I recently attended two leading industry conferences and came away with a sense of awe, excitement, and trepidation. As a revenue management specialist I try to take time each year to attend the Hotel Sales & Marketing Association International’s Revenue Optimization Conference (HSMAI ROC) and the Hospitality Financial & Technology Professionals’ annual technology conference (HITEC). Without question each year I learn something…some years – many things…this year…OMG!
There is so much going on in the revenue management discipline that I can’t keep up with the pace of change. And this is what I do for living. So how can a hotel, a resort, a management company – possibly keep pace with transformations that have such an extraordinary impact on their businesses? If your revenue management effort is still largely Rooms-centric, focused on a 30/60/90 day horizon, on opening and closing rates, dates and stays, and deciding whether to offer a 48-hour special on Expedia, then your property is already in trouble.
In a recent article I talked about first, second and third generation revenue managers. The first generation being those individuals who were reservation supervisors or managers, and who were artificially extracted from their reservation environments (or simply handed the additional workload) and given the title of Revenue Manager. The second generation being predominantly today’s RM professional who brings number crunching to a whole new level spurred by an insatiable appetite by senior management, asset managers and owners for boat loads of data. However, it is the third generation of revenue management talent that is needed for today’s challenges. And it is this generation that will guide the discipline through a turbulent evolution that involves meta-mediaries, big data, value indexes, Total RM and more.
Let’s talk first about the impact of meta-mediaries. This is a term with which many may not be familiar and in fairness to all it is an emerging term, albeit making reference to entities that are a part of our everyday lives.
The term meta-mediary refers:
“To an era in hotel distribution when some of the giants in technology and media are entering the industry, creating a new category of intermediary, many with metasearch capabilities…Google Hotel Finder is a good example. It emerged as a hotel-specific search engine and had a companion in the Google Flight Search tool; all part of what has been call travel “metasearch”.
Source: HITEC 2013 Special Report – “The Rise of the Metamediairies”
By Cindy Estis Green
So, aside from Google, which other mega organizations fall into this category? Well, we certainly must include Tripadvisor, Amazon.com, Facebook, Apple, and Microsoft. It’s impossible to predict just how much impact the meta-mediaries will have on hotel distribution. But when one considers the market capitalization of an iconic brand such as Marriott at $12.5B, while Google comes in at $294B, Microsoft at $292B, Amazon at $126B, Facebook at $58B, and Apple at a whopping $406B – it certainly gives one reason to pause. Even Tripadvisor is approaching Marriott’s level at $9.2B.
And when we consider the traditional vs. new age purchase funnel one of the most disconcerting elements of this pattern of consumer buying behavior is how low in the funnel brand.com appears. In a recent presentation at HSMAI ROC a senior Marriott executive described the purchasing “landscape” like this:
When one considers that Tripadvisor has 200M+ unique visitors monthly, with over 100M reviews, and consumer feedback indicating that 9 out of 10 travelers say that “Tripadvisor reviews help me feel more confident in my decision” – we in the revenue management business must stand up and take note. And yet, how often are meta-mediaries being discussed in our weekly RM meetings?
Big Data – What Does This Mean?
During the course of attending the ROC and HITEC conferences I kept hearing references to the term “big data”. Naturally, a search for the term in the dictionary turned up empty. But on Wikipedia the term is defined as “a collection of data sets so large and complex that it becomes difficult to process using on-hand database management tools or traditional data processing applications”. Our industry seems to be turning up new reports, analytics and market intelligence tools by the day. And so we are seeing more revenue management teams turning to sophisticated business intelligence (BI) tools to manage multiple data sets.
At HITEC, 28 different companies exhibited business intelligence and data warehousing solutions. During a presentation I conducted at ROC I posed the question of how many revenue managers were using BI tools to support their RM efforts and about 10% of the audience confirmed they do. This is certainly up from a year ago and will continue to be a trend.
It is unlikely data sets will become fewer or less complicated, and so hotels must be asking these questions: is our revenue manager trained in the use of BI tools? Are we prepared to invest in more sophisticated support tools to track, organize, and interpret data? I found it interesting there was even a breakout session at ROC devoted entirely to how to present data in such a way as to garner the undivided attention of General Managers, Directors of Sales & Marketing and Controllers.
Your Value Index – An Emerging Metric
Here is another example of how rapidly changing consumer buying behaviour is impacting revenue management practices. We at Buckhiester Management are now working with our clients to identify and track their value index. This metric looks at the hotel’s value rating (which is a sub-segment of the overall review) and indexes it against the competition – much like a Smith Travel Research (STR) market share index. This metric is then used to track value propositions and guide pricing decisions. If a hotel’s value index exceeds 100%, this is an indication that rates could be more aggressive; if the index falls below 100% the consumer is questioning the value proposition.
A recent study from Cornell University’s Center for Hospitality Research made an effort to triangulate the impact of UGC (user generated content) on hotel pricing using data from Travelocity, Smith Travel Research, and Comscore. The study concluded the following:
- User generated content/review scores are an important part of the research process
- There is a substantive impact at time of purchase
- And this impact translated into pricing power, demand, and overall performance (Example: an increase in review score by 1 point [say 3.8 to 4.8] increases the odds of being booked by 13.5% and can increase price by 8% while maintaining the probability of purchase and market share).
Source: Cornell University – The Impact of Social Media on Hotel Performance – November 2013 Study in conjunction with ReviewPro
Clearly, revenue management teams need to be paying a great deal more attention to review scores in the context of making better pricing decisions.
Total Revenue Management – Is Your RM Effort Sufficiently Far Reaching?
On several occasions I’ve written about the industry’s move toward Total Revenue Management and we certainly work with our clients in a Total RM context. The concept of Total RM is not a new notion; hotels have always endeavored to maximize the entire asset. The difference today is the desire by hotels and resorts to sophisticate their approach to profit maximization.
In essence, Total RM is simply about optimizing revenues and profits from all revenue streams (rooms, F&B, parking, spa, golf, retail, other activities, etc.). It is about finding the most profitable mix of business for the entire hotel asset. More often metrics such as GOPPAR (Gross Operating Profit Per Available Room) and POGR (Profit Per Occupied Group Room) are being tracked.
At the conferences I was delighted to see a much greater emphasis on this “brand” of revenue management. Of course, if you manage a limited service property you may be less interested in this concept. But even “rooms only” operations must consider how very different each market segment and each channel is from a “total spend” and “cost of sales” perspective. Thus we’re witnessing a shift in revenue management practices that takes into consideration all revenue streams and all costs of acquisition. The revenue manager is no longer spending 95% of his/her time on optimizing Rooms revenue but rather on finding the most profitable mix of business for the entire hotel asset.
These trends and concepts are just a handful of the many innovations I saw at HITEC and ROC this year…certainly enough change to keep even the most skillful Revenue Manager (and Revenue Team) busy! Are you ready for the “revolution” in revenue management practices?