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Ms. Dombey

Revenue Management

Revenue Manager: Data Scientist, Profit Manager or Inventory Manager?

By Ally Dombey, Managing Director, Revenue by Design

The hotel industry is no stranger to change and one of the most dynamic areas of hospitality, revenue management, looks due for a correction. Revenue management is an established practice in most hotels today, with an armoury of systems now available to support effective demand management and price optimisation. However, the playing field for revenue management is changing; traditional metrics are being challenged. Top line revenues are no longer recognised as sufficiently robust to reflect the performance of an asset. The relevance of static competitor sets is being challenged in the wake of shifts in customer buying patterns. And Big Data is history, with data science being high on the agenda.

Revenue managers are now tasked with the role of profit manager, customer experience engineer and data scientist. There are serious questions being asked about the relevance of the role of the current revenue manager which is set to increase in complexity as it expands to manage data from multi- dimensional sources. In the light of this shift in complexity of the role and the new skills being asked of revenue managers, does outsourcing revenue management to revenue specialists become a more meaningful option? What are the risks and benefits of outsourcing the revenue function to a third party? How will the outsource revenue function evolve?

Why Outsource?

With outsource services coming as a standard offering for owners adopting the services of management companies or brands, what drives the decision to outsource? Cost savings, turbulent economic market conditions and a lack of skills are cited most frequently by operators. Hilton Hotels, one of the pioneers in provision of outsource services, cites the key challenges faced by hoteliers today as difficulty in attracting and retaining robust revenue management talent, the increasing complexity of revenue systems and processes, and increasing costs attributed to the distribution environment. Kristie Goshow, Senior Vice President, Commercial, Viceroy Hotel Group, comments on the potential economies of scale and potential for enhanced service delivery "A third party with an assumed 'multiple' of resources can ensure continuation of support 365, 7 days per week. They can leverage learnings and best practice in real time. Depending on the location of the outsourced partner and their scope, an hotelier may also be able to achieve a degree of cost savings too. I think we all agree that highly competent (and progressive) revenue management professionals are few and far between. In certain cities and countries, the price tag of a DORM may outrun that of a DOSM or GM".

For many hotels, the initial decision to outsource is driven by a critical shift in business strategy, frequently requiring skills beyond the scope of the day to day revenue function, and often followed by continuity of the service recognising the opportunity to tap into the high level of skills on offer.

Shaun Bowles, General Manager of Eynsham Hall, an independent country house hotel offering a complex mix of rooms and conference services located near Oxford, UK, explains the reasoning behind their decision to tap into external skills. "As an independent business looking to compete with larger groups and brands, revenue management is key to the success of the hotel. Without the ability to afford and retain an established, proven and highly skilled revenue manager, outsourcing is a very viable option. Outsourcing revenue management allows a smaller business access to the broader perspective and a team of experts that is looking at the bigger picture rather than the 'now' problems. Outsourcing can appear costly but when the hotel is operating an industry standard revenue function the financial benefits to the bottom line can be realised".

Scoping Out an Outsource Service with a Brand

Today most brands offer revenue management support on the basis of "Revenue Management for Hire". Services offered are typically based on detailed rate and availability management, managing progress towards budget and forecast and assessed across multiple performance metrics. Progress is tracked over pre-agreed frequencies (daily, weekly monthly) and booking horizons (see table 1).

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The Benefits of Working Within a Clearly Defined Technology and Brand Structure

Opting into a brand revenue service means adopting the brand technology, which offers a high degree of systems standardization and defined operating procedures for managing, optimizing and distributing inventory. This includes the use of the brand property management and central reservations systems, revenue management systems, connectivity to all third parties, and subscribing to reports providing market insights on competitor data and market pace.

Brand revenue outsource services offer clear benefits starting from the technology platform which is consistent, and outsource service frameworks are fully defined reflecting the brand's rate structure, promotions, terms and conditions of business, and third party agreements.

The nature of the services offered will vary according to brand standards, the level of engagement between the hotel and the brand, and the structure of franchise agreements. In effect the revenue strategy is the conduit for the brand customer journey. The assigned brand revenue manager will typically provide a daily call into the hotel General Manager or executive team to review and discuss the daily changes to pricing and inventory management across the booking horizon. In the absence of a qualified revenue resource on property, this is a reliable way of engaging with the brand and evaluating return with an agreed ROI and clear expectations on either side.

Reliable, but Lacking in Creativity?

The revenue outsource service provides the brand with a fully defined mandate to drive the brand revenue initiatives, and whilst there are benefits in terms of the framework and structure of the services, there are often limitations on options available for optimization.

Carol Dodds, Vice President Commercial, Interstate UK, responsible for leading and directing the specialist functions of revenue management and distribution for the management company across multiple brands has in depth experience with working with the outsource function in Hilton and IHG hotels. Reflecting on the services offered, Dodds explains; "We find that the relationship works best when the brand revenue team provide the specialist skills that benefit us. This may be related to the complexity of brand systems, or where the brand can offer superior reporting through easier access to more data. That frees us up to offer a more strategic set of services." However, she sees gaps in the services provided by an outsource team: "The service works particularly well for the transient segment in the 90-day window. What we do find is that there is likely to be less creativity and innovation from a brand outsource team. We don't yet see the brand service providing the level of digital and distribution expertise that's needed in today's market, or supporting other profit centres such as Meeting and Events and Food and Beverage. We will overlay services on top of the transient optimisation and drive a deeper understanding of the segment mix in the operation."

Driving an Agnostic Strategy - The Best of Both Worlds

However not all brands are as prescriptive. The Best Western GB "Rent A Revenue Manager" Service requires the use of a BWI accredited Property Management System, and subscription to competitor benchmarking and rate shopping tools. In a move that sets the service apart from other brand outsource services, the revenue team is targeted to grow revenue for subscribing hotels irrespective of the channel used. Liz Woodsell, Senior Revenue Manager Best Western® Hotels & Resorts - Great Britain explains "The BW Rent A Revenue Managers are targeted to grow total rooms revenue by 5%, regardless of the channel that delivers it. We are not biased to BW, we aim to maximise revenue for our hotels, from the most profitable channel"

More Challenges, but More Options for the Independent Hotel

In stark contrast to the regulated set up of the brand environment, the technical landscape of any hotel in the independent sector could turn up multiple technology options and often mysterious configurations, making the work of the outsource provider more challenging. Although the outsource service provider may request a minimum set of analysis tools be in place prior to providing the service, in many cases these will not be readily available.

A lack of integrated technology is the most common issue facing outsource service providers at the outset of the service provision to independent hotels. Kate Ciblik, Revenue Director at Revenue by Design says "It's key to get an understanding of the technical capabilities of the hotel prior to setting up the service. In some cases, the first few weeks are spent ironing out critical technical issues which delay the ability to provide any level of service. This can include lack of historical data to analyse in the PMS, inaccurate segmentation data making the current position of the hotel difficult to assess, or simply very limited technology in place at all."

Strategic Use of Outsource to Support Business Critical Times

Irrespective of the technology platform, the outsource function offered to independent hotels will mirror that provided by brands and management companies. Another option for outsourcing revenue management is for short term intervention to support specific business issues. This is driven by times where the skills required are not available in house or where enhanced skills sets are only required on a very short term basis. This is frequently during the pre-opening and post opening stages of a new hotel or when transitioning from one brand or technology platform to another.

When CitizenM took the decision to outsource their revenue management to a third party they started out with a clear commitment to have full engagement with the revenue function throughout the business with a mandate to the outsource provider to build a plan to retain revenue knowledge inside the company. This resulted in a clear roadmap for the transition of the outsource function back to the company, right from the start. With the framework for the revenue function built, communication protocols were set up between head office, property and the outsource function.

David Turnbull current Chief Operating Officer of Snapshot, and responsible for the outsource delivery at the time comments; "Initially the management and communication of revenue decisions was relatively easy. With just one or two hotels in the same area as the head office in Amsterdam, we set up revenue analysts at the head office to build out the knowledge in house and the outsource revenue team handling the day to day revenue management."

"When we added hotels in different regions we then needed to build out the revenue communications culture. With P&L responsibility sitting with the management team, we worked closely with the hotels to ensure mid-term forecasts drove the revenue required to meet targets or gave sufficient warning to adjust strategies. Hotel teams were required to commit to attending revenue meetings regularly and actively contribute to revenue strategies."

Turnbull adds. "Owners that fundamentally understand asset value understand the concept of investment in the right resources at the right time. In the early days of launching a hotel there is a need to get guidance from an expert on the right configuration of technology, and driving the right revenue strategy. An owner with this level of understanding will put the right candidate in for the right job in hand. Fundamentally its 'do what you do best', leave the rest to the experts"

Dodds concurs. "In year one of opening, it makes absolute sense to take advantage of brand revenue management services. They are the best specialists at building the optimum reputation at the earliest opportunity. The same can be said of hotels transitioning from brand to brand. Whilst the operational team resources focus on the transition, the outsource team can be managing top line revenues, applying in-depth knowledge to technology issues and setting up new revenue processes."

Managing Risk - The Checks and Balances

Prior to setting up the service, the right checks and balances need to be agreed between service provider and hotel. How will pricing and rate changes be agreed and managed? How will the two parties ensure a guaranteed level of continuous technical service? What level of liability does the service provider have over potential errors? So, what are the risks?

1) Make Sure the Outsource Company is Familiar with Your Technology - Most outsource companies will have a bedrock of skills associated with certain tech stacks; lining revenue managers up with an unfamiliar distribution landscape is not ideal for either party but not impossible to overcome. Caryl Helsel, President and CEO, Dragonfly Hospitality Resources points out "Where a hotel runs systems that are not prevalent within the industry then getting up to speed with a system can take time. Hotels need to take this into consideration at the outset."

2) Set up the Appropriate Communications - The framework for a robust outsource revenue management program will feature key performance targets and goals, daily and weekly update calls and a post period monthly review. Beyond this, the service also needs to factor in quality of service delivery through robust service level agreements.

Goshow recognizes the strategic benefits of clustering the revenue function within the organisation; "Viceroy has certainly realized some success through the clustering of hotel revenue management under a shared revenue management resource (employed by the properties) operating as a remote colleague." However, she is also keen to recognize that this opportunity in turn requires a different set of skills "Said success does however rely on the appointment of a suitably qualified candidate who has the ability to communicate flawlessly with both GM and Commercial colleagues on property in the absence of physical presence".

Dodds emphasizes the importance of getting the right data into the right hands across the business. "Communication is key, some brands have a very robust reporting suite, featuring smart analytics and data sets that are transferable at many levels within the business. This gives a clear understanding of what is going on. There needs to be a post period analysis which gives a completely unemotional assessment of market performance. "

Helsel continues, "It's critical that the outsource service has an interest in the hotel's success - this can be built through the hotel management team working proactively to get the support of the outsource function. "To overcome the potential risks, communication is key. Have regularly scheduled strategy calls. Have monthly "take your pulse" check in meetings. Maintain logs of issues and resolutions to those issues. Have clearly defined scope documents and gain agreement on both sides to the scope, and limitations of scope".

3) Do a Full Evaluation of Cost and ROI - Bowles advises on being fully prepared for the service in terms of both cost and return, "Be prepared to analyse the cost of outsourcing against the potential savings of employing a full-time revenue manager with the experience required for your business. Evaluate the cost and ROI, and with the right consultants delivering results, outsourcing the revenue function can be a cost-effective solution and gives your business access to industry experts."

Access to Market-Leading Skills, Strategies and Technology - The Future for Outsource Revenue Management

Given the constant change in the role of the revenue manager, the increasing amount of data available to assess, the need to sit at the junction of demand management and demand generation, how will hotels keep pace with the change? Recruiting a revenue manager in house has its risks; its often difficult to evaluate the intuitive and technical skills of a revenue manager at interview, and a poorly trained revenue manager can leak profitability, frequently without this being recognised until it's too late.

Revenue outsource offers access to a depth of experience and talent that is cost effective, delivered 24/7 and without the additional headcount. It offers easy access to high level skills, and to strategists and tacticians that would otherwise not be affordable or accessible. To compete on a level playing field, the independent sector stands to gain significantly from tapping in to outsource, optimising both technology and revenues, and delivering improved times to market alongside profitability.

The Evolving Role of Revenue Management

As the role of the revenue manager continues to shift from revenue to profit, engineering the best customer experiences through improved data analysis will become increasingly more sophisticated, requiring improved skills and investment in technology that will likely end up being out of reach for many hotels. The revenue outsource function offers a route to keeping pace with the market and access to affordable market-leading strategies and tactics, enabling hotels to drive optimal revenues whilst delivering the best customer experiences.

Ally Dombey has traveled the world, creating and developing marketing, distribution and revenue management strategies focused on driving profit for independent hotels, hotel groups and the tourism industry. As Managing Director of Revenue by Design, she leads a team of revenue management specialists focused on delivering business transforming revenue management and distribution solutions within the hospitality sector. Known for her ability to simplify the communication of complex business processes, Ms. Dombey is the principal author of the Revenue by Design revenue management training programs. Revenue by Design’s delivery of training, outsource revenue management services and consultancy has established the company as an industry leader. Ms. Dombey can be contacted at 44-0-20-7635-6810 or ally@revenuebydesign.co.uk Please visit http://www.revenuebydesign.co.uk for more information. Extended Bio...

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OCTOBER: Revenue Management: Technology and Big Data

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