Mr. van Meerendonk

Revenue Management

Aligning Your People, Processes and Technologies for Revenue Excellence

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

It's no secret that today's competitive landscape in the hospitality industry is more intense than ever before, and it's not showing any signs of easing up. Due to increasing rates of competition and changing customer booking preferences, hoteliers need new ways to differentiate themselves in the eye of the consumer while still providing world-class service and driving profitability across every segment and business unit.

In the Asia Pacific region alone, there are over 2,360 hotels contracted for opening in the upcoming years - according to the June 2015 STR Global Construction Pipeline Report. At this rapid hotel development rate, hoteliers in the region can expect over 500,000 new rooms to hit the market. With the staggering influx of new inventory, new challenges will emerge for hoteliers looking to capture market share and produce profits.

What is the best way to manage and benefit from this situation? Despite the fact that almost every hotel manages multiple revenue streams, team members within each stream still tend to make pricing decisions based on the impact of their line of business only. To maximise future revenue and profitability, and stay ahead of the countless other hotels and rooms on the market, savvy hoteliers will need to make a shift toward a more holistic revenue management strategy.

For hoteliers in the Asia Pacific region, sophisticated analytics technology is now available that is capable of aggregating and transforming large, disparate data sets into actionable intelligence for making accurate demand forecasts and strategic pricing decisions. With this technology, hoteliers can begin to think and act more holistically about their revenue strategies.

This evolution in thinking indicates an exciting new beginning for the industry-and it's the key to differentiating a hotel from its competitors. Hoteliers must begin to think differently about their revenue management strategy, driving profitability through a more holistic approach referred to as Total Revenue Performance.

Moving Analytics Beyond Rooms

Today's hotel revenue management has an established set of tools, business processes and expertise to support effective room revenue optimisation. Revenue managers are generally comfortable with the theory and technology in room revenue management for their strategic planning and day-to-day decisions. However, when it comes to managing meetings, events and other ancillary revenue streams-which make up a considerable amount of revenue for most hotels-the science of revenue management is still in its infancy.

With the advent of Big Data and new analytical technologies, the current manual or ad-hoc approach to optimising revenue performance beyond rooms is no longer sufficient. Many hoteliers are beginning to look to Total Revenue Performance, which, at its most basic level, starts with focusing on applying a data-driven approach to optimising non-room revenue. One of the key concepts that any hotel should consider when applying an analytical approach to revenue management challenges is an old saying, "What gets measured gets done." Establishing key performance indicators (KPIs) for measuring areas beyond rooms-to the spaces used for meetings and events or what is referred to as function space-is typically the best place to start.

Emerging KPIs in function space revenue management include space utilisation, profit per occupied space (ProPost) and profit per available space (ProPast), and have fast become the metrics that are an industry standard in the evaluation of function spaces.

Establishing these types of performance metrics within an organisation, in addition to having the right technology and processes in place to capture and measure and control these KPIs, will help establish a baseline for hotel teams to work towards improving and optimising against.

Once KPIs are established, moving towards function space forecasting is the next step. Advancements in analytics and technology provide hoteliers with access to function space forecasts that can determine future utilisation and start making impactful revenue optimisation decisions. These forecasts lead to better decisions for optimally using available spaces and applying dynamic pricing based on demand.

It is important to recognise that optimising function space revenues is only one part of the overall equation. Meetings and events often have great variability in components (food, beverage, AV, meeting room rental, etc.) that each have very different profit levels. This makes folding profitability into function space absolutely essential. Decisions need to be made on what type of business is most profitable for a hotel, not just the business that drives the most revenues. This added dimension gives hoteliers an even greater control of not only their revenues, but their ultimate profits as well.

Optimizing Across Revenue Streams

The savvy hotelier knows that Total Revenue Performance cannot occur in a vacuum. Hoteliers using the practice of Total Revenue Performance to make objective decisions must recognise that lowering prices in one area may change the profitability of another. Optimising revenue streams must happen in harmony; while each stream is adjusted individually, it is critical to keep an eye on the bigger picture to maximise ultimate profitability.

This often results in the notion that supporting Total Revenue Performance means making decisions that may seem counterintuitive or even unprofitable-especially for a decision-maker who is focused on a single stream of revenue. As an example, setting higher room rates during peak demand (a practice that seems logical when looking at room revenue only) may distance potential participants of a business conference who would otherwise have paid a lower room rate but spent more at restaurants, spas, golf courses, function spaces or other onsite activities. Total Revenue Performance enables hoteliers to optimise overall revenue, even if that means compromising desirable metrics like Average Daily Rate (ADR) in rooms, to the benefit of higher profitability in another revenue stream.

Simple revenue management systems do an excellent job of demand forecasting and price setting, but their focus to date has been limited to room rate optimisation alone. Hoteliers must consider revenue streams across the entire enterprise and how they relate to optimal decisions. Integrating these revenue streams for a holistic revenue performance enables a property to take advantage of profitable opportunities that otherwise may have been overlooked or displaced.

Working Together to Achieve Total Revenue Performance

In order to achieve Total Revenue Performance within a hotel, the entire management team must be educated and buy in to the new approach and strategies supporting this approach. It is also vital that the right systems are in place to allow visibility and control across all revenue streams.

When initially applying Total Revenue Performance, it is recommended to take a holistic look at team alignment, business processes and technology requirements. Hoteliers need to consider if their cross-functional sales, catering and revenue management teams are aligned and working effectively. They should also ask themselves about the type of educational and training support that is needed for their teams to successfully manage pricing and inventory decisions in a scientific and methodological way.

The challenge in applying Total Revenue Performance will be to continue the convergence of the traditional roles of sales, marketing and revenue management, in addition to including food & beverage, banqueting, finance and other departments. It will take the entire team, not just one department or group, to capture the right guest, at the right time, for the right price-and in the right space.

These changes are starting to sweep across the industry today. As independent hotel and chains alike start to move beyond room revenue management towards Total Revenue Performance, they see the need to increase the skills and knowledge across all of their departments. These departments can no longer operate in silos or make decisions that only directly impact their department.

Therefore, hoteliers must consider realigning and redesigning business processes, reporting lines, meeting schedules and more. The industry's competitive growth and current room revenue management limitations will also require hoteliers to rethink approaches to education, as job roles and scopes continue to evolve as the industry adapts to its new possibilities. It is the hoteliers that are approaching this challenge holistically that will be able to build a long-term Total Revenue Performance culture that will give them that competitive edge.

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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