Marketing Segmentation has been the standard through which hotels have reported revenues for many decades. The result is that many executives feel comforted by this format and are reluctant to change. Add that to the fact that our hotel accounting formats, dictated in theUniform System of Accounts, follow marketing segmentation and you can see why change is a large undertaking. The two simply must match because budgets and forecasts always need to address sales and marketing initiatives.
The lines of segmentation, however, have become blurred in the past 5+ years and the result is that this format is no longer effective because of the way guests are now booking reservations. The result is that “varying degrees of traditional segmentation” have been converted, by brands and independents, in order to try to adjust to this ever changing landscape. Unfortunately, no real standard has been achieved.
Questions proposed today;
- Does segmentation adequately fulfill the needs of all hotel executives?
- Is a more effective ‘pooling of resources’ achievable in a different reporting format?
- Has industry reporting kept up with the “granular offerings” provided by the technological advancements in this “Big Data” age of computing?
- Does it make sense to separately track sales and revenues based on (a) “Customer need” and (b) “Hotel need”, in a side by side analysis?
The goal would be to enable the Director of Sales and Revenue Manager to reach consensus with the CFO and General Manager in best understanding the “booking habits” of targeted customer groups in both a “need” and hotel fulfillment capacity. Further, to not disturb reporting in place that provides executive comfort and allows the hotel to track guests based onguest need (through a segmentation format).
Hence, this narrative examines segmentation versus and key performance indicator reporting.
Hotel life in 2016 and forward
As time marches on, the hotel industry has benefited from vast advances in technology that provides the ability to look at large quantities of data in so many new and unique ways. Theprimarily benefit, of course, is the insight toward arithmetic advantage that could never be seen before. We can now extract information based on booking window, average rate, arrival, weather, average length of stay, specific stay periods, geography, currency exchange and the list of Key Performance Indicators (hereafter “KPI’s) goes on and on.
In due course, the intellectual discussion perhaps should not be on how our current reporting mechanisms can adapt but rather on whether to accept that distinct differences exist betweenthe two aforementioned “NEEDS” and how to adapt a side-by-side reporting system that easily interacts or integrates with one another. A “one brand fits all” philosophy, may not be achievable when such varied and distinct goals regarding “NEED” are sought by each different department.
A separate Revenue Chart of Channels (Exhibit “A) based on “KPI’S”, might be the answer and should be explored and considered.
Here, certain similarities exist through “centralized aspects and terminology”, and they make the Revenue Chart of Channels analogous to marketing segmentation. The key being that the Director of Sales and Revenue Manager could easily associate vendors in either of the two systems. An advantage of a “KPI” driven Revenue Chart of Channels is that a “vendor” could be included in multiple channels if and when they possess multiple attributes that are similar to other “vendors” and are beneficial to the hotel.
I refer to the following (Exhibit “B”) as a standard Revenue Chart of Channels that most hotels would find advantageous to use. They are based on the revenue categories shown above.
100+ “KPI” variations
We’ve come to generate a list of 100+ “KPI” variations to date, and I’m sure more can be added to this list. Each hotel would use ONLY those channels (“KPI’s”) that pertain to their own selective needs. Others would simply be interesting observations but remain dormant; until perhaps a time in which they become advantageous to implement and use.
Obvious “KPI’s” include Average Daily Rate, commissions charged, channel profitability, booking windows and/or Average Length of Stay.
More ambiguous “KPI’s” include, typical days of the week a “Vendor(s)” will fill your hotel, currency exchange advantages, airline schedules, channel-by-channel productivity, potential profit, geographic sources and the merchant model effect on certain reservation-sources. This list is far more expansive.
A hotel can declare each of these 100+ “KPI’s” as SEARCH CRITERIA and poll historic reservation data to recognize “KPI’s” hidden from clear view. Many of these hold “gold mines” of potential revenue at various times of the year. To reiterate, hotels would simply pick and choose which channels to track and use and at what time of the year. Only those that are relevant to hotel needs would be utilized.
Relevant channel choices contain “vendors” that possess those characteristics (“KPI’s”) identified in each of the channels descriptions (see the “vendor” dictionary below Exhibit “C”). You will be surprised when previously unidentified “KPI’s” dictate that certain “vendors” should be separated from previous groupings. Before “big data” capability, we would create groups in our Channel Management Systems based on what they represented at face values. Now those characteristics can be better defined through more granular analysis. Please note the last column in which traditional segmentation is noted and associated.
A discerning look at Wholesaler / Receptive Operators.
In using traditional Marketing Segmentation, all Wholesaler / Receptives might be grouped together in reporting. Yet a study of data could uncover that a number of these “vendors” have a history of arithmetically filling your hotel in higher quantities from Sunday to Wednesday(geography, flights, etc.). Separating these vendors makes sense if you are, let’s say, a weekend resort. Based on performance, this separation can be for part of the year or annually.
In Exhibit “D” the hotel separates vendors based on the days of the week typically filled. When future weekends at a beach resort are assured to fill, consideration would be to close or create higher Minimum Length of Stay restrictions in Channel 14 f. Channel 14 b on the other hand (when separated) arithmetically has a good chance of filling room nights, in this weekend resort, during periods (Sunday through Wednesday) in which the hotel always has unsold inventory. It would be a good consideration NOT to close or restrict Channel 14b based on “KPI’s” possessed.
Other Wholesaler / Receptive considerations might be (1) separating guaranteed from non-guaranteed business, (2) separating allotments from free sell agreements, (3) separating dynamic rates from static rates and (4) separating B2B from B2C agreements. Consideration can be given in the future on whether B2C through wholesaler/Receptive may be more appropriately grouped with certain of your OTA vendors.
The Revenue Chart of Channels can be used to create a Channel-by-Channel Cost Report (see Exhibit “E”), that would provide the Revenue Manager with distinct advantages in being able to quickly recognize the priority of channels to be used. Here, either the highest or the lowest cost channels would be the first to be opened, closed or restricted based on circumstances.
The standardization of a Revenue Chart of Channels also provides the hotel with an ability to compare their results to a competitive set. Comparisons to channels allow the hotel to compare itself to each revenue channel in regards to COST, and, in turn, Profitability. Are your costs on target with the averages of your Competitive Set?
Channel COSTS contain a combination of (1) labor costs, (2) expenditures related to sales, marketing or the internet or (3) Merchant Model costs. As a result, each channel contains different margins of profitability that can be compared to average area competitive set results. Seasons bring changes to channel costs as do events and circumstances. Some can be anomalies while others the result of seizing a moment of opportunity. The Revenue Chart of Channels is an evolving, never ending, science of dividing and separating based on real time events.
Comparative barometers discussed with regard to average competitive set data, creates good incentives toward achievement and also a good alert system when things sometimes go awry.
Finally, the new “KPI” groupings provided in the Revenue Chart of Channels allow the hotel to track channels PACE and Weekly Results. See Weekly Results below (see Exhibit “F”).
Many industries have adapted their business models and, in many cases, reporting mechanisms to reflect Key Performance Indicators that allow them to view consumers based on acquisition drivers. That which I have proposed above leaves entrusted mechanisms in place and provides “KPI” generated groupings that can be used in managing revenue optimization.
Although this narrative differs in several aspects from the piece written in “The Evolving Dynamics of Revenue Management” by Kathleen Cullen & Caryl Helsel, that chapter (chapter 5; page 49) entitled “Marketing Segmentation: Is it time to re-define segmentation?” provides a great history of segmentation and a look into “Behavioral Segmentation”. Here, of course I have proposed separating segmentation and “KPI” generated channels and at the same time integrating the two to accomplish two distinctly different goals. Hotel Revenues and Sales Revenues!