• 26 May 2018
The Conversation - Importance of Revenue Management

The Conversation - Importance of Revenue Management

Revenue Management - Is it an art or a science? Can you place your trust solely on data? How should technology play its part in adding to the bottom line? Let’s start our first conversation with : Alexander Wallace Executive Vice President of BHMA, Troy Lovatt VP Revenue Management of ONYX Hospitality Group , Devdutta Banerjee Revenue Director of Mövenpick Hotels & Resorts Asia, and Bas van Straten Managing Director of HMS Thailand

What makes good revenue managers?

Alexander :A good revenue manager is able to sell the right room to the right client at the right moment at the right price on the right distribution channel with the best commission efficiency.

Bas:Good revenue managers would have good analytical skills, and a broad understanding of today's market segments and their behaviors. They should be able to work with all department heads and understand their individual needs, as well as being able to take the “Helicopter View” to level this with their company’s corporate goals and mission. A good revenue manager is using today's information and intel to predict the outcome, rather then falling back to historical data.

Devdutta: Revenue managers should be analytical. They need to understand data sources and make logical sense out of seemingly disparate data points as well as grasping the fast moving world of distribution technology.
Many RM professionals have property management backgrounds and can therefore appreciate the unique characteristics of each of their hotel’s markets. This allows them to communicate their pricing and length-of-stay recommendations to GMs and staff in ways that are likely to be adopted.

Relationships are an essential part of the job. In fact, the best revenue managers spend as much of their time managing people and building relationships as they do managing revenue. They need to be visionaries and corporate change agents who rely on innovative thinking to develop and implement strategies to increase chain profitability.
Although not sales people by profession, revenue managers spend a lot of time selling rate recommendations to chain executives, sales directors and general managers who must adopt their pricing strategies before they can impact revenue. At most chains, property GMs are responsible for their hotel’s profitability. Convincing these managers to accept rate recommendations handed down from a corporate office hundreds of miles away requires a skilled sales professional, not a computer programmer.

Good teaching skills are also critical to the successful implementation of RM recommendations. Each new property manager must be educated in how RM guidelines are created and the role they play in property profitability. If managers do not understand the factors that go into a Revenue Manager’s recommendations they often disregard the chain’s pricing guidelines and end up losing money. Communication skills are therefore essential, and that includes listening. RMs need to be as effective in the conference room presenting their ideas to operations teams as they are at using a computer.

Troy:A good revenue manager these days needs to be someone who can be influential and be a strong communicator. The days of creating pivot tables and spending time in Excel creating reports is changing. We now have access to a number of great online tools and systems to help revenue managers. Today’s revenue manager needs to be able to crunch the numbers, understand what actions are needed from those numbers, and then sell the intended actions to the hotel’s executive team.

How has revenue management changed in the past 5 years? Do you have any examples of things you think are important today that you weren’t doing in the past?

A:Revenue management is evolving constantly with new distribution channels coming up at all times, algorithms of meta searches changing constantly, and the constant changes in consumer behavior. Over the last 5 years the importance of social media and the evolving changes in how the online agencies work is becoming more and more a science.

B:Revenue management is continuously evolving and new “affordable” technologies are providing more information than ever before. With suppliers such as Booking.com and Expedia offering even more revenue management data, a revenue manager needs to make choices about which data are relevant and can be trusted. Due to the over supply of data the job is becoming a very complex process of managing not only rates and inventories but also reputation and technologies, and the impact the latter two have in the buying decisions of the customer. Whereas in the past you would focus on your budgets and comp set, today’s data are more complex, the booking pace is shorter, supply has grown not only due to the physical hotel products but also the alternative sharing economy that has diversified the landscape. On top of that, the market is more educated, the younger generations X and Y have become accustomed to a different way of buying their products, including holidays, which makes them smarter than the “traditional revenue manager” as they have the tools to influence the buying decision to the very last minute. Meta searchers have started with tools for price comparison but the current set of APPs available makes the traveller very much aware of the continuous pricing changes, and the market is getting smarter and therefore postpones buying decisions to the very last minute (or whenever they are ready). We adapt to this in our work to provide a more dynamic pricing field that is able to react to sudden movements in demand each time a purchase is made. This allows a more dynamic pricing landscape, which has benefitted many of our hotel clients in driving strong revPAR growth.

D:From bookings to patterns and spending levels, decision-making is now based on data rather than intuition. This requires collaboration between departments and moving past the one size fits all approach to create a customized strategy across all segments. Profitability comes from good management, not just discounts. Forecasting is increasingly based on big data influences, which increases dependence on effective software, but a 360º approach to revenue sources is also key, rather than a focus on rooms revenue only

T:I would say that the distribution landscape has caused a considerable change in the way we look at pricing.
In the past, we did not have to worry as much about wholesale rates and the pricing we did online. Now with bed banks and the access to wholesale rates, we need to understand pricing in a much more holistic manner. The offline rates being visible online now are impacting our corporate pricing and relationships, group pricing, as well as online activities. With the advancement of technology and how various platforms display pricing, certain online partners can redisplay rates or show large discounts, which do not actually exist. This makes the guest feel they are getting more of a discount with those online companies than what they actually are. Due to different regions and their revenue potential, we used to have various contracted rates for the many different geographic regions we sell in. The distribution landscape today makes that very different, as online selling has no geographical bounds due to nature of how information is searched and shared.

What's the most important step for you in mastering revenue management (Data Collection, Data Aggression, Data Analysis, Forecasting, Decisions, or Distribution)?

A: Most important is the understanding of how all distribution channels work, function, change, and to foresee the coming changes to them. The use of revenue management systems and PMS to maximize the profitability, and understanding the importance of the role to the bottom line of every hotel.

B:Data collection is key, but most revenue management tools will do this once a day. We cannot keep up with this on a continuous basis, to use the data to determine the pricing and update your forecasts. By implementing algorithms that examine the customer buying behavior and spot the trends, pricing decisions can be partially automated and distributed to the sales channels. Long term strategy deployments are done based on budgets, trends, seasonality, festive periods and historical data to some extent. But as the booking window is short, rate decisions and the (fast) distribution are, I believe, two of the most important steps in revenue management in 2018.

D: The most effective approach starts with the collection of accurate data but also encompasses analytics, forecasting, decision-making and review.
These steps are not ranked in order of importance but are more like a continuous cycle that helps a hotel move forward in the right direction.

T: I would have to say communication and influence. With the various property management systems, revenue systems and rate shopping tools available, data collection today is a lot easier. The most important step in revenue management mastery is turning that data into actions that will eventually drive results. Communication is both verbal and the ability to document and understand past actions. Many times, I ask revenue leaders what we did last year, and did it work? We need to effectively communicate the past strategies, understand what, where and how to improve, and then drive the desired changes.

What kind of technologies are now available to help you with revenue management more effectively? Are there any examples of things that are possible with today’s technology that you’d never really considered before? Does the technology make a significant difference economically for your property?

A:There is an abundance of technology available to assist the revenue manager to maximize the outcomes of his tasks. The importance of reports done by the property and at the chain level to have an up-to-date understanding of the performance can only be done by proper two-way PMS systems, combined with intelligence tools to monitor reviews, competition, and rate shopping tools. The maximization of rates and occupancies can be done by channel manager and rate management tools. A lot of these tools were not available a few years back and the maximization of rates and yields was done manually.

B:RMS systems are more widely available and new products have come to the market in the past 3-4 years. This means that the revenue management systems become more innovative and affordable which further changes the market. (Five years ago, very few hotels worked with dynamic pricing and they were still very seasonal). So as these technologies come in, your competition is changing their way of pricing, hence the need for accurate shopping tools to keep track of your competition. We also believe firmly that the reputation of the property determines the popularity and hence the pricing decisions that can be made. Previously these were standalone systems to manage your reputation, but currently reputation is becoming a much more important part of the pricing decision as well as part of the ranking and visibility a property can have. So combining the two parts into the RMS (competitive data and reputation) allows you as revenue management to see the marketplace from a different angle, every single part of the day.

We are currently exploring a new RMS tool that is very focussed on the reputation of your property and that of your competition. Measuring the evolution of reputation in relation to the price, and being able to track back for the past 3-6 months on a specific data point, would provide a stronger foundation to support your pricing decisions. In the past we have recorded such data, and need to fall back to other reputation management tools as Review Pro or Revinate, which were not part of the RMS tool.

D:We use integrated cloud-based technology, which allows all our systems to be mobile and connected at all times. This also means data points are truly interconnected and ensures we have an accurate view of the business so we can spend more time for data analysis, rather than data collection.

T:Of course the technology landscape is changing. Just the other day, I was shown a new online platform which was basically a rate shopping tool and revenue management system combined into one. The system used artificial intelligence to predict rates. Online shopping tools now enable us to ‘live shop’ a range of competitors’ room types and rates across multiple channels, without the need to manually search and visit each website. The power of revenue management systems improves with what they can calculate, and as we move into the world of AI, who knows where this will end up. However in my opinion, you can have all the bells and whistles, best technology and tools, yet if your revenue leader is not able to convince their Director of Sales & Marketing / General Manager / Finance Director that the recommended pricing or yielding strategy is the way to go, then revenue management ends up being ineffective.

How does property management play a part in your revenue management?

A:The PMS with two-way connection is important to have an overview of room inventory and room management at all times. This ensures that the rooms are sold with maximum use and rates are adjusted. It also provides the right reporting for the revenue manager to efficiently analyze and make intelligent decisions on the rate matrix.

B:Property management as in the system is essential to collect the data and to be able to manage the data. This allows you to generate the correlation between all aspects that make the hotel operation work. Market segments, room type contribution, total revenue management, booking pace, pick-up and trends are not possible to measure without the data collection of the PMS. However, it lacks the PMS products today to provide the user with the data on demand and to be able to combine this in a way that the revenue manager can view the data from different perspectives.

Property management as in management is also essential. We stand by the reasoning that the hotel experience is generated 40% by the product and 60% by the people. Effectively managing the product (maintenance, FF&E, design, etc) as well as the training and management of people will effectively assist in driving the reputation which is an integrated part of the pricing decision.

D: The PMS is the cornerstone of our RM strategy for all our hotels. This is the central point for all data sources and having a cloud-based PMS allows greater freedom and improved data analytics capabilities for the hotels as well as real time monitoring by the corporate offices.

T:I think this depends on where the hotel’s GM has come from, and from a Corporate HR perspective, ensuring we get the right leaders into the right roles.
As an example, if I have a general manager from an F&B background, having a strong revenue manager supporting that GM is even more essential. These GMs tell me that revenue management is a mystery to them.
In my opinion their strengths are very much about looking after the guest and understanding their needs, and not so much with how to attract the specific guest segments to their properties at a specific time.
Our revenue teams collaborate closely and provide our general managers with options and expected targets. An effective revenue leader needs to use fact-based decisions, and not be swayed by emotions and speculations. They should give the GM solutions to the problems, and not just re-state the problem and wait for guidance.

What mistakes should a good revenue manager try to avoid?

A: I believe that the main mistake of revenue managers is the know-it-all attitude and neglecting to update themselves constantly to be on top of the always changing and evolving technologies and ever changing behaviors of clients.

B: As we are humans we tend to learn from mistakes but also from past experiences. This could inhibit a revenue manager from taking braver decisions and stepping out of the comfort zone. The hotel industry is full of traditions and therefore sometimes slow. We cannot change things too quickly as we are concerned about the impact this might have on budgets and relations with third party stakeholders. The market around us is moving much faster so for a revenue manager to implement these changes we have to move fast too. So it’s necessary to step out of your comfort zone and experiment with new technologies, take different decisions and discuss these ideas with stakeholders in your hotel and outside to reflect on these decisions. Sharing experiences with user groups on platforms as Linkedin helps to get a faster understanding of what is in the market and what works well. Also engaging with these forums would help to widen your viewpoint and experiment with new tools or techniques.

D: The most important part of being a good revenue manager is to understand what the data is telling you instead of just believing in the data.

T:Doing the same thing. Playing it safe. Our revenue manager should always challenge the status quo. If your hotel is always running at 95% occupancy, how can you challenge your pricing, yielding, and mix of business to produce higher total revenue with potentially lower occupancy, which will help improve the profits of the hotel? Understanding where the business is coming from and having strategies to move the revenue to better cost effective channels. We need to document our results and strategies, so we do not fall into the same mistakes each year from strategies that are not revenue impactful and profit driven.

What’s your ideal occupancy rate?

A: The Ideal occupancy is always 100%, however, it is my belief, and I try to explain that to owners, that a 100% occupancy rate means the room rates are not maximized and yield is compromised for higher occupancy. I strongly believe that yield is more important then occupancy.

D: There is no ideal occupancy rate. It varies from market to market and as long as we are performing better than the market and the owners’ expectations, we believe we are doing a good job.

T:There is no ideal occupancy rate. It is about getting the best mix of segments into the hotel, through the best channels to maximize your profit. These days, we need revenue leaders to be understanding the profit of their business. If I fill my hotel with predominantly with OTA business, by doing ‘deal of the day’ promotions for example, I am gaining volume, however at what cost? I get less revenue through discounting if I do not achieve the volume and still have to pay out the commission. Sometimes, it is better to run at lower occupancies with stronger revenue. This is the fine balance and what makes revenue management such a unique discipline!

What targets do you set? Which measures do you aim to improve in order to achieve better performance overall?

A: My target is to make sure that our general managers and reservation staff are better trained and have a better understanding of the overall revenue and yield management processes. It’s important that the communication between revenue managers, GMs, and reservation teams is established and constant. Regular training and updates on technologies is the key to success.

D: The hotels operate on multiple KPIs to measure and improve performance. These are not just top line focused, but also look at the bottom line. The accuracy of the data collected, combined with forecasting skills and cross-departmental coordination is what drives yield.

T: We all use the same targets. We have a budget we present to the owner and strive to hit those numbers. If you ask me, the most important to look at are the competitor numbers. How our hotels are doing in the competitive landscape is a result of the actions and strategies we have in place. Sometimes, we look at the results of the hotel and compare this to the budget and last year’s actuals. Let’s say a hotel is missing budget and performing worse than last year, this could result in the hotel being questioned about their poor performance. However, if we look at the competitor set, and see through STR data that the competitor set’s revenue declined by say 12% from last year, however my hotel’s revenue declined by 5%, then we are doing much better.

For our hotels, it is about getting the right mix of occupancy through market segment mix, with the right rates to produce the best revenue. It is also about the fine art of pacing and timing, and not selling the rooms too quickly. Being the last to fill on a high demand date is the goal, not being the first to fill on a lower rate.

Thank you Alexander Wallace,Troy Lovatt, Devdutta Banerjeeand Bas van Straten for joining our conversation. This coversation is sposored by Hotelogix

About Author

Wimintra Jangnin

Wimintra Jangnin

Wimintra Jangnin is the founder and Editor in Chief of Hotelintel.co, a B2B online publication focused on hotel industry. A Political Science graduate, Wimintra found her path frequently traversing i
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