Revenue Management The Challenge for Hotel Sales

Robust Revenue Management systems have been the drivers behind the industry’s ability to drive ADR and REVPAR in 2004 and will continue to be the drivers for the foreseeable future. Consider the following forecast from PKF.

Demand is expected to increase by 2.8%. Supply is anticipated to increase by only 1.6% but ADR is forecasted to increase by a whopping 4.7% resulting in an average REVPAR increase of between 7.7 and 8.4% in 2005. “In 2005, ADR will be the main driver of REVPAR improvements,” says (R. Mark) Woodworth. (Mr. Woodworth is the Executive Managing Director of the Hospitality Research Group of PKF Consulting, author of Perspectives on the Road to Recovery, US Lodging Industry 2005, HRG/PKF, HotelOnline, November 2004.)

In a typical urban/suburban mid level corporate transient property, the mid-week peaks are dominated by business travelers whose rate sensitivity is less as they, individually, are not paying the bill. While corporate travel departments are continuing to try and manage the cost of travel, the reality is that in prime locations, room rates are increasing and they find themselves negotiating higher rates in their RFPs than in previous years.

Another factor to consider is that bookings from all electronic sources have increased another 30-40% from 2003. This includes all channels from the GDS systems, e-commerce channels and the franchise web site. These bookings are also driven by an increase in leisure travel that has been induced by the lowest airfares in a decade. While airfares remain low, this segment demonstrated in the summer of 2004 that they were willing to pay higher hotel rates than in past years.

The dilemma for hotel sales departments is to locate and manage group business to fill in the blanks mid-week and weekends, often from market segments and demand generators that press for lower rates. They also are dealing with third party meeting planners attempting to negotiate the best (read lowest) rates for their clients.

The Revenue Manager is pressing for a higher rate, group booking contacts are pressing for lower rates and the sales person is under pressure to meet their booking goals — it is a stressful situation for the sales department!

The solutions are varied but hinge upon the ability of the sales person and department to understand and be able to measure the impact of potential bookings and rates upon the hotel’s revenue management strategy. Once they understand those parameters, they can then align their new business development activities in relation to the client profiles that fit the revenue management model.

It is both the lack of understanding and/or the inability to measure their potential contracts prior to negotiating and booking that provokes the criticism that “sales only wants to book the lowest rates.” My firm belief is that they will stand their ground if given the tools in order to, first of all, develop new business in line with the revenue management strategy and secondly, measure the value of a group to the hotel’s top line. In other words, understand the difference between good business and bad. The following are a few suggestions:

The Revenue Management Strategy. Those who are involved in developing the strategy have “buy in” to its successful execution. A hotel company that I work with has taken the position that they want to reduce the number of locally negotiated rate contracts and increase the rate on the remaining ones in order to drive a higher ADR in the mid-week period which is the period of the greatest ADR potential. Sales is fine with the understanding that their ADRs for groups during the weekends will remain the same as the past year and maybe even be a bit reduced in order to attract SMERFE business. It is a deal that is cut so that everyone knows what the expectations are. The Revenue Manager is part of the sales team rather than a direct report to the Rooms Division.

Develop Client Profiles for Each Rate Period. In order to be more effective in locating prospects that will fit into the management, it is imperative to know what you are looking for. In other words, which types of groups in market segments and sub segments will fit within the rate and catering parameters that will align with the revenue management strategy. Attempting to meet these goals through only responding to telephone inquiries and working the trace files is insufficient to attain the goals. First of all, there is no control over the kind of prospects calling and the pressure builds to respond to their requests if this is your only means of prospecting. Secondly, the accounts in the trace files may or may not be in alignment with the new revenue goals in terms of rates and meeting configurations. A client profile should be driven by market segment, where the bookings are likely to originate, their rate sensitivity or history and their meeting configurations. For example, in the SMERFE market, a group of wine enthusiasts may be less rate sensitive and more inclined to spend money on F&B than a group of students. A group originating in a city with a higher ADR may be less rate sensitive than those that originate locally.

Develop a New Business Development Strategy. Once the client profiles are developed, it becomes a matter of developing a strategy to locate and qualify these prospects. Strategies might include using the Internet to locate certain organizations within a market segment from a specific geographic location or getting on an email distribution list or mailing list for organizations that have the potential to produce groups for the hotel is another one. There are web sites that specialize in producing leads for groups for hotels in various market segments. These can be sorted by geographic location and often give the rates, meeting specs and history of where the group last met. www.grouoperleads.com is an example of one of these. No strategy is complete without an action plan for implementation.

Provide a Group Revenue Management Tool. A revenue management tool can be as simple as a spreadsheet of the group rooms budget by month into which the parameters of the group can be entered so that the sales person can see how the number of rooms at the proposed rate effects the room revenue of the entire hotel for the period. It can be as sophisticated as a computer program that measures the revenue of a group on all profit centers. These take various forms and often are included with the sales contact management system such as the ones offered by Delphi. Some of these products interface with the property’s PMS and Revenue management systems.

(Please note that as a matter of principle, CVCT (Carol Verret Consulting and Training) receives no consideration from products that may be mentioned. — they are included as good examples and good products.)

The future of the hotel sales is in being able to first of all, locate groups that fit the revenue management strategy and secondly, measure the viability of a group in the date ranges and rate requested in relation to the hotel’s revenue management strategy.