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Mr. McCartan

Revenue Management

FIFA World Cup 2014: Do's and Don'ts for the Brazil Hotel Industry

By Michael McCartan, Managing Director Europe, the Middle East, and Africa, Duetto

June 2014 is set to be the most exciting time for Brazil hotel industry as the country hosts the world's biggest sporting event - the FIFA World Cup. The event which is expected to bring some 600,000 domestic and international tourists - will undoubtedly lead to major boom for the hospitality industry in the country.

According to a study conducted by Embratur, the Brazilian Tourism Board shows that the room rates in Brazil will rise up to five times higher than the normal rates during the World Cup tournament. The average cost for a hotel room in Rio during the football tournament is expected to be around $460, around 50% more than what it would be during Summer Olympics in 2016, as stated by Rio's Olympic bid document. An alarmed Brazil Tourist Board has already asked FIFA to help bring down the hotel room rates.

Has the governing body been right in raising the red flag? Or has the hotel industry justified in increasing the prices thinking it's time for the kill?

Typically, super high rates would be applied immediately with the expectation that people will be desperate enough to book at any rate. Ernst & Young estimates that International tourist arrivals may rise by up to 79% in 2014. The magnitude of having the World Cup in a country, where football is everything, also plays a role in difference in prices. It's also the simple economics of supply and demand: more fans are expected during the World Cup than the Olympics, and more hotel rooms will be available during the 2016 games because of ongoing construction of new facilities.

Experience from past events suggest there needs to be more strategy behind these rates to better align them with customer expectations as this will help build better relationships with potential customers. A classic case study of how prices can fall dramatically after a major sports event is South Africa, which hosted the last FIFA World Cup in 2010. The country saw its average room rate tumble by 17%, with host cities Cape Town down by 20% and Johannesburg by 13% according to Hotel Price Index by Hotels.com.

How is it going to unfold for the Brazil hotel industry? Is it going to be like Barcelona, where the legacy effect of a mega event like Olympics has been positive? Or is it going to be a repeat show of South Africa? Only time will tell, but here are a few Dos and Don'ts for the Brazilian hotel industry.

The DO List:

1. Use Rate Data to Optimize Your Pricing Strategy

According to hospitality industry tracker Lodging Econometrics, 200 hotels are under construction in Brazil, while another 170 hotels are slated to open within the next three years, adding another 170,000 hotel rooms to its existing inventory. With the online travel industry growing at over 34%, there was never a better time for the Brazilian hotel industry to sell its inventories by reaching out to the online buyers. Historical and current rate data will play a crucial role to identify the most profitable channels and customize strategies according to market dynamics.

By all means, utilize the high demand to raise profitability, but give attention to the shoulder seasons either side of this mega event as they are expected to be leaner periods than in normal times. Analyze current occupancy, bookings and revenue against data to make the rate level decisions to secure additional reservations. Use Rate Shopping reports to see rates, room categories and restrictions that provide these details. Review price analytics to develop a strategy for a lean season and identify the correct channels to promote that plan.

2. Create a Balanced Distribution Mix with Regional and Global Sales Channels

While wooing the international traveler is perfectly alright, don't ignore the all-powerful domestic travelers. It's vital to add a balanced mix of global and regional channels in your distribution portfolio. Adapt a more flexible sales strategy. Each customer is different, and can not be handled with a uniform approach. That does not mean throwing strategies & positioning out of the window, but customize them according to market dynamics. Plan for each target segment. Hotels who have applied a more dynamic and flexible approach are the ones that are the most successful.

3. Power Your Hotel Systems with the Right Technology

Hoteliers in Brazil need to understand the need for multiple technologies to handle third party sales due to the limitations in existing systems. By utilizing technologies for rate calculations, rate shopping, updating rates and inventory, they can react to market dynamics in real-time. Channel managers are required to efficiently and accurately manage the OTAs. This will allow the revenue management team to focus more on strategy.

4. Invest in Meta-Search to Drive Direct Bookings

2014 will be the year of meta-search. With the advent of TripAdvisor, Google Hotel Finder, Kayak and Trivago, the hotel distribution strategy has significantly changed. Around 28% travelers today prefer to compare rates within meta-search, which has witnessed over 13% growth in recent years. With more people starting their travel from within search, and comparing prices, having a presence in meta-search channels will be key to reaching out to them. Interact with your potential guests at the very beginning of their research and decision making process through meta-search. Compete with your live rates to bring more direct & profitable bookings.

5. Integrate Mobile Channel in Your Marketing Strategy

In a country where mobile penetration is upward of 132% and drives the internet growth, mobile travel activity is surprisingly limited to pre-booking research. According to TripAdvisor and StrategyOne's September 2013 "TripBarometer", 95% of 18 to 24 year-olds in Brazil used mobile devices while traveling. With younger generation's higher predisposition to spend on travel coupled with craze for football, its high time for hotels target mobile channels for promotions and outreach.

Evaluate carefully and create a customized campaign for mobile users. Remember, most global OTAs have a mobile application or mobile optimized website. Not having a web presence would mean losing traffic from your brand.com site, thereby losing the chance to get more direct bookings at better margins.

The DON'T List:

1. Don't Be Too Greedy

It is important for the visitors not to feel "ripped off' as the peak period customers understand prices better and that instills a sense of loyalty. Even dynamic pricing can be transparent if the multiple factors behind the rate are clearly communicated. The key is to have a clear rate strategy in place based on demand as well as product to avoid extreme peaks and valleys. Past experience suggests that the peak in demand is usually for a short duration. Therefore it is essential to cover the shoulder nights along with the capability to drive higher rates during peak nights for RevPAR optimization.

Brazil is the most popular travel destination in Latin America, and also by far the most expensive. The business traveler, wary of exorbitant prices might be turned off, and leisure travelers on package holidays would give the country a miss due to budget tours being priced out of the market. Amidst all these uncertainties, hotels need to have the optimal business mix of comfortably positioned locked base and inventory allocation to be able to adjust to market dynamics at the eleventh hour. Rate data is going to play a crucial role to not only maximize strong performance, but also assist weaker shoulder periods so that you can stand out in the crowded market. Getting the right price and remaining competitive will sail you through this challenge.

2. Don't Underestimate the 'Social Power'

Brazil is the region's most social media-savvy country, with 79% of internet users active on social media. Its expanding middle class, which has grown by 50% in the last decade, is increasingly going online, and social media are particularly popular because of Brazil's hyper-social culture. It has over 65 million Facebook users, the second biggest user base for Twitter (41.2 million) and the largest market outside the USA for YouTube. No wonder, social media analysts have named Brazil as the 'social media capital of the universe'.

For the hotel industry, ignoring social media is suicidal. According to a study by Brazilian media consultant eCRM123, 94% of the country's social network users favored the idea of receiving customer assistance through social media sites, and 77% of them have positive attitude towards shopping and buying via a social networking storefront. With search engines like Google favoring social sites, having an engaging social media presence only increases the hotel's chance for higher page rankings in search results.

Use social media page to create brand awareness. Interact with potential and existing guests, and improve customer engagement. Used effectively, social media can be a great tool to develop brand ambassadors amongst customers.

The hotel sales team needs to work alongside the marketing department to promote the value of their product. Explore social media to find out what potential customers are looking for, and include those in PPC for effective conversion. Invest in SEM (Search Engine Marketing), SEO (Search Engine Optimization) and social media marketing campaign, but don't forget to keep the hotel website content fresh and interesting with rich media and current promotions.

3. Don't Ignore 'Online Reputation'

With 260 million unique monthly visitors and over 125 million reviews and opinions, TripAdvisor has become the world's largest travel website. According to recent studies, one third of consumers will not book a hotel room without reading reviews first (Laterooms Survey, Nov 2012). Reviews with a rating of 4 - 5 generate more than double the conversion compared to a review with 1.0 - 2.9 rating on Expedia. Hotels that have a higher guest score typically will have better placement on the travel sites. A better placement on the travel site means more bookings. More bookings mean a higher room rate, and eventually higher revenue for the hotel.

However since guests share feedback on various review and travel sites - all of this valuable information lay scattered and unstructured. It is here that online reputation management tools play a big role in consolidating the guest reviews and provide them to hotels in structured reports. Guest review analysis works hand in hand with rate, occupancy, RevPAR and channel performance to provide hotels with the overall picture. This becomes very useful for the marketing team to identify the potential bright spots for promotional activities.

4. Don't Compromise on 'Brand Brazil'

Most importantly, it is imperative for the hotels to enhance their "Brand Brazil" image for long term gain. This can only be done by optimal rate and inventory mix balancing the demand from the Word Cup visitors willing to pay high rates, with the need to maintain their existing customer base. For the hotels, the biggest blunder could be to get too greedy and try to earn 'quick bucks' at the expense of long-term customer value and loyalty. Do not abandon the guests, contracts and operators who have supported you during difficult times - you will again need them for long-term success. And more importantly, don't compromise your tomorrow for a quick return today. A good reputation will help you to start with better standing for the 2016 events.

An expert in the fields of hospitality and electronic distribution, Michael McCartan joined Duetto as Managing Director for Europe, the Middle East and Africa in 2014 to spearhead the rollout of the company's products and development of Customer Success teams throughout the EMEA region. Since joining Duetto, he has grown the European headquarters of Duetto in London, as well as establishing teams in Germany and Dubai. Mr. McCartan is adept at engineering creative solutions and then executing their delivery, understanding the exact needs of the client and the challenges surrounding the market. He is a valued member of the HSMAI Europe Revenue Management Advisory Board, contributing to articles and leading seminars and keynote sessions for the association. He is also a frequent speaker and panellist at major travel industry events across EMEA. Mr. McCartan can be contacted at +44 7557968806 or michael.mccartan@duettoresearch.com Please visit http://www.duettoresearch.com for more information. Extended Bio...

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