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Ms. Mockerman

Revenue Management

The Future of Revenue Management

By Lily Mockerman, Founder, TCRM

Revenue Management is a quickly developing and growing field as it strives to adapt to changing trends and technology. There are still many opportunities to enhance the true potential of this discipline. Whether in the areas of metrics, departmental cooperation, technology and social trends, or multiple revenue streams, there is much for revenue management professionals to tackle on any given day. The future of Revenue Management will quickly be defined by those with the vision and ability to harness the evolution of each of these areas.

Today's Revenue Managers have already overcome many challenges which arose as this discipline grew from yield management to a standalone department in many hotels. Although some companies still struggle to grasp the importance of revenue management as a singular discipline rather than an add-on to a front office, reservations or accounting role, most companies have come to understand the benefits of a dedicated, focused individual working towards optimization of their pricing and distribution. However, in today's world, there is much more to Revenue Management than pricing a base room type and making sure that a hotel has a listing on Expedia.

On that note, Revenue Managers are faced with an array of challenges that include advanced tactics like channel optimization, distribution cost management and room type optimization. In case that is not enough, Revenue Management is sometimes asked to function as a miniature IT department, with most companies looking to the revenue management department to be the experts in the PMS, CRS, GDS and RMS systems.

The detailed nature of these systems when it comes to building content, revenue structures, or finding ways to use the system to optimize when it may not particularly lend itself to advance revenue techniques can present a daunting challenge for a new Revenue Manager, who may be surprised that their world is so closely impacted by technology and systems when compared to simply working with numbers. Perhaps in some cases, the job description of a Revenue Manager tends to be misleading in this aspect, seemingly to focus only on things such as forecasting, budgeting and pricing. With the broad scope of the new revenue management role, it is unreasonable to expect someone to manage more than one department when functioning as Revenue Manager, if a hotel truly values and desires focus on this discipline.

Actually, the pace of revenue management's growth has already surpassed the standalone revenue department in some areas and grown towards multi-layer clusters. Some of the strongest Revenue Management departments are not those with one on-site person focused on a single property, but rather those in which multiple hotels - for example, two to five properties - are grouped under one strategic thought leader, and supported by analytical talent and distribution. Often the analytical person has difficulty rising above the minutia to create a holistic strategy, while the strategic talent struggles to implement a big picture at a micro level. However, by pairing these talents in a dual-role department, hotels and companies can achieve much more meaningful and effective strategies. Meanwhile, the additional distribution role focuses on system optimization, content and many of the technical aspects of revenue management. This allows for cross-collaboration within companies, and plays to the strengths of each person.

This multi-property approach may differ when discussing large resort properties. In this case, one strategic thought leader may oversee multiple revenue streams and analytics talent, such as analysts for F&B, Spa, Space Optimization or Golf, which manage the day to day implementation of strategies and become experts in their various areas. Unfortunately, this hasn't been realized in many areas, as several owners see this only as an added expense, rather than understanding the additional dollars that can be had from implementing one or two additional positions.

Often, the return on investment for just one additional role to better deploy the revenue management department can exceed a 20:1 ratio with the proper training, support and buy-in. The future of Revenue Management will certainly include more structures like these as the industry further embraces the concept of Total Revenue Management.

It's startling to recognize the amount of money that is being left on the table throughout the industry in those hotels and resorts that have yet to focus on Total Hotel Revenue Management. Even small steps, like really digging into a broad upsell and cross-sell program within a single property, can provide major revenue wins with little to no expense. For example, Reservations can offer to make dinner reservations the night a guest arrives. The restaurant can offer a coupon for breakfast room service the next morning to dinner guests. The Room Service server can ask what the guests' plans are for the day, and make suggestions for the on-property offerings, such as Golf, Spa and special activities.

Unfortunately, while most properties will state that they do incorporate an upsell program, it is often treated as a minor part of the strategy. In some recent evaluations of resort-style properties, TCRM has found that even resorts indicating that these programs were in place were missing well over five million dollars in revenue annually by not applying a consistent approach and prioritized focus.

When it comes to Total Revenue Management, clearly defined industry best practices are sorely lacking in this area, and metrics, although somewhat defined, have yet to be standardized across the industry. Many of these areas can yield big wins with small steps towards holistic processes. When our company evaluates a hotel's total revenue picture, we focus on improvements to the existing room revenue processes for Transient and Group to ensure they focus more on the net profit of each type of business vs. the gross room rate, and then dig deeper into each ancillary revenue area to understand the full scope of the opportunities. If a property really wants to dive deep into the Total Revenue Strategy, all systems can be micro-analyzed to identify holes in the fabric of a cohesive revenue strategy. With this in mind, pulling out a few initial steps and low-hanging fruit from an evaluation can easily and successfully place a property on the road to Total Revenue Management.

When hotels work to tackle these Total Revenue strategies, it's important to establish solid metrics that allow each department to define success. At times, we still hear companies debating whether there should be more of a focus on Occupancy, ADR or RevPAR. RevPAR is by far the best measurement when looking at top-line, rooms-only revenue, above both Occupancy and ADR. A well-structured Revenue Management program will find a way to optimize the correct balance of Occupancy and ADR to achieve RevPAR, based on the dynamics of that individual hotel and market.

Focusing on RevPAR, however, should be a foregone conclusion by this point in the evolution of Revenue Management. The companies poised for true revenue success are now moving forward to focus on TrevPOR and GOPPAR, metrics that allow hotels to truly understand the full revenue picture, rather than simply top-line or rooms.

GOPPAR, a metric that became a popular topic in the past five to ten years, should certainly become the new gold standard of metrics for the industry. Certainly, many experts agree on this, but when the sharing of data with companies like Smith Travel Research begins to require bottom line figures, many owners and corporations become a bit antsy about sharing that type of information. However, without a benchmarking system, hotels can struggle to understand whether their performance is truly moving forward or whether it's lagging the market. Additional work must be done to educate hoteliers toward this end, and to ensure that data protection procedures are in place to protect this data from being isolated or exposed in a way that could jeopardize business owners' interests.

With the emergence of these advanced metrics and tactics, especially in the face of ever-evolving market trends, it becomes even more essential that these individuals have a broad role and analytical support to work through the challenges and disruptors that modern technology and trends present. With more automation, a stronger focus on creative and analytical management will emerge, and people will no longer be satisfied to just sit back and engage with simpler, average pricing and restriction strategies. Tackling challenges like the sharing economy, the growth of mobile and social technology and more can be daunting and require true out-of-the-box creative thinking.

On the other hand, it can be easy to become wrapped up in the challenges of the day and lose sight of the need for our own industry to innovate. The hotel industry can sometimes find themselves in a pattern of allowing other industries to set the trends, and then struggling to catch up, whether in terms of the sharing economy, mobile and website adaptation, guests' various devices and more. One need not look further than the length of time it took for the hotel industry to recognize that multiple charging outlets or outlets close to the bed could make or break a guest's experience, based on the average number of devices today's traveler wants to travel with and be connected to.

But beyond just technology and the sharing economy, we're beginning to see a much broader style of competition than just a set of hotels in our local area. Millennial booking trends focus on the most desirable experiences, with less focus on a specific destination. Tools need to appeal to this experience culture by allowing users to search as in Google's destination discovery in Google Flights, by experience vs. price, and then to incorporate filters like Adventure Travel, Beaches or Culture, using price only as a secondary filter when comparing destinations.

Despite their reputation for being cheap, Millennials are in fact driven more by value than pure price, something that is essential for Marketing and Revenue Directors to understand, especially as millennials become the predominant travel market. While not every property is able to offer unique experiences on-site (for example, a Hampton Inn or Hyatt Place may struggle to be perceived as unique), opportunities still exist to work with local, authentic experiences, dining outlets and other activities, and highlight how the location and offerings of a hotel can enhance a guest's stay and lead them to the type of value they're seeking.

Additionally, as exemplified by the emergence of Airbnb, we're competing more with other related yet separate industries than ever before. Competition used to be easily measured as we worked to discover which hotels were competing for a guest's travel dollars, considering a Courtyard vs. a Hampton, focusing on the price of the room. Yet now, as guests' focus on experiences grows, the hotel room must now compete with the dining budget, activities budget and more in a race for the guest's total spend. When guests are not inspired by a room product, they may opt for a less expensive hotel room and seek their experience in local activities or dining. Alternatively, if a hotel does an excellent job of marketing the experience available on-site, whether in enhanced F&B offerings, spa packages, or simply phenomenal photography that truly sells their product, they may have the upper hand in capturing the guest's interest over other local products or alternative destinations.

In order to meet these growing competitive challenges, hotel teams must continue to break down the silos between departments, particularly with sales and marketing. Many companies are not yet integrating the marketing department to the weekly strategy meetings, but this is essential on, at a bare minimum, a rotating basis to truly create a cohesive strategy. To effectively sell or market an experience, the team must agree on a solid identity to promote to customers. Guests will quickly see through marketing efforts if the hotel tries to sell itself as the perfect destination for no-nonsense corporate travelers that want a streamlined experience, while in the next breath trying to be a world-class leisure, full-service destination for romantic travel.

Travelers are tired of being "sold", and instead search for truly authentic experiences, a term which cannot be told, but rather must be demonstrated through quality products, honest marketing and a focus on allowing guests to tell your story through their reviews, photos, social posts, pins and more.

With all these new areas of focus for today's revenue manager, where does that leave us in defining the future of this role? While it is unlikely that established industry terms like the role of "Revenue Manager" will see any immediate changes, the role of this person is likely to evolve further in the coming years to a Director of Strategic Optimization. Dropping the word revenue allows for the discipline to become broader as these individuals focus on the expanding requirements of revenue optimization across multiple departments, cost and profit focused management, system optimization and marketing optimization to ensure the highest ROI channels.

While we've touched mostly here on the role of a property or cluster level Revenue Manager, many of these things hold true at the macro level of management companies, brands or other upper levels of management as well. Companies who are not prioritizing a corporate revenue role of some kind as a primary position within the company are likely missing the mark when it comes to the direction of the discipline. While cross-collaboration should be standard between sales, marketing and revenue, combining a VP of Sales and Revenue is often counterintuitive to effectiveness in either discipline. Of course, adding the support of a Chief Revenue Officer (CRO) to oversee both disciplines can certainly validate the combined focus when another senior level corporate leader for each discipline reports up to the CRO.

The future of revenue management will certainly depend on the ability for one primary strategic function - such as this CRO - leading the efforts of all the related departments, with Sales, Marketing and Revenue all reporting up to this senior Strategy Optimization role. However, for those without the budget to maintain a CRO position within the company, senior leaders for each discipline working in close collaboration can be a sufficient structure to achieve company growth.

The challenges for these senior level roles exceed even the broad issues facing unit-level personnel, expanding into more advanced areas such as tackling big data and predictive analytics for company growth. With a shortage of widely-available technology products on the market that can capitalize on these areas, many companies are opting to create their own data analytics departments and proprietary tools to work with this massive availability of data in the information age or today's "internet of things". Those with expansive budgets and the ability to deploy whole teams against these challenges race to the forefront of the travel industry, while smaller companies often struggle to achieve a competitive advantage in data and analytics, and must rely on technical expertise and hiring particularly savvy managers who can leverage the tools that are available to them.

In the case of the smaller hotel or limited budget, it becomes even more crucial that systems are thoroughly evaluated for effectiveness in being able to capture as much of this data as possible before creating a relationship with a new technology company.

These focus areas of Total Revenue Management and big data have created a technology vacuum of sorts, which many technology companies have rushed into with partial solutions. However, the future of the industry in which more than just the major players can truly harness data and optimization will depend on advances in technology that can keep up with a quickly changing market, present a way to track and predict guest behavior and buying decisions, and deploy enhanced competitive strategies across a dynamic channel distribution for all revenues, beyond simply booking a room.

As hoteliers come to understand the importance of the Revenue Management department as its own entity, not only allowing but encouraging innovation in appealing to the experience culture, understanding of the sharing economy, and creation of cohesive strategies, their properties will see more major revenue wins. As the diverse areas of the hospitality industry combine efforts to develop clearly defined industry best practices and standardized metrics, and to create tools to help harness, direct and utilize big data within those practices, and to enhance those metrics, the strength of strategic optimization will bridge the gap between simply determining room types and rates to uncovering the revenue dollars which can flow from multiple revenue streams when every department participates in bringing in previously unrealized revenue opportunities through Total Revenue Management.

Lily Mockerman, President and CEO, founded Total Customized Revenue Management in 2012. It has become the premier provider of revenue management services for the hospitality community. Ms. Mockerman is a devoted leader and practitioner in the revenue management field. She has developed strong analytical skills and experienced foresight, is technology-savvy in many hotel systems and can clearly communicate vision and strategy for her clients and team. Since earning her Bachelor of Science in Hotel Management from Johnson & Wales University, Ms. Mockerman’s career has encompassed a variety of roles and responsibilities, including experience with Starwood Hotels & Resorts, Hilton Worldwide and the independent hotel space. Ms. Mockerman can be contacted at 623-536-7066 or info@tcrmservices.com Please visit https://www.tcrmservices.com/ for more information. Extended Bio...

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OCTOBER: Revenue Management: Technology and Big Data

Gary Isenberg

Hotel room night inventory is the hotel industry’s most precious commodity. Hotel revenue management has evolved into a complex and fragmented process. Today’s onsite revenue manager is influenced greatly by four competing forces, each armed with their own set of revenue goals and objectives -- as if there are virtually four individual revenue managers, each with its own distinct interests. So many divergent purposes oftentimes leading to conflicts that, if left unchecked, can significantly damper hotel revenues and profits. READ MORE

Jon Higbie

For years, hotels have housed their Revenue Management systems on their premises. This was possible because data sets were huge but manageable, and required large but not overwhelming amounts of computing power. However, these on-premise systems are a thing of the past. In the era of Big Data, the cost of building and maintaining an extensive computing infrastructure is incredibly expensive. The solution – cloud computing. The cloud allows hotels to create innovative Revenue Management applications that deliver revenue uplift and customized guest experiences. Without the cloud, hotels risk remaining handcuffed to their current Revenue Management solutions – and falling behind competitors. READ MORE

Jenna Smith

You do not have to be a hospitality professional to recognize the influx and impact of new technologies in the hotel industry. Guests are becoming familiar with using virtual room keys on their smartphones to check in, and online resources like review sites and online travel agencies (OTAs) continue to shape the way consumers make decisions and book rooms. Behind the scenes, sales and marketing professionals are using new tools to communicate with guests, enhance operational efficiencies, and improve service by addressing guests’ needs and solving problems quickly and with a minimum of disruption. READ MORE

Yatish Nathraj

Technology is becoming an ever more growing part of the hospitality industry and it has helped us increase efficiency for guest check-inn, simplified the night audit process and now has the opportunity to increase our revenue production. These systems need hands on calibration to ensure they are optimized for your operations. As a manager you need to understand how these systems work and what kind of return on investment your business is getting. Although some of these systems maybe mistaken as a “set it and forget it” product, these highly sophisticated tools need local expert like you and your team to analysis the data it gives you and input new data requirements. READ MORE

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