Mr. Parker

Revenue Management

How to Create Demand

By Juston Parker, President & CEO, Parker Hospitality Group, Inc.

Is it possible for a hotel to "create" demand? Is this just a myth used by Directors of Sales to try and stimulate the troops? When it appears that there is just no one wanting to visit your property, can you really "flip a switch" to drive people to your product? It is possible to create demand where there is none. First we need to uncover what is demand and how can it be managed and even stimulated.

Hotels have always wrestled with the idea of reducing rate to drive demand. Then the field of Revenue Management came along and initially said, "Don't just drop the rate!" Now, with things like GOPPAR (Gross Operating Profit Per Available Room) being a major benchmark, profitability plays into the decision process and reduction of rate is not the best option. In order to stimulate demand, we must first understand how to manage demand.

What is demand? Most hotels refer to demand as the volume of rooms they sell in any given period. "Our demand for this past year was 20,383." Some hotels refer to demand as the movement over any given period. "We went from 378 room nights on the books for next week, to 478, therefore our demand is 100 room night this week." Demand is actually defined as, "The demand schedule, depicted graphically as the demand curve, represents the amount of a good that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same."

So, how does this help us out? Well as you see, demand includes the amount of product (in this case room nights) that people are willing and able to purchase. This means that demand goes beyond what they bought, but also includes what they are able to buy or in this case, available inventory.

What we need to achieve is the balance of what they customer is willing and what they are able to buy to get the maximum yield from the existing demand for our property.

The Strategy

First we need to look at our demand. What are the room nights on the books? What does our pace look like? If we are nearly full, we have high demand right? Not necessarily, if we just gave a way as large block of group rooms, we may have artificial demand, but not demand to the market. We must learn to forecast the demand. This is not forecasting the budget, this is not forecasting the pace instead it is looking at demand. Most properties get in the mistaken habit of using a forecast to be an end to a means, when actually , it should be a means to an end.

  1. In Demand Forecasting, we have to; first forecast the demand for the market. Ask yourselves. "What brings guests here and are there any shifts we should be aware of?" Ask yourselves, really, "What is the total demand for all local properties and potential substitutes or "on offs" that might steal business?" This is called Total Revenue Market Forecasting and it's the first piece of successful Demand Forecasting.

  2. Then we get into our property and instead of forecasting what the results will be as in the past, we want to look at "How much of the total market will our property be able to capture. This is becomes essentially the revenue forecast for the property.

  3. Then we really need to ask ourselves, "How much demand exists for each customer type or segment?" "How can we fit that demand curve?" We are really forecasting pace here, not occupancy. This is a true demand for longer terms, 30/60/90 days. You are still going to do your operational forecast, but this is for Revenue Optimization and will help you optimize your revenue.

Creating the Demand

So, now we understand that the forecast is what we see for demand, and we've learned that we use that forecast as a tool to better manage demand. In a perfect world, you should never be accurate for your forecast. Now, before everyone stops and says this guy is crazy, remember the forecast of demand is a means to an end. Once we see the demand, we can manage it and create more.

The steps to creating demand are as follows:

  1. DO NOT BLINDLY LOWER RATE TO STIMULATE DEMAND!
    Unless you can show that there is demand, but people are not booking due to price, you should NEVER simply reduce the rate to drive demand. All this does is leave money on the table.

    Example: Immediately after 9/11 properties reduced rate to stimulate demand. People were either willing to travel or they weren't. In cases where the property lowered rate, the traveler simply got a great rate and the hotel left money on the table.

  2. Raise rate if the competition is significantly higher that you.
    This shows demand in the market and you can capitalize off the competition. This does not mean you have to out price the competition, just stay in line with competition.

    Example: If you are at 40% occupancy, but the competition is running rates that they would run at near 100%, you can assume they have demand. In turn price higher, but just slightly lower than the competition.

  3. Make sure you are tracking regrets and denials effectively.
    This means both via voice and internet. You need to know if people are looking and you need to know if people are not booking because of rate. Don't just assume that they are ot booking because of rate.

    Example: A property has priced itself higher than they normally would because of demand in the market even through they have none. People aren't booking and the assumption is made that it's due to rate. In all actuality, the bookers are outside their booking window and so they won't be booking until later anyway. Once they book, the property has already brought the rate down, so money is left on the table.

  4. Did I mention "DO NOT BLINDLY LOWER RATE TO STIMULATE DEMAND!"?

Follow these simple steps and you can manage demand more effectively and capitalize when demand is low in your market.

Juston Parker is President and CEO of Parker Hospitality Group. He began in reservations, then moved to operations, sales & marketing, food & beverage, and banquet & conference services. Mr. Parker has a passion for creating top revenues and growing innovative revenue strategies. His approach has increased revenues, even in challenging times. As a published author on Revenue Management, Juston has been interviewed and/or quoted on CNN, Yahoo Finance, and Fox News, as well as featured in publications ranging from HSMAI, to Thailand Hospitality, University of Florida, and Event Solutions. Mr. Parker can be contacted at 303-499-2443 or Juston@ParkerHospitality.com Extended Bio...

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