Revenue Management or Urban Myth?

20th Aug 2011

LarsonNB: This is an article written By : Jil Larson

Hotel revenue management just isn’t as much fun these days. The RM sharks are too busy preparing index forecasts and managing multiple channels to partake in their Machiavellian tactics of old, which isn’t necessarily a bad thing. Just not as entertaining.

In past years, I witnessed some cutthroat approaches to revenue management that are so far outside the box they’re in a different area code. Below are detailed scenarios of what can be achieved through innovative and strategic revenue management. To protect the wise and sneaky, all stories are credited to the fictional Hotel QZ. Which are true and which are myth? I’ll leave it to you to decide.

The Case of the Missing Goldfish Bowl:

It was the beginning of RFP season and a major downturn in the economy was just around the corner. The Business Travel Sales Manager and Revenue Manager at Hotel QZ had just received their marching orders to “put the lights out.” Translation: Pull every account out of the competitor across the street. The job isn’t done until the lights are all out in the windows of that competitor.

The challenge was finding the right accounts to solicit. The competitor’s top accounts were all shared with Hotel QZ, and increasing share from those was one task. But how to identify the accounts that competitor had hidden away? Travelclick reports were sifted through but only provided part of the story, including many accounts that were scattered across the comp set due to location or other reasons that could not be overcome. What Hotel QZ needed was a specific list of the corporate travel staying across the street.

One morning during the busy breakfast rush in the restaurant of the competitor hotel, a young woman dressed in business attire walked up to the hostess podium and removed the fish bowl. You know the bowl. Patrons throw in their business cards to participate in a monthly draw for a free stay or dinner or whatever. The woman walked away confidently. Had she been approached by restaurant staff, she would have explained she was a sales intern, taking the bowl to the Director of Sales in order to conduct the draw and it would be returned shortly. But she wasn’t approached.

The woman walked the fishbowl straight over to Hotel QZ (which happened to be her employer), where all the business cards were quickly photocopied, then just as casually marched it back and returned it to its rightful place on the hostess podium. No harm, no foul, no one noticed.

And that is how Hotel QZ identified eight accounts staying at the competition to target for new business.

The Case of the Mysterious Climbing ADR:

This one may (or may not) have occurred way back in the days when the dot com bubble was still expanding and markets on the eastern seaboard were compressed to the point of explosion. The spring had been insanely busy, and all eyes were pointed toward the fall and how to make the most of what was shaping up to be unprecedented demand.

Beginning in May the corporate office of Hotel QZ issued a directive to all properties to raise their rates for the fall. Regardless of what the rates were, they weren’t high enough. They had to be the highest. Eventually the head office advised all hotels they would be shopped every week for Tuesdays in October, with their rates compared to those of their competitors. The message was not subtle.

Hotel QZ headed off in a different direction entirely. Understanding that the real message was not about charging the highest rate but instead achieving the highest ADR, Hotel QZ priced itself below its competition for the fall season. All summer long, while the competition was priced well over $300/night, Hotel QZ was rapidly selling off rooms at rates from $299. The Tuesday reporting issue was easily addressed by placing a minimum two night stay on every Tuesday from Labor Day to Thanksgiving. Therefore while the competition’s rates were pulled by head office, there was no rate available for Hotel QZ for comparison.

By the time Labor Day arrived, Hotel QZ had very few available rooms remaining for the fall, and a transient rate on the books of $340. The day after Labor Day, Hotel QZ raised its rates to over $400/night.

Knowing it had numerous corporate accounts with last room availability and negotiated rates well below what Joe Public was prepared to pay, the hotel’s fall strategy had been simply to sell as many rooms as possible before hitting the corporate booking window. The few remaining rooms available in the fall were booked primarily by these accounts, with each booking pulling down the hotel’s transient ADR. The fewer available rooms, the better. By the end of October, with the entire market reporting occupancies in the high 90% range and ADR the only distinguishing factor, Hotel QZ’s ADR was $40 ahead of the nearest competitor. Highest ADR achieved by charging the lowest rate. Mission accomplished.

Only On Sundays:

During good times, short-sighted hotels try to play games with their loyal corporate accounts and limit the amount of “last room available” availability. When they get caught, they create ill will with the same clients they will be desperately trying to win back during the down side of the cycle a few years down the line.

When business is that good and ADR is the only way to get a leg up on the competition, there are ways to limit lower negotiated rate sales without damaging relations with loyal accounts. Hotel QZ took an interesting approach. With the entire market compressed, only around 20 rooms available on many nights, and ten times more demand than available supply, Hotel QZ simply closed the hotel. With all rates closed, there was no challenge with last room availability, as bookers assumed the last rooms were already sold.

To sell off those remaining few rooms each night, the hotel opened inventory and rates on Sunday mornings and closed them again on Sunday evenings. Since the travel managers weren’t booking rooms on Sundays, the hotel picked up its sales only at high retail rates. By the time the travel managers returned to work on Monday morning, the hotel was once again closed and no one was the wiser.

Conversely, during those dates of major events (Superbowl in town, etc) that every competitor has listed as blackout dates on its RFPs, Hotel QZ contacted its top producing accounts and told them that rooms had been set aside for their use. Even when the hotel was completely closed in the GDS, its top accounts were aware they could count on Hotel QZ to bail them out when everyone else had closed their doors. The biggest events in the marketplace are often the best time to secure loyal business for years to come.

The Case of the Vacant Parking Lot:

It was not going to be a good weekend for convention hotels. The convention center had booked a huge trade show with local attendees, so while parking would be at a premium, there was no group base to be had.

An interesting dilemma arose during the board of operations meeting at Hotel QZ. The hotel was hosting the chamber of commerce breakfast on Friday morning, with 500 attendees from 7:00 – 9:00 a.m. The trade show at the nearby convention center began at 8:00 a.m. and ran all day until 6:00 p.m. This was shaping up to be a fiasco for parking revenues. By the time the trade show attendees arrived, the hotel’s parking lot would be full with breakfast attendees requiring only two hours of parking. By the time the breakfast ended, the trade show attendees would all be parked elsewhere for the full day.

At 6:00 a.m. Friday morning, the “Lot Full” sign popped up outside the parking lot of Hotel QZ. The lot was empty but underground so no one was the wiser. Plenty of door staff was on hand to direct breakfast attendees to the competitor hotel’s lot across the street. At 7:00 a.m., with everyone enjoying a lovely breakfast in the ballroom, the “Lot Full” sign came down and Hotel QZ began welcoming parkers for the trade show. By 8:00 a.m., the lot really was full, this time with vehicles paying for the entire day. The breakfast ended, the lot at the hotel across the street emptied out, and revenue management had scored another victory.

Every hotel culture contains an understanding of acceptable business practices. Some focus on morality, some focus on legality, and some don’t even stop there. But while the above scenarios may not be everyone’s cup of tea, they do highlight the fun part of revenue management. Hopefully they will inspire you to try something naughty (but legal, please) soon.

Dynamic Revenue Management offers hotels a superior option to finding, hiring, and retaining onsite revenue management expertise. With Dynamic RM, hotels retain a full service revenue management leader at significant savings by participating in a small portfolio of non-competing properties. This provides independently managed properties the same efficiencies achieved by the cluster revenue management offices of large hotel companies, while the reduced portfolio size of only three to five properties ensures each participating hotel receives the attention and forward-focused approach necessary to achieve optimal results.

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