Revenue management tips for the busy executive

30th Nov 2014

Nicole YoungNB: This is an article written By: Nicole Young

During the past several years, revenue management has been experiencing what we like to refer to as “scope creep.” What was once a clearly defined role centered strictly around room inventory pricing and management has now grown into a discipline with fuzzy boundaries that seem to at times encompass, if not simply influence, branding, distribution, e-commerce, strategic customer segmentation, sales processes, and, to a high degree, overall rooms and food-and-beverage profitability.

The role of revenue management seems to be adapting and evolving into profit optimization, by way of yield strategy. The growth of the field and the emerging emphasis on finding new, more efficient and robust revenue streams has led to a greater interest from busy executives (that’s you!) who previously had need for only a peripheral view or knowledge of revenue management.

The impact for contemporary revenue managers is the necessity of capably communicating the results of their complex strategies to a newly engaged audience of executives who have their own agendas and set of expectations for the revenue management function. While it is exciting for revenue managers to have an increasingly prominent seat at the table, it can create a unique challenge in defining success and prioritizing goals and metrics among areas which may be influenced by, but not wholly controlled by revenue management.

There is an equally severe pressure on executives outside the realm of revenue management to sharpen their saws and become overnight experts in pricing and distribution, capable of evaluating the effectiveness of their revenue management teams’ efforts. For professionals such as GMs, asset managers, finance and brand executives, this can be an overwhelming endeavor considering the complexity and technical nature of evolving revenue management dynamics.

The key to building the most productive relationship between executives and their on-property revenue teams is largely dependent on the quality and frequency of communication between them. Executive leaders who might lack a core competency in revenue management will benefit from some key areas of focus, while the revenue leader will find success in learning not only what is important to his or her audience but also how to deliver messages in a way that is easily digested and translated to the broader goals of the organization.

Revenue management tips for the busy executive
Let’s assume the goal of executives in engaging with their revenue teams serves a triad of purposes: to understand existing strategies and the prevalent business landscape; to validate the performance of the revenue management efforts against a set of goals; and to expose areas of risk and opportunity for the future development of the hotel asset.

Share your expectations and your point of view. Let your revenue leaders know what their world looks like through your filter and why revenue management is important to you. It is easy to overlook the plain fact that while teams exist to solve for common goals, individual members each bring a unique strength but also a knowledge gap to the conversation. It is a wise investment of your time to share your expertise and background as well as your expectations of your team early so that they can tailor their reporting and conversation to your goals instead of guessing what you will be interested to see. Revenue managers have data for days and days at their fingertips, and communicating expectations could possibly save endless hours of reporting on metrics of no importance to your goals or point of view.

Spend time understanding your hotel’s capabilities relative to your competitive set. All indices are not created equal. We have been conditioned over the years to focus heavily on the revenue-per-available-room index. This might not be the condition at which your hotel performs most optimally. Focus on the strategic elements that drive your index change to gain greater understanding of how your hotel performs. Ask your team for a comprehensive lesson in your competitive position. Ask them to address not only price and occupancy position but assumptions on customer segmentation, inventory mix and source of business. Together, formulate what the definition of success is for your individual hotel based on all the variables. As a final point of clarity, ask them to identify their index profile during historic dates for which the hotel recorded high levels of profitability. This could serve as a broad roadmap to success.

Ask the million-dollar question, and ask it often: “So what?” Your revenue teams might swarm you with statistics, analytic tools and evaluations of current and future pace performance. If the numbers aren’t speaking to you on their own, a simple “So what?” will quickly reveal if the information being presented is important or just geeky cool. There is a distinct difference between analytics that are interesting and those that actually tell you a story, guide a strategy or validate performance. The depth of the answer you receive from your “So what?” will also give you a good indication of whether your team understands the value of their reporting and how to turn their information into business strategy to advance your goals and lead you to other qualifying questions.

Focus on outcomes; avoid talk of tactics. If you’re a busy executive you’re likely reading this because you can’t seem to find the time to invest years in becoming an expert in revenue management. If you can identify with this statement, then one of the most constructive things you can do is avoid advising your teams on specific tactics. The dynamics of revenue management are highly variable between market, asset, hotel class and season. From prior experience you might have been involved in a great success story surrounding a specific tactic such as progressive length-of-stay pricing or even reverse yield to capture market share. Sharing best practices should be a core value, but recognize that in a position of influence you might be pressuring the adoption of a tactic that is not appropriate to the business condition or could be harmful to your hotel. To avoid this type of scenario, examine the outcomes (the ends) rather than the tactics (the means) whenever possible.

Clarify locally vs. centrally controlled elements of strategy. As we read industry publications these days there is much attention being drawn to the cost of reservations and source of business optimization. If you are an executive with a keen eye on profit this has no doubt been a topic of discussion in your hotel. From traditional commission costs, online-travel-agency margins and electronic distribution transaction fees, it is important to ask for clarification on how much control your local property teams have in influencing or changing the outcomes of these costs associated with your business. It is a popular topic to suggest that revenue managers these days may simply wave their wands and shift roomnights from a less-profitable channel to one with less overhead at will, but practical revenue management execution indicates that on a local level little can be done to influence these trends outside sound price and availability integrity when demand is not at peak levels. If you spot a larger concern with business terms on partnership or distribution agreements, those investigations could be more effectively pointed toward a hotel’s corporate or brand teams where their business points are negotiated in mass.

The point here is that as a busy executive you need not be an authority on revenue management principles to drive your team to its highest productivity. Communicating clear expectations, asking the appropriate questions and guiding strategic conversations might make your strategy meetings and monthly reviews one of the highlights of your week. And you might just learn a new trick or two about revenue management in the process.

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