How Social media influences revenue management

NB: This is an article written By: Jay Hubbs

Social media is transforming not just how people connect and stay in touch but also how they collaborate, plan, share information and make decisions. TripAdvisor, Facebook, Twitter and Foursquare are changing the travel landscape, and newer social entrants like Instagram and Pinterest are rapidly coming into their own as the viral, sharing economy compounds. As the next generation of travelers, marketers and revenue managers use these sources to make decisions, it will become paramount for hotel teams to analyze the quantitative and qualitative data to capitalize on social trends.

Is social just marketing?

There has been much talk recently about the differences between revenue management and marketing—how the latter is about building brand awareness, recall and affinity to drive long-term demand, while the former is focused on matching that demand with price given finite supply to maximize revenues and profits. Both disciplines aim to make the hotel more money, but at times they are at odds on how to develop and execute social strategies that drive revenue. Managing social network activity has been under the marketing umbrella, and rightfully so. Social media is a purveyor of preferences, locations, experiences and ideas that have been most influential for the phase of a trip, the experiences during the actual trip and sharing once the trip is over.

However, as more and more people use these networks to communicate, research will go beyond places and/or prices to include channels and booking windows, which in essence means that soon we will see a proliferation of information being passed through social networks about the booking phase of the trip as well. This has far-reaching impacts for both the marketing and revenue-management teams at hotels.

The Internet is all about transparency

Let’s turn that lens toward the travel sector.

• Online travel agencies created platforms designed to increase both the transparency of travel content and prices, and the efficiency of consumers looking to book travel themselves online.
• Metasearch invented innovative platforms to take the pricing information from both OTAs and travel providers to create a marketplace of even higher price transparency.
• TripAdvisor combined consumers’ need for validation of their travel options with their desire to share experiences in an open format.
• HotelTonight, arguably the leader in the last-minute hotel booking space, focused on efficiency (mobile, immediate stay need), hotel market needs (last-minute revenue) and consumers’ desire for transparency (hotels identified).

With social networks, we get beyond just transparency to an openness and candid dialogue that will continue to evolve, for better or worse, and begin to directly impact how hotels look at their pricing strategies.

Transparency in pricing

The airline industry is vastly different from the hotel industry, encompassing tighter fences, fewer promotional opportunities, more rational discounting, and a very constrained inventory model.

However, the hotel is a much bigger part of the travel experience, even if we don’t spend much time in the room except to sleep. To that end, the hotel is socially important to the trip. And hotels are much more interesting for travelers to connect with friends or to run by their networks when making booking decisions. We will begin to see travelers sharing hotel pricing data readily though social networks beyond what is already out there via OTAs or metasearch players.

To that end, expect an increase in the transparency of hotel rates through these channels. Anybody can find what the best available rate is, but a screaming deal, promotional offer or a special rate through a fenced channel (whether a true fence or not) will be shared. And it will begin to have implications for the marketing and revenue strategies taking place in hotels every day.

Social does matter

Recently, several studies have pointed to the impact of user-generated content in the form of traveler reviews as drivers of rate and revenue. Years ago, Expedia Inc. told the industry that through its websites hotels with a full star higher score in guest comments were able to command a 9% higher average daily rate. More recently, Cornell University and ReviewPro published an article showing the correlation between review scores and revenue per available room, with a one point lift in aggregated review score equating to a 1.4% increase in actual RevPAR. Professor Chris Anderson of Cornell stated, “What was remarkable about the study is that positive online reputation doesn’t merely provide higher pricing power for online sales. It is correlated to higher group booking rates and corporate negotiated rates in addition to reservations made over the phone.”

From a distribution channel standpoint, the impact is clear as well. Travelers are becoming more and more attuned to reading reviews or relying on recommendations from friends on where to stay. Embassy Suites by Hilton recently released its 2013 business travel survey and more than 75% of respondents said that online reviews are “critical” when preparing for business travel.

Reviews are impacting channels that many thought were impervious to social media influence. While some loyalty programs are stronger than others, increasingly they are affected by social media, with shared content eventually carrying more weight than a loyalty card in the wallet. While some loyalists will stay true to the brand, casual preferred brand travelers will begin to weigh social media versus brand loyalty and factor price even more as part of their decision criteria. Some travelers will stay at Brand X hotel no matter what, but the ones with superior reviews or social recommendations will begin to trump the flag outside the building for a growing group of travelers.

One revenue-management executive I spoke with recently told me that he can see the almost instantaneous effect of a bad review, with an immediate dip in conversion, which then affects booking windows and channel-shift strategies. Couple this with shifting demographics of the traveling population, as well as the impact of social on other channels, and the impact goes beyond leisure rates booked directly or through OTAs or metasearch sites.

Back to revenue management

Market segmentation is critical to the success of the revenue team as well as the overall profitability of the hotel. It is imperative to understand what is driving traveler demand to the hotel or area, what are travelers’ price sensitivities and booking windows and the relative worth to the hotel for their desired stay period over the short term and overall lifetime value in the long term. On the positive side, the transparency of the Internet and social media makes some of this segmentation even easier. But on the flip side, what if all of this segmentation—fences, qualifications, unpublished rates—went away thanks to social media?

A pessimist might look at things this way: Twitter complaints escalate into full-blown maelstroms leading to pick up by mainstream media outlets. Fenced deals are promoted through Foursquare to business travelers. Facebook friends pile onto a corporate last room available negotiated rate over a convention week. Less-than-flattering pictures of the property end up on Pinterest. Do these scenarios have an effect on revenue management? You bet.

However, taking advantage of these channels as opportunities can grow revenue and market share. Examples could include:

• Tweeting value-adds that will drive travelers to your hotel;
• utilizing Pinterest to highlight hero shots of the hotel as well as tie into promotional rate periods;
• activating special offers through TripAdvisor and monitoring your competitors’ willingness to do the same; and,
• cultivating Facebook followers to find your true promoters.

These are all marketing activities that have a direct tie to revenue management and should be coordinated.

What should hotels do?

Social media is all about conversations, building networks and sharing ideas, thoughts and information. To that end, the action items for a revenue team are pretty straight-forward.

• Involve the team. Set egos and departments aside and have open conversations about what you see on social media and how that affects your revenue strategy. Uncover the opportunities by engaging in dialogue.
• Monitor social media all the time. There are several services available that help hotels monitor the dialogue and provide analytics behind the conversation. Some hotels have these tools provided to them by the brands (and many do not use them), while others shop around for the best in class provider out there. Regardless, get help so you can synthesize the conversations.
• Use the data. Use trend and competitive analyses to identify quantitative options. Read reviews and use semantic analysis tools to look at qualitative information. Include this detail in your strategy discussions so you can make decisions and act.
• Test, measure, test and test again. Know what your goals are, test, measure and test, test, test. See what strategies resonate with your network, see what helps you expand your network and tie those activities to your revenue-management strategies.

Social media is a constantly evolving platform to engage with travelers. Hotels that tie that engagement to revenue management strategies and find ways to incorporate this intelligence into their day-to-day revenue plans will lead their competitive sets and ultimately find themselves ahead on the bottom line.