Mr. van Meerendonk

Revenue Management

Major Events Don't Have to Mean Major Headaches

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

When major events come to town, such as international sporting competitions or cultural festivals, they often offer unique opportunities for hoteliers to capitalise on increased demand, gain a new loyal following of customers and maximise revenue both over the short and long -term. Yet while major events come with huge potential rewards, if not executed well, they can be very high risk resulting in anything from displacing current loyal customers to a hotel full of empty rooms, or from no-shows to cancellations. Hoteliers may find themselves asking questions such as "Will we manage to capitalize on the increased demand for our rooms? Will we be able to balance the demand for event attendees willing to pay higher rates while also maintaining our existing customer base? Will this fabled demand actually materialize, or will our rooms remain empty throughout the event?"

For events to be executed smoothly, and most importantly to optimize profitability, hoteliers need to consider a variety of factors, including effective marketing and sales strategies, pricing, forecasting as well as restrictions that may or may not be enforced. The following strategies will help hoteliers be confident that before, during and after the period of the major event, they will be able to achieve their overall revenue potential.

Start with the Basics

The first step in forming an effective event strategy is to start with some research. Check how long the event runs for and how long guests may want to stay. For example, will guests want to stay for a few days of the event, such as checking out a few games of the two week Australian Open Tennis tournament, or is it the type of event where guests will want to stay for the entire duration, for example a major conference?

Next, look at how demand will be affected in the days preceding or following the event. For example, during the 2010 South Africa World Cup each town hosting significant matches needed to focus not only on the day of the match, but also the days preceding. If the World Cup final was to be held on a Saturday night in Johannesburg, hotel owners and hotel managers in that city needed to pay particular attention to demand in the days leading up to the match, starting as early as Wednesday or Thursday.

Forecasting and Segmentation

As the saying goes, failing to plan is planning to fail, and one of the most important elements of a successful event plan is an accurate forecast. Advanced revenue management software can illustrate what will happen to occupancy levels and booking paces at different price points, across different segments and the impact that this will have on revenue optimization. The ability to forecast likely business by segment will highlight the most valuable customers to target. Then through experimenting with different outcomes hoteliers can explore worst case, reality and best case scenarios to create the optimal business mix, which can then be reviewed in the lead up to the event. Important questions hoteliers need to ask at this stage include: "Which segments should we be taking? Will they actually turn up, or cancel at the last minute? What is the likelihood they will return and offer future revenues to the hotel and if we take this segment, what other business are we turning away?"

Knowing which customer segments to target will also inform strategies to increase ancillary revenues and highlight opportunities for up-selling rooms. For example, when a major marathon is on, a hotel may want to create room packages that include a post-event massage. Or if an event starts in the early hours and runs all day, the hotel could offer early morning meals or packaged lunches that can be picked up at reception in the morning and eaten during the day.

Major events are also an opportunity for hotels to build relationships with potential repeat customers. Therefore the importance of creating strong customer satisfaction over the course of their stay should be a key focus for the hotel. For example, ensuring the front desk is adequately staffed, to minimise check-in and check-out times during busy periods, will ensure guests enter and leave the hotel with good first and last impressions.

Optimal Pricing Strategies

The pricing strategies in the lead up to the major event will have to be carefully managed and the focus should be placed on maximizing revenue per available room, in line with the forecast. While an expected increase in demand on significant event days will allow rates to be driven up accordingly, this will not be the case on less significant days. During busy days, a hotel can look to close out all lower rated segments if required, as well as sell room types as premiums, limit free upgrades and make the most of any upselling opportunities. However on lower demand days, these restrictions should be relaxed, as not to put off potential customers from booking with the hotel.

While the event may only run over a few days, hoteliers still need to think long-term. Major events are a great time to bring in new customers, yet normal base business should not be neglected over this time. For example, there may be regular high-value customers, whose usual stay shouldn't be interrupted by the event, as this could have a negative impact on their future loyalty. So it is important to confirm with sales which customers should not be subject to pay higher prices, or strict terms and conditions over the course of the event.

Prepayment Plans and Cancellations

To minimize the impact of costly last-minute cancellations, hoteliers can implement a system of phased pre-payment restrictions and cancellation period policies should also be tightened. For example, if the current cancellation period is 24 hours, it could be changed to 72 hours or even as far out as seven days. These terms and conditions should be clearly stated at the time of booking. If a large number of cancellations are expected over the course of an event, pre-payment plans will allow hoteliers to recoup a large slice of their potentially lost profits, which will then be complemented by last minute fill-ins within the seven days leading up to the event.

Minimum Length of Stay

Over the course of the event period, hoteliers throughout the relevant city or country can enforce minimum length of stay requirements to encourage longer booking periods and improve occupancy. However, these kinds of restrictions need to be carefully considered in the wider context of the event, as if they are overly restrictive they can put customers off. For example, during the course of the Farnborough Airshow in London, some hotels put such strong length of stay restrictions in place that the last week of the airshow ended up being their lowest revenue week of the quarter, due to the negative impact these restrictions had on bookings. Therefore, it is crucial to get the right balance when it comes to enforcing restrictions and continually review whether the strategy is working, or if it needs to be tweaked, in the lead up to the event.

Overbooking

Given that major events deliver a large influx of guests, including last minute bookings, it is critical that hoteliers have the appropriate overbooking strategies in place and also tighten their booking restrictions generally. While hoteliers traditionally use overbooking strategies to counteract last minute cancellations, major events deliver substantial numbers of potential new hotel guests and generally fewer cancellations from tighter booking terms and conditions, as mentioned above. This means that hoteliers need to have a strong grip on over-bookings they take, otherwise they will be forced to send a potential new guest to a partner or competing hotel resulting in either a disgruntled potential ongoing hotel guest, because they didn't get to stay in the hotel they booked, or worse a guest who enjoyed their stay in another hotel and may be a repeat customer of that different property.

Look at the Competition

One important consideration when preparing for an event is the growing popularity of third party booking and review sites, which allow customers to book their hotel visits around the clock, from anywhere in the world, and compares prices on offer at numerous hotels. So this brings us to another very important consideration, which is ensuring that the competition is taken into account. Because hoteliers will be competing for the same client base, particular attention needs to be paid to how much similar hotels in the area are charging. While visitors will expect higher rates than normal, they are still likely to do their research, so if you are pricing too high, you could miss out on business. But price too low and you might miss out on additional revenue. So monitoring competitor's prices from the outset of the planning stage and in the lead up to the event will ensure a reasonable level of consistency.

Review as You Go

During the lead up to the event it is important not to panic if the strategy isn't going to plan. If rooms are not filling up as quickly as anticipated, it is important to remember that the month prior to an event is usually the time where most visitors finalise their accommodation arrangements.

Instead of panicking at the last minute, it is a much better idea to review the strategy at set intervals in the lead up to the event, so any necessary tweaks can be made as required, for example through weekly meetings. By understanding the implications of a number of "what if" scenarios, through forecasting undertaken at the planning stage, hoteliers will be able to make changes to pricing, restrictions and segmentation strategies accordingly as the event approaches. These thorough planning and review processes will put hoteliers in the best possible position to make an effective strategy for driving revenues over the course of the event.

Once the event is over, it is also a good time for hoteliers to review what worked and what didn't, and from this, look at how improvements can be made for a future event. Hoteliers should ask questions such as, "Did we price at the right rate? Were our terms and conditions too strict? Did we foster customer satisfaction for future guests and what was their feedback?" This learning will then form a key part of future strategies and help drive long-term revenue for the hotel.

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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