In the decade when Marriott International was credited for adapting American Airlines’ yield management practices for the hospitality industry, the Internet barely existed, Expedia was still a decade from launching, Mark Zuckerberg was just a baby and Google was 20 years from changing the world.
Suffice to say, customers back then booked hotel rooms very differently. Today, a significant portion of consumers book through third-party online travel agencies (OTAs) like Booking.com or Expedia, marketing and technology companies charging up to 20% and 30% commissions. Even those customers booking a room at the hotel’s own website are likely visiting several sites beforehand — many of which are getting a piece of the pie. A “direct booking,” therefore, is hardly so.
New channels, social media and mobile have changed the industry for good. But they have made the business of distribution, and ultimately revenue management, far more challenging for hotels.
Alongside these new marketing channels are more and more online travel agencies – both traditional and non-traditional. Google, Facebook and Apple are some of the non-traditional companies becoming more involved in the travel shopping and booking process.
Four Seasons Chiang Mai: The trend of non-traditional companies becoming more involved in travel shopping and booking is on the fast-bullet train in Asia.
In Asia, this trend is on the fast-bullet train. Late last year, Expedia debuted an Expedia-branded website in China, following others in Korea and Taiwan. Priceline Group and Booking.com, TripAdvisor, and China’s own Alibaba Group, Qunar and Ctrip are also in the fray.
Leland Pillsbury of Marriott called the emergence of OTAs “the invasion of the value snatchers”
Leland Pillsbury, the man credited with launching the first hotel revenue management system while with Marriott in the 1980s, describes the emergence of OTAs as “the invasion of the value snatchers.”
The writing is on the wall. Hoteliers need to recognise that the same revenue management systems and strategies they started with are no longer effective today. Best-available-rate pricing is no longer acceptable when open and truly dynamic pricing is a viable option. Managing (and pricing) to meet budgets and mistaking inventory management for revenue management can be costly mistakes in today’s environment.
The solution is not to go out and get another revenue management solution or tool without first considering the philosophical changes that should be adopted. What must first change is the overall approach to revenue generation. No longer can revenue management be done in a silo, separate from other departments such as marketing that are tasked with stimulating demand.
This new revenue strategy must include the sales, marketing, distribution, revenue management and loyalty departments. In fact, every department that contributes to revenue must be roped in and be working together toward the same goal. And that goal has changed too as top-line revenue is no longer the same as it used to be. The new focus must be on profitability and net revenue, because not all revenue is equal today. The cost of acquiring a customer must be carefully considered. Think about the money being paid to intermediaries and metamediaries like Qunar, Skyscanner or Kayak. In some cases, customer acquisition costs can be as high as 40%.
So where do we begin? Market intelligence from revenue management forecasts should serve as a starting point for developing revenue strategies. Then get everyone involved in the conversation. How can the marketing team know when to put out the aggressive offers and promotions when they don’t know when it is optimal to do so? It is not enough to tell the promotions department they need to help fill 500 rooms a month.
If they are not given enough intelligence into demand and supply, they could be flooding the market with deals on days when demand is high. How much of an upgrade should a loyalty programme member receive? Is that member going to displace a customer who would be willing to pay top dollar for that same room? Data is out there to answer these questions. The question is, are the relevant departments seeing them?
Alila Villas Uluwatu: Savvy hoteliers in Asia are beginning to understand the importance of getting the right revenue strategy in place.
Savvy hoteliers in Asia are beginning to understand the importance of getting the right revenue strategy in place. At a recent Revenue Strategy Forum organised in Hong Kong, more than 100 of the industry’s leading practitioners from the fields of revenue management, marketing, sales and distribution came together for a day of spirited debate focused on how hotels can create value in a rapidly evolving marketplace.
I was excited to see participants discuss how owners and operators can identify and manage their revenue strategy to optimise each hotel’s channel mix in this dynamic digital landscape, to achieve greater profitability and retain and create market share.
“The hotel market in Asia is becoming increasingly competitive, with a crowded field of international brands and pricing pressures from outside the industry,” Richard Hatter, general manager of Hong Kong’s Hotel ICON, said. “The forum brought together thought leaders from throughout the region to discuss how the emerging discipline of revenue strategy can help hoteliers enhance profit, performance, and ultimately, improve our guests’ hotel experience — as we maximise the value of our hotels’ best assets.”
Our partners in the booking brands – Expedia, Ctrip, Booking.com, Google, TripAdvisor – are not going away. Even though it may be unpopular to say, they do add value for customers, which means they can add value for hoteliers — when used to drive demand at reasonable costs.
These digital intermediaries overreach where they see opportunities that are so blatantly profitable it would irresponsible for them not to, while hotel companies until recently stood still and ceded this digital business. That is beginning to change, but we can’t afford to wait any longer.
Patrick Bosworth is CEO of Duetto, a San Francisco-based revenue strategy technology company.
