Why would the development of a revenue management strategy be important prior to the marketing plan development — and why is a revenue management strategy different from the budget?
A revenue management strategy that incorporates all of the revenue drivers such as GDS, the web site and the electronic distribution channels is key. However, it requires the involvement of the sales department and all other profit centers of the hotel. This is unlike a budget in that a revenue strategy is renewable and adjustable where a budget is usually written in stone.
A sound revenue management strategy includes the optimum revenue mix and the tactics to achieve it — this is where the marketing plan comes in! “Managing” revenue is just that — it assumes an element of control in the revenue that you accept from various sources based upon cost of reservation, commissions, etc.
A revenue management strategy establishes “target” numbers to be achieved through a variety of ways; sales, manipulating the GDS, controlling the allocation and rate in the electronic distribution channels, etc. In other words, it is a pro-active rather than reactive function that simply turns the faucets on and off.
The sales strategies in the marketing plan flow from the revenue management strategy although sales is critical in developing it. The sales department is critical in that they have their fingers on the pulse of the market. They are responsible for assembling the economic information on market conditions and analyzing the potential threats to the market as well as identifying the opportunities. The sales department knows the potential of each market segment and the rate that each one will bear.
The development of the revenue management strategy allows sales to gage how many rooms in a given period they can book by market segment and at what rate. It also insures that existing and future group blocks won’t be sabotaged by lower rates on the web site or distribution channels.
How exactly should this process work?
Gathering the info: Each member of the team, but especially sales, should have been keeping information in regard to the market such as trends indicated by the STR reports and other industry sources. Sales should take the temperature of top accounts to see what their forecasts for travel next year look like. The group logs pace reports for this year and next year should also be put into the file. Sales should also have the situation analysis completed as well as identified challenges and opportunities for the upcoming year.
Analyzing the Revenue Data: The revenue reports should be analyzed to indicate the percentages currently generated by all revenue drivers. This, of course assumes that the data is accurate. If anyone has any doubts about the importance of proper market segment coding by reservations and the front desk they should end here. It is “GIGO” (garbage in — garbage out)! If there aren’t accurate numbers, you will be playing a SWAG game (I am not going to explain that one).
The Facilitation: This is the meeting of the minds, GM, sales, reservations and any other interested party such as the owner. They take a look at the budget, market conditions, all sources of revenue, etc. and begin projecting the revenue strategy by segment. This can be a contentious process as the sales department fights for accounts and room allocations by rate. However, as an associate once said, harmony is vastly overrated. This process can take several days as all of the evidence is presented and numbers are plugged into the model and adjusted — yada, yada. It never hurts to have an outside consultant facilitate this process to provide objective third party input.
The Final Product: The spreadsheet, created from compromise that fulfills the requirement of the budget, becomes the basis of the revenue strategy. Every revenue driver is identified and the ideal mix of revenue and rate is there to yield the targeted REVPAR. Every revenue driver in the revenue strategy should have its own strategy and tactics section in the marketing plan — including the web site, the GDS strategy and the electronic distribution channels (don’t make the mistake of leaving it up to the franchise).
The Review Process: The same fractious group that designed the strategy should meet periodically, it could be monthly or quarterly, to make adjustments based upon reality. In the initial development, “triggers” should have been identified that would automatically call for adjustments. Those triggers include unanticipated market changes, good or bad, changes in the economy and any national security breaches (God forbid!).
It’s a “messy” process, but a necessary one for the marketing plan to be developed. It then becomes the road map for the coming year. The marketing plan is not just about sales but the revenue management strategy for the entire hotel.