Part 1.
The management process in the hospitality industry shows two different situations when comparing independent hotels and chains.
In hotel chains, the organization is hierarchical with job functions and departments that have strong skills in their own specific areas of expertise. Usually, each department reports to a functional manager who reports to the General Manager and, in the more structured organizations, also reports indirectly to an Area or Division Manager. This type of organization guarantees the development and growth of advanced professional skills but at the same time, it requires the whole organization to work as one team, focusing the efforts towards one same common goal. Teamwork is paramount to avoid running into the trap of the “silo working” when each department focuses only on its own objectives and risks compromising, albeit unintentionally, what is the general vision and goal for profit.
In independent hotels, the organizational structure is leaner, there are no rigid job functions but hybrid professionals with transversal skills that execute different job activities simultaneously, thus covering multiple roles.
When talking about the revenue management activity, there are significant differences between chains and independents in the way the function fits into the organization:
- ORGANIZATIONAL CHART: in chains, the role, tasks, and goals are well defined by a job description that leaves no room for contamination. Independent hotels have more contamination, and day-to-day tasks touch several commercial or operational areas; for this reason, the reporting line can change from one hotel to the other.
- ACTIVITY: In chains, the role is more strategic and time for data analysis is a priority, this is supported by important investments in training and technology. In independent hotels, due to the transversal roles, the operational priorities often take over at the expense of the time dedicated to the analysis.
- DECISION MAKING: In chains, the operational and strategic guidelines and activities are coordinated at a divisional level to ensure maximum visibility return and coherence in terms of brand strategy. In independent hotels, the decision-making process is left to the management. Advantages and disadvantages are on both sides, chains give freedom of strategy within corporate guidelines, and independents are the only decision-makers.
- NEGOTIATING POWER: The economies of scale of chains allow for strong negotiating power when it comes to OTAs, wholesale, and corporate agreements.
- LEADERSHIP: there is a lot of fragmentation in the world of independent hotels regarding the role and tasks of the revenue manager. In chains, the revenue manager usually reports to the General Manager and is a peer to the other functional managers (sales, marketing, finance…); in independent hotels, the revenue function is still often reporting to the sales & marketing department or is sitting within the front office.
Leadership is a critical factor: a good Revenue Manager must be able to foresee and adapt to change, communicate, influence, align and guide the team towards the same goal to achieve the greatest profit possible and be ready to cope with uncertainty. When Hotels invest or grow professional leaders within the team, they can execute a successful strategy to drive, stimulate, and grow revenue and profits to remain competitive, survive and thrive.
It is still commonplace to think that Revenue Management can be effective only for large hotels or chains, or for properties located in primary destinations which usually reach high levels of occupancy. When considering small / mid-size properties (around or below the 50 rooms) and independent or family-run hotels; the perplexity about the effectiveness of implementing revenue management is nurtured by the lack of education, limited number of resources available, inadequate training and the fear of change. Very often, the fear of change is in the management/ownership being concerned about the possible reaction of regular customers to rate changes and price fluctuations. Despite the industry being used to dynamic pricing in hotels, the fixed price listing is still very popular, and many independent properties have a hard time moving to dynamic rates because it requires an important switch in their mentality and their relationship with systems, data and technology.
Another obstacle is the belief that the experience and gut-feeling are more effective than anything scientific and data-based: the attitude of hotel owners is frequently defensive as they feel uncomfortable in abandoning their habits and convictions.
A constantly evolving industry requires adaptation and agility though, to be competitive it is essential to abandon the obsolete working methods and embrace a new way of managing the business: relying on data, forecast and technology. It all starts with the way the Hotel sells its rooms.
Creating a revenue management culture is beneficial for the total hotel turnover. To overcome the implementation challenges, a tailored-made approach and a gradual introduction of the practice is essential.
STEPS FOR AN EFFECTIVE REVENUE MANAGEMENT INTRODUCTION
For an effective introduction of revenue management in independent hotels, it is important to work on education first and then proceed gradually in the implementation for two main reasons:
- From a cultural point of view: a gradual involvement and progressive training of the management is essential to allow an understanding of the logics of the discipline and opportunities linked, avoiding rejection.
- From an engagement perspective: include the revenue management activity within a broader hotel management strategy, to create a positive culture that engages resources belonging to all hierarchical levels and departments.
By ensuring a gradual revenue management introduction based on the aforementioned steps, it is possible to change the approach towards the discipline as long as there is coaching, support, sharing of information, and constant training until the knowledge is acquired and the change is embraced.
Lack of education is one of the main issues, without a proper education we cannot be aware of the Hotel’s financial potential and of the benefits that a revenue management culture can bring.
One typical example is the benchmark. Through an in-depth analysis of the data, the calculation of the basic KPIs and the benchmark against the competition and the reference market, it is possible to assess the current hotel’s economic performance and positioning, and therefore understand the true potential of the asset. If the Hotel benchmarks against its own past performance only as most hotels with no professional management do, it will never grow. The turning point is that the Hotel must learn that the possibility to benchmark the financial data against the compset exists, and how to read and use that data. Education is key.
Revenue Management is anything but a new discipline (RM practice was born in the 70s), unfortunately, the lack of training, misinformation, excessive communication, and the presumption dictated by the “we have always done so”, has led over the years to develop a wrong concept of revenue management with some commonplaces attached.
Among the most popular:
1) revenue management is price management
2) revenue management is useful in times of high demand
3) revenue management is a technical discipline
Imagine revenue management as an iceberg where only the part that emerges from the water, the small visible part, is the price. At the base of the iceberg, the submerged part, are revolving all activities related to the real foundations of the discipline: segmentation, distribution, time, duration, product… If hotels don’t work on a solid foundation, it all comes down to price and to a mere race to the bottom to fill the rooms, neglecting profit.
It is indeed still erroneously popular the conviction that revenue management is about raising and lowering prices only. Therefore, the market is overloaded with pricing tools that promise to set the right price, at the right time and for the right customer.
The real question is: how can the selling price be righteously determined and optimized if the foundations in which it should be determined are, in many cases, neglected?
The foundations are in the submerged part of the iceberg: analysis and management of the right business mix, customer, segment, channel, booking window, room type, competition, just to name a few. All these factors, combined with the demand forecast, culminate in the definition of pricing – the last piece of the mosaic and the only visible outcome of a strategy with solid roots.
Data collection, analysis, and business intelligence are necessary steps to roll out a successful revenue management process. Unfortunately, in independent properties, this type of approach does not often easily fit because of the limited resources and the priorities being on operations. The result is that many hotels end up managing only the visible part of the iceberg, the pricing indeed, which is frequently determined by impulsive decisions based on few significant, insufficient, and therefore misleading data such as:
- Occupancy rate. Hotels tend to raise and lower the price based on the occupancy levels reached but without evaluating if the occupancy is driven by a healthy mix and balance of segments for the best RevPAR return.
- Individual demand. Transient demand is frequently the decisive factor in the strategy change even if revenue management is not about managing transient demand only, but all segments must be optimized and their trends, analyzed.
- Historical trend. The past influences the decisions but in a volatile market, the past does not necessarily return, and the booking pace and future trends must always be included in the evaluations.
The management process must therefore start from the knowledge, analysis, and assessment of the existing practices to identify the areas of improvement, taking one step at a time.
This method also ensures a gradual approach to the introduction of the discipline, respecting the context in which it is applied and without causing any rejection from the ownership.
It is paramount to create a climate of mutual trust and make it easy for the management or the ownership to welcome and accept the introduction of the revenue management practice.
Confining the revenue management activity as being beneficial in high demand conditions only is another myth; revenue management is not only about “optimizing” but also “generating” new demand or stimulating the existing one. If we only think about the fundamentals of the discipline that we covered earlier, it comes easy to acknowledge that the more we can read the data, interpret it and anticipate the demand; the better we can attract and transform a looker into a booker. Contrary to popular belief indeed, in low demand the opportunities to stimulate, convert potential prospects and steal market share from the competition emerge.
The pandemic has created two categories of hoteliers: those who have seized the crisis as an opportunity to invest in education, learning and digitalization of processes; and those who have stood still to wait, using only the lever of the price as an alleged anchor of salvation.
This brings us to the third commonplace: revenue management is a technical discipline made of “mathematical” or “excel nerds” professionals. The era of manual reporting and excel spreadsheets is long gone, technology plays a big role in revenue activity and a successful implementation involves the embracement and cooperation with technology to enhance the limits of the human brain and free time for the revenue manager to dedicate to strategy. In a world that runs fast and in an industry that constantly changes, the hotel’s strategic execution needs to adapt and anticipate trends through technology. Hotels must be on top of real-time data and adapt to swift changes in demand 24/7, to build a strong strategy and lead the hotel towards the pursuit of the best revenue and profit goals possible.
Follow me: https://www.linkedin.com/in/silviacantarella/
