. Therefore, we need to question everything we do within the “Total Revenue”, without pigeonholing ourselves only in rooms. Therefore, there must be a weekly strategy meeting in place where the entire team participates in a brainstorming session focused on previously defined objectives. Open mind and “blue thinking” are the keys. For example, if we set the goal of increasing the consumption of food and beverages, this brainstorming should help to take new actions and measure their results. In this concept all ideas are valid, the only ones that does not work are the ones not proposed.
I remember that in one of these meetings we defined a system and procedure that automatically reported to us the customers who had the lowest hotel consumption of food and beverages after the second night of their stay. As the average stay was 7 nights, we could change the consumption trend of these clients in the remaining 70% of the stay until their departure. These brainstorms should resemble a laboratory, where the new element becomes relevant. We then focus on the 10 customers with the lowest consumption, offering incentives with messages and personalized attention. These incentives offered unique local dining experiences, preferred locations for a special dinner, individualized deals, or complimentary items, all were certainly covered. The objective was to move away from reactive action after the arrival of potential customers at our restaurants, with the purpose of proactively seeking revenues from customers with lower consumption. It was undoubtedly a success story, not only in F&B and GOP income, but also in customer satisfaction.
This is an example focused on food and beverage department, however, if we put another example on rooms, we can address the impact of distribution costs. Strangely, even today there is some resistance for hotels to do an analysis to know in detail the real cost per channel. Understanding the costs generated by the distribution is essential to be able to determine the opportunities and to be able to establish objectives. It is precisely in this “revenue engineering lab” where opportunities for change should be established, elevating the current strategy. To make the impact of distribution more visible, let’s imagine a 200-room hotel with 75% occupancy, where 20% of its sales come through OTAs with commissionable rates. Well, the hotel has therefore sold 150 rooms per day, which are 4,500 rooms per month (simplified for 30 days), of which 900 were reserved through OTAs. If the ADR that month was 150 euros for these reservations, the hotel would be paying more than 20,000 euros per month in commissions, considering the impact of 20% in Mix.
It should be considered that, in Resorts located in destinations with a strong presence of tour operators, it is possible that half of their inventory is sold at a net price that is at least 25% lower than the direct channel. When we group these two factors in the equation (net prices and commissions), and add brochure contribution, rappels, or other additional costs, we really discover the very high toll of the distribution, but also a great opportunity for our business. It is therefore worthy to consider changes for medium and long-term objectives. From our “revenue engineering lab” high-level strategies must come out that increase the direct channel, and consequently the ADR of the hotel, reducing distribution costs. As I always say, ADR does not tell us everything we need to hear. It is necessary to go further and undress the costs that are camouflaged in the ADR of the hotel to arrive at its real impact on GOP. Additionally, if we also invest the reduction in costs that we are achieving in online marketing initiatives such as Google and Metas, we will exponentially boost the direct channel, marking a new route where we will never want to go back. In addition, once we have the conversion data per visits and therefore the ROI ratio on the investment in online marketing campaigns, we will be able to define in this laboratory how much, when and where we should make certain marketing actions, mitigating possible risks and getting the most from our strategies. Additionally, if we add a good loyalty program where exclusive rates are offered only for members in our own channel, we will walk towards the perfect recipe for hotel profitability.
Lastly, this “revenue engineering lab” must shy away from widespread offers that weigh down the long term. The behaviour of the demand has always had saw teeth and for this the strategies must be adapted. Raising the price without prior analysis of the market or without considering other factors such as demand sensitivity to price or additional demand, among others, can also cause the opposite effect, even causing a decrease in revenues. On the contrary, a simplistic strategy of lowering the price at times of weak demand generally means losing optimal positioning, negatively impacting the hotel’s RevPAR, damaging the long term by delaying recovery. We cannot forget that a strategy focused only one parameter such as ADR can negatively impact another variable such as occupancy, not properly optimizing RevPAR. But let’s think for a moment about vacation hotels with a great gastronomic variety and additional operating costs, where the break-even point is no longer set by RevPAR but rather by GOP. At this point we come to the most significant part of the strategy changes. If we consider a strategy in favor of a single variable, it can negatively impact other variables that we may not have considered. This “revenue engineering lab” thinking must analyse and anticipate the total impact from a global or spatial vision, always considering the implications for the business.
These are some examples, and it is evident that we are not going to be able to change always things from one day to other, but if we draw up a strategic and innovative path, we will be on the way to finding the long-awaited optimum balance point for the hotel. For all these reasons, it is always important to have a Revenue Management professional who leads and guides the process by touching the right keys, with a global vision, open mind and team spirit. In this sense, there are also companies that help hotels on this path, providing additional tools and strategies that promote the performance of the direct channel. The objective is therefore to predict and analyse whether an action or strategy is going to be successful, instead of launching a promotion and waiting to see what happens. This search for certainty and “blue thinking” elevates a simple strategy meeting into a real “revenue engineering lab”.