Mr. van Meerendonk

Revenue Management

Going After the Right Guest: Combining Marketing and Revenue Management for Better Guest Outcomes

By Paul van Meerendonk, Director of Advisory Services, IDeaS Revenue Solutions

Co-authored by Kelly A. McGuire, Executive Director, Hospitality and Travel Global Practice at SAS Institute, and Nick Curcuru, Lead Consultant - Americas, IDeaS Revenue Solutions

As an industry, the hotel sector has become good at proactively chasing bad business. Every time you turn around it seems that there is another opportunity to dump inventory at drastically reduced rates. Recent economic pressures made it even more tempting to unload distressed inventory through channels some hoteliers may never have considered four years ago. As demand recovers though, hoteliers now have an opportunity to change their mentality and cultivate high value segments and improve revenue performance. However, in order to properly target the right guest and attract them to the hotel at the right price, it is vital that a hotel's revenue management and marketing departments collaborate and work closely together.

The idea of integrating decisions from the revenue management and marketing departments is not new. Most hotels have organized weekly or monthly meetings to bring both sides to the table. However, in this new environment, weekly is not enough. Revenue managers and marketers need real time access to the right information for efficient decision making. Instead of bringing spreadsheets to weekly meetings to trade routine information, revenue managers and marketers need to be able to access the information they need, when they need it, in the systems they use every day, and in an accessible format. When routine decision making is automated, revenue managers and marketers can better spend the time in weekly meetings working together to address events that require more rigorous analysis and carefully planned strategy.

While revenue management traditionally works with demand at the market segment level, marketing cultivates the relationship with the consumer more directly. Marketing is responsible for generating demand, while revenue management controls it through profitable pricing strategies. These may seem like opposing responsibilities but when goals are synchronized, there are natural synergies. Revenue management knows where holes in demand are, and marketing knows the consumer preferences to target the right customers to fill those holes. Together the departments can move the hotel away from out-of-synch demand generation and towards proactively targeting the right type of guest.

Importantly, hotels whose marketing and revenue management departments collaborate have reported revenue increases of more than six per cent, increased market share, and increased demand for shoulder and low-demand periods. In order to understand how and why this works, it's important to examine each department's strengths and how the departments can help each other - and ultimately the hotel - enhance profitability.

Marketers want the information revenue managers have

Revenue managers rely heavily on accurate demand forecasts to carry out their day to day jobs. However, conducted at the property level and sometimes at the regional level, demand forecasts can be powerful resources for marketers, and as they deal with revenue, these forecasts tend to be more accurate than any other company forecasts. This demand information lets the marketer know if and when a property needs to place offers in the market to fill low demand and shoulder periods.

No one understands pricing better than revenue managers. They use software and other data-driven tactics and strategies to accurately set rates that optimize revenue according to various market conditions and demand. Since marketers create offers and promotions that drive demand, it's important for them to have access to the right pricing information that will generate revenue.

Revenue managers are constantly negotiating and setting rates relative to their competitive market set on a weekly and even daily basis. Although marketers also keep an eye on competitor pricing, their competitive set information lags considerably in comparison to revenue managers - sometimes by as much as three months. However, by obtaining competitive set information from revenue management, marketing can become more proactive about their campaigns and even adjust them at the last minute to remain competitive.

Unlike marketers, revenue managers run reports on transactional data every day. The transactional data contains information that ties campaign offers to revenue. By working with marketing, revenue management can see which marketing campaigns make money and, more importantly, how much money the campaigns bring into the hotel, bringing more accountability to the marketing process. When these reports are provided to marketing, it completely changes how marketers communicate with the executive suite. The conversation moves from "Campaign X had a 10 percent acceptance/commit rate" to "Campaign X cost the hotel $XX and generated more than $XX." This information not only justifies marketing budgets, it tells marketers which campaigns work and which ones don't so they can plan future campaigns accordingly.

But revenue managers also want the information that marketers have

From a revenue manager's perspective, customer segmentation is done at a higher level than marketing. For example, many hotels have a transient segment that can include individual, business and family. However, marketing breaks these groups down even further. For marketers, the family segment could include "single family", "family with kids" or "adults ages 55 and older", among many others. Revenue managers are always looking for ways to create opportunities to differentiate rates that will attract the right people to the hotel. Exchanging this type of information creates a common language, or dictionary, between revenue management and marketing that makes it easier to work together to optimize revenue.

Revenue managers are constantly putting packages together that increase opportunities to generate revenue. Because marketers understand where guests live and what their interests are (e.g. adventurous families like to hike, bike and kayak), they can help revenue managers price hotel packages that will appeal to guests' interests and motivate them to visit the hotel.

Marketers are experts at creating demand by inspiring people to commit to hotel products and services. By knowing when marketing places offers into the marketplace, revenue managers can create better, more accurate forecasts in relationship to demand. This knowledge will lead to better revenue optimization.

How to get revenue management and marketing to work together

For many hospitality companies, the challenge is not recognizing how marketers and revenue mangers can help one another and their properties, it is how to change the overall culture and mindset of both departments so that working together becomes a real, regular and profitable business strategy.

In order to break down the wall that separates these two groups of professionals, it's important for revenue managers and marketers to identify a motivated individual or group of individuals who will be responsible for continually bringing the two teams together. Even when both parties are on board about exchanging information and ideas, having someone in charge of the initiative will help create a common language and ensure that collaboration between revenue management and marketing is easy, continuous and, most importantly, profitable for the hotel.

Intelligent Demand Management

In a truly integrated system where revenue management and marketing departments collaborate in real time with each other, all decisions are synchronized by easy access to integrated data and analytics. Revenue management forecasts and pricing decisions are transmitted to campaign management, so better decisions can be made about the design, content, timing and contact strategy of promotions. Guest analytics uncover which guests are most likely to respond to what kinds of offers, and marketing optimization algorithms select the best set of offers, prices and contact lists that maximize the profitability of each campaign, while operating within the constraints of the revenue management forecast - protecting against dilution. The revenue management system incorporates promotional information into the demand forecast, improving accuracy and resulting in better pricing decisions. At the intersection of guest analytics, revenue management, marketing optimization and marketing automation is Intelligent Demand Management.

The Intelligent Demand Management vision is crucial to being able to proactively target the right guest, and attract them to the hotel at the right price. Automated exchange of key data (even without analytics) ensures that each group is accustomed to working with the other's data before it is incorporated into the analytics. This data share also facilitates communication between the groups, and helps to break down organizational and cultural boundaries. Small steps in optimization can be taken as well. Start with incorporating expected response rates to promotions in the revenue management forecast, for example.

Technology can be the glue that binds departments together, but while a well-planned technology strategy is essential, it is only an enabler. Goals and incentives need to be aligned, and there must be buy-in from everyone from top corporate executives to property level analysts. The best way to get buy-in is to demonstrate success. It doesn't have to represent sweeping change, but it does need to be significant enough to demonstrate potential. Here are some practical suggestions to get your hotel started down the path.

1 Build a task force - identify motivated employees from the revenue management and marketing departments to identify opportunities. Then make this activity a priority.
2. "Day in the Life" - ask marketing and revenue management departments to share their daily activities. Even though they may work with their counterparts every day, they probably do not understand the details of their job.
3. Data assessment - look closely at the available data and metrics from each department. As part of this exercise, a hotelier should determine what data should be shared, align metric definitions to improve communication and identify missing information.
4. Technology assessment - look at business processes and the technology the hotel is using to support them. Ensure the hotel is leveraging all available functionality and build a business case for augmenting where necessary.

With the right approach, revenue managers and marketers can work together seamlessly to help achieve their mutually shared goal of driving revenue at the hotel. By regularly communicating, sharing information and brainstorming strategies, each department will likely see their achievements enhanced, along with their hotels' occupancy and Average Daily Rate (ADR). Although the changes will not occur overnight, by working together both parties and the hotel will realize tremendous long-term improvements and the hotel will find that attracting the right guest at the right price is easier than ever before.

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Kelly A McGuire, PhD, Executive Director, Hospitality and Travel Global Practice, SAS contributed to this article. Ms. McGuire leads the Hospitality and Travel Global Practice for SAS. In this role, she is responsible for driving the offering set and setting strategic direction for the practice. McGuire works with product management, sales, alliances and R&D to ensure that SAS solutions meet the needs of the market. She also works closely with IDeaS, a SAS company, helping to integrate IDeaS revenue management solution with SAS' marketing solutions. She has 20 years of experience in the hospitality industry. Before joining SAS, McGuire consulted with Harrah's Entertainment. Prior to that, she was a senior consultant at Radiant Systems. She also worked for RMS (Restaurant Revenue Management Solutions). McGuire has a BS from Georgetown University and a MMH and PhD in Revenue Management from the Cornell School of Hotel Administration. For more information, visit www.sas.com/hotels

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Nick Curcuru also contributed to this article. Mr. Curcuru is the lead consultant for the Americas region of IDeaS Revenue Solutions. Nick has worked for nearly 20 years in operations and consulting, delivering solutions with and for companies such as The Walt Disney Company, Royal Caribbean International and The Home Depot. Over the last 15 years working for Arthur Andersen and in the SAS Professional Services Group, Nick has focused on high-end analytics working with his clients to enable fact-based decisions by employing data mining, analytical forecasting, and operations research to drive revenue, understand customers and determine the right products/services to offer in the market. For more information, visit www.ideas.com.

As Director of Advisory Services for IDeaS Revenue Solutions, Paul van Meerendonk leads a global team of revenue management advisors focused on hotel revenue optimization projects. Mr. van Meerendonk is responsible for global development, management and operations of the Advisory Services team. He oversees the hiring, training and management of industry-leading consultants located in London, Beijing, Singapore and Atlanta. Mr. van Meerendonk also represents IDeaS on industry thought-leadership initiatives related to trends and best practices within revenue management, including authoring a number of white papers, conducting public speaking engagements, as well as leading key client webinars with an average audience of over 200 global representatives. Mr. van Meerendonk can be contacted at +44 (0) 118-82-8100 or Extended Bio...

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