Mr. Ricketts

Revenue Management

Revenue Management Today: Balancing People and Processes

By Mark Ricketts, President & Chief Operating Officer, McNeill Hotels

While there are many service industries, hospitality is certainly one of the most complex. The closest comparison may be a cruise ship, or, to a certain extent, air travel. But for something firmly rooted at all times to the ground, we'll take bragging rights.

We are providing an extremely intimate service, lodging, within the confines of what is nothing more ambitious than running a small city. The modern hotel comprises housing; utilities and other infrastructure; security; an employment force; a commons, i.e. lobby; and, oftentimes, food, beverage and recreation. We bring together under one roof people from all walks of life, with varying needs, expectations and personalities, everyone from a business executive stressed over tomorrow's important meeting to a senior couple celebrating their 50th anniversary.

The analytical side of the hospitality business is also extremely complex. At the heart of the income side of operations is deciding at what price to offer a room (of which we have a fixed number) and the allocation of them, which rooms and for how long.

It's no easy chore. There are so many factors over which operators have no real control. These include everything from weather events, flight cancellations, or changes in plans by prospective guests to expansions and contractions of supply in certain markets or the pricing strategies of competitors.

Perhaps, one of the newer twists for us is the complexity of assessing and interacting with not just our competitors, but, also, our guests. In today's digital age, with the Internet and social media, smart apps and OTAs, there really is a three-way conversation going on between our property, which includes our brand partners; our competitors and our guests.

Certainly, the cost of acquiring reservations is an ongoing industry concern. Additionally, the power that consumers seem to wield at times can be challenging or disconcerting. In particular, the plethora of access points for consumers to make a reservation and the freedom with which they can post reviews or social media comments on the Internet can make us feel less in control.

On the other hand, modern marketing, reservation portals and the expanded ways in which we can reach these same consumers has likely been a valuable factor in the industry's strong performance over the last several years. These developments also aid in the rollout of new formats and platforms. The modern hospitality consumer is much more sophisticated than ever before and, overall, we are the beneficiary of these trends.

Modern-Day Revenue Management

We don't really know who foresaw all of these trends, especially the huge role that the Internet and digital reservations and communications now play in our daily operations. Some have originated with ourselves; others have been thrust upon us. Fortunately, the continuing evolution of formal revenue management as a central discipline of hotel operations has brought some calm to the storm.

Armed with historical data and layer after layer of near real-time information (competitor pricing, occupancy in the market, projected stays, impending special events, etc.), revenue management has brought logic, discipline and guidance to room pricing and availability.

Our brand partners, with their resources and investments, have been excellent leaders and partners in growing our understanding of and capabilities in revenue management. Additionally, some third-party property managers now have in-house revenue managers, which allows them to oversee their own properties while at the same time offer these services as an extra revenue generator to other entities.

Regardless, we seem to be at a point in time where it is appropriate to ask about the future of revenue management. While they are not the subjects of this article, it is worth mentioning some of them. They include the aforementioned costs of securing reservations; the growth of predictive analysis, as opposed to relying too heavily on historical revenue management data; increased focus on total room spend, especially as we consider the investment cost of amenities, even in the select-service category; and imagining ways to encourage value-add purchases.

As we know, the cell phone and rental car industries are skilled in the subtle and non-so-subtle arts of upselling. Against the latter, we must balance consumer frustration with "added fees," although the airlines industry continues to emphasize them. Moreover, we sense that people issues are important in contemporary revenue management, as it continues to advance as a central tenet of hotel management and operations.

Especially when we consider the complexity and resource demands of modern revenue management, we can realistically ask: are we ruling the algorithms or are the algorithms ruling us? Has revenue management become overly analytical? Can it create a divide between the "scientists" and those who serve guests? Where is there room for common sense, discretion and judgment in the pricing or allocation of rooms and the pricing and marketing of adjunct amenities and services?

The People Factor

Let's take a brief look at a few of these issues. The first is about presence. Think about the difference between reading a weather report or watching Doppler radar for a given city and stepping out and feeling the sun or rain, the humidity, the temperature, how fast the clouds are moving. The best assessment of what is to come next will rely on a combination of factors: on-scene real-world experience and the best that science can provide us in terms of data collection and forecasting.

Thus, there's an understanding that can only come from local knowledge and local knowledge is needed to complete the revenue management assessment. Did a party of conventioneers taking up a block of rooms overdo things the night before, meaning that it will take longer than "standard" to get the rooms ready for the next guests? Might an impromptu political rally obstruct access to the property, or, quite the reverse, result in a run on rooms? Is there a new business in town that our group sales department might secure as a new customer, for which we should provisionally reserve some rooms?

As we know, a property's revenue manager may be at brand headquarters or, otherwise, remotely located. The answer is not for every property under management to have its own on-site revenue manager, supported by expensive computers and database systems. But, rather, revenue managers should be aware of these possible issues and take advantage of on-site staff to stay alert to local conditions. There should also be a clear chain of authority for who makes the final pricing and allocation determinations. Is it the revenue manager, the GM or a regional director?

This point needs to be expanded, as we consider communication and teamwork. A good revenue management system, as just indicated, will make smart use of all available people resources. The property general manager, group sales manager and front office staff will usually have excellent knowledge of the locale, guest patterns or how to adjust occupancy up (or down). We should make use of these people resources, which also has the benefit of making the staff feel that they are valuable members of the team.

At other times, it makes good business sense to go against the numbers. Let's consider some examples. A local business that has been a great customer over the years is unfortunately downsizing significantly. The local director has asked you to hold a certain number of rooms over the next month as staff will be coming and going as the adjustment is made. There's a chance some rooms will go vacant. This company also has a national presence with locations in other cities with your entity manages or owns properties. The math here is simple: loyalty, relationships and future business prospect should triumph over the loss of a few room nights.

A similar example might be a small, regional convention that has generated significant room nights from attendees, as well as total spend for food service and other amenities, over the years. Over the last two or three years, attendance has been unpredictable and the convention organizers acknowledge these issues. They ask you to hold the customary rooms until pretty "late in the game," as they are hoping for better attendance this year.

Situations like these are a great opportunity to get your sales manager (and GM) involved in strategic revenue management. While accommodating this request from a longtime relationship, say, "for one more year," your team can get busy prospecting other group sales. A similar analysis might apply to local fraternal or civic groups in smaller, close-knit communities.

The Bottom Line

Our revenue management goals include maximizing RevPAR, total room spend and return on investment. These goals should be achieved through a strategy that balances market place responsiveness with longer-term asset management objectives, as well as corporate values.

It might not come to mind at first, but people skills and people "intelligence" are crucial components of our comprehensive revenue management systems. Respect for the contributions of all team members, including making best use of the experience and guidance of our general managers and sales managers at the property level, will strengthen any revenue management program.

Most importantly, it is our staff and the way we care for guests that are ultimately responsible for guest satisfaction, brand relationships and our overall corporate reputation. The numbers are important. But people are our compass and guide to those numbers.

Mark Ricketts serves as President and COO of McNeill Hotels. Prior to joining McNeill Hotel Company, he spent seven years as Vice President of Hotel Asset Management in the Realty Management Division for Goldman Sachs in Irving, TX. He provided hotel asset management oversight for over 300 properties, spanning 10 brands and 27 flags while working with nearly twenty management companies. Mr. Ricketts has 35 years of experience in the hotel industry, starting as a Hotel General Manager when he was 23. He previously worked as Vice President of Asset Management for Equity Inns, Inc., a publicly traded Hotel REIT based in Germantown, TN. Mr. Ricketts can be contacted at 901-322-4806 or mark.ricketts@mcneillhotels.com Please visit http://www.mcneillhotels.com for more information. Extended Bio...

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