The GM’S Role in Revenue Management

At a recent regional General Manager’s meeting, I was invited to facilitate a discussion on the revenue management process and the GM’s role. There were seven General Managers in the room and we had about as many opinions on the subject.

The opening comments ranged from not quite knowing what the Revenue Manager actually did all day to viewing the Revenue Manager as setting policy on the rates to be quoted by everyone in a position to do so – with a lot of comments in between. Some viewed the Revenue Manager as a gatherer of data only and the position as being essentially a part-time function while others viewed the Revenue Manager as critical to the overall revenue strategy of the hotel.

I would hazard a guess that the answer is variable, depending upon the company and the hotel policy. What was evident in this discussion was that some GMs had a higher comfort level with the Revenue Management process than others.

The relationship between the sales department of the hotel and the Revenue Manager is another potential area of confusion. In some situations, Directors of Sales have indicated to me that there was little communication between the two departments. Many times group blocks were sabotaged by a lower rate that the Revenue Manager had offered to the Electronic Distribution Channels, incurring a high attrition rate for groups whose attendees had located that lower rate for the hotel on the Internet and booked out of the block.

One DOS indicated that her staff had to get approval from the Revenue Manager prior to quoting rates for groups. It was often difficult for the sales person to explain a lower rate quote for a certain period of time justified by the organization’s potential to book more business in an opportunity period, the need for rate consistency within a market segment, or a long standing relationship that the organization had with the hotel.

How does a GM lead the Revenue Management process to ensure that both the needs of the client and the hotel’s revenue objectives are met, not to mention ensure the cohesiveness of the team?

• Understand the Revenue Management Process. Many General Mangers are uncomfortable with the process because they simply do not fully understand it. The discipline of revenue management has morphed over time with many new systems and programs available. Take a course on up to date revenue management. There are many offered on the Internet that are both time and cost effective. You cannot manage the process unless you fully understand it.
• Develop an open attitude about the Electronic Distribution Channels. Back off, take a deep breath and consider the following: 1. These are reservations that your front desk or reservations staff does not have to process, 2. You have been paying a commission to Travel Agents since the beginning of time anyway and 3. You don’t have to offer them a dirt bag rate! While recently assisting a client in the development of the hotel’s revenue management strategy, it became evident that the ADR for these channels in one high occupancy period exceeded the hotel’s ADR by $5 (after commission). Why? Because the hotel had let them pull the rate from the GDS during a period when all low rates were closed. By understanding this, you can make these electronic channels a valuable part of your revenue management strategy.
• Establish a Revenue Management Strategy. Simply put, this means establishing room and rate allocations by market segment and opportunity dates and seasonality for the year, to be reviewed quarterly. This should be an essential part of the marketing plan developed in collaboration with the Revenue Manager, the sales department, front office and reservation managers and anyone else whose department is affected. Be prepared for heated discussions as everyone makes their case for their “pet” market segments. Make it clear that if sales or anyone else wants to give a lower rate to a group or segment in a given time period, the revenue must be made up in other segments.
• Conflict Management. Expect conflict. As a wise person once said to me “Harmony is vastly overrated.” While I am not suggesting that you tolerate a prolonged battle zone within the hotel, the dynamic that arises when people have conflicting but justifiable views benefits the process. Create a framework for managing revenue management conflicts when they arise and establish a decision making process – even if that means that you cast the deciding vote. Leadership is not a popularity contest!
• Be prepared to take risks. Revenue Management is not an exact science. Be prepared to take risks yourself and encourage the “risk takers” on your staff, provided that they can provide valid reasons to take them. You will win sometimes and sometimes you will lose. Example in point: A General Manager I know decided to vote against becoming a host hotel for a certain group and not to offer the preferred rate with the comp rooms that the group was asking for. His was the only hotel in the market not to do so. The “last to fill at the highest rate” strategy is always a risky one. A week prior to the group’s arrival, they were sitting pretty much dead empty, the anticipated demand no where in sight and the GM was sweating bullets. At the end of the day, or night in this case, the hotel filled at a rate $25 higher than the rest of the market but it could have gone either way.

Leading the revenue management process is critical to the success of the hotel. It is not about analyzing the data within the spreadsheet but is ultimately about creating value for guests in every market segment without jeopardizing the hotel’s revenue goals – it is that guest value quotient that we often lose site of in the process!