One of the major frustrations when talking to owners, operators, and virtually anyone in the hospitality industry about revenue management is how quickly the conversation turns to the absolute loftiest talking points about revenue management, while neglecting the bread-and-butter of what our profession is really about: making you money. When talking to prospective clients, often the first thing I get grilled on is “How can you reduce my OTA market segment contribution?” or something of that nature. Only after cracking open their books do I realize that the hotel is running 60% occupancy, missing sellouts like nobody’s business, and is down 25% year over year in the local negotiated market segment.
This happens so often in fact, that I noticed parallels between hotels and people. You’ll probably agree that hotels themselves take on a kind of life of their own, and develop personalities. For example, you may notice that your hotel is priced neurotically with big swings between weekday and weekend rates, has mercurial occupancy that plummets from 90% on Wednesday to 40% on Thursday, and has a Machiavellian sales force but is a bit of a softy on the operations side.
Back when I was in college and had delusions that I would be psychoanalyzing people (rather than hotels) on a Freudian fainting couch, I took my fair share of psychology courses before getting on my more fruitful hospitality-business trajectory. I mostly remember the greatest hits from my courses: Pavlov’s “ding-aling-aling woof woof” experiment, Skinner boxes, Stanford Prison, object permanence, and the crème de la crème of my (very basic) psychology tutelage: Maslow’s Hierarchy.
Although I do salivate uncontrollably when I see a night forecasting above supply, and recommend shocking directors of sales with roughly 600 Volts when they book groups at low rates, the one thing that has stuck with me the most was the hierarchy of needs model that I think elegantly sums up the human experience pretty well. I also think that it can be translated to all kinds of applications as well, such as the hotel world.
If you aren’t familiar with Maslow’s Hierarchy of needs it basically ranks and categorizes people’s psychological development based on how their needs are being met on a range of criteria, from the basics: food and water, to the more complicated: self-esteem and ability to be creative.
I noticed that there were some big parallels between what makes a great hotel and a great person- certain qualities that I noticed from the best teams I’ve worked with, and what was lacking from the worst teams I had worked with. Below I will try to parallel Maslow’s hierarchy and translate it to the characteristics of hotels.
The First Level of our Revenue Management hierarchy of needs is going to be basic, and within this level I would put a few different criteria: the hotel should be able to be discoverable and bookable online, and should have a pricing structure that is at least grounded in reality (premium room-types higher than basic room-types, compset should be considered even if there is not a daily rate shop analysis). At this stage, the hotel is not participating in any dynamic Revenue Management activities, except for occasional reactionary rate changes based on extremely obvious cues. I would guess that roughly 90% of hotels are meeting at least these criteria, and if any hotel is not, then the higher levels of our hierarchy are far out of reach.
The Second Level of our hierarchy would be the ability to analyze data and have a dedicated revenue manager, even if it is not a full-time revenue manager (for example, it may be a GM who also has an interest in changing rates and looking at pickup reports). On the reporting and analytics side: the hotel should have a way to look at past performance, decision makers should also be able to look at occupancy for future arrival dates, and at least have access to a reliable competitive rate shop. We don’t have deep, critical analysis of the data at this phase, but the ability to look at occupancy, pickup, and compset pricing information begins to unlock the ability to move to higher tiers of our hierarchy. I would estimate 75% of hotels are meeting or exceeding these criteria, which is still a strong majority. This step has at least some of the tools required to make more advanced decisions, but decisions are still made based on ‘feel’ rather than data.
The Third Level is where we begin to see differentiation and specialization in the hotel’s roles, but only at a basic level. At this phase, the hotel has a revenue manager, an operational leader, and a sales leader all of whom are individual persons who can dedicate themselves to their respective task (even if it is a taskforce GM, an RM with 6 other properties and a regional sales person). This is an improvement over the first two steps but still has big flaws and weaknesses. Some characteristics of hotels in the stage are as follows:
- Operations team has trouble selling out, and is not confident walking guests. Perfect sell-outs are often a luck-based outcome, and the operations team has bad habits such as blocking rooms for house-use on busy dates to keep themselves from over-selling.
- Basic coding practices are in place, but laziness at the front desk leads to an unnecessarily high amount of ‘rate-overrides’ and missed sales lead opportunities.
- Sales makes rogue decisions such as booking groups and offering negotiated rates with no input from revenue management team. They add value but are not fully efficient.
- Revenue Management has strategy calls, but doesn’t have full buy-in from Operations and Sales team.
- Too much of a revenue manager’s time is spent making reports, manual forecasting, and there is too much reliance on home-brew Microsoft Excel reports.
- Often one leg of the 3-legged team (Sales, Ops, RM) has too much say in decisions, for example: a General Manager who vetoes potentially beneficial strategies which challenge the status quo.
- Some of the team may cling to archaic beliefs examples include: “OTA’s are the enemy”, “We have to give certain accounts LRA because they’ve been with us for so long!”
Most hotels are at this phase in the hierarchy, and the primary goal of revenue management is taking hotels from stage 3 to stage 4. Virtually all of our revenue management clients need help breaking out from this phase, and into the 4th and ultimately 5th stage.
The Fourth Level of our hierarchy is the major turning point where we can begin to make critical decisions required to get to the final step. Hotels in the 4th level have a cohesive, three-pronged team that divides and conquers to add value to the whole operation. This would include:
- A sales team that actively communicates with Revenue Management, asks for advice on pricing decisions, considers displacement when booking groups and corporate business, and is actively engaged in revenue meetings. A good sales team also maintains healthy relationships with their accounts, and is unafraid to request higher rates from accounts when agreements have expired, or room night expectations are not being met.
- An operations team that can execute perfect sellouts more than 50% of the time, is comfortable in light oversell situations, and can enforce stay restrictions and cancellation policies.
- A revenue management team that confidently leads weekly calls, makes data driven decisions, and has the other two branches of the team on board with their strategy decisions.
Revenue managers at this stage are not simply raising and lowering rate, but are rather yielding lower rated business, supplementing occupancy on soft dates, driving rate on days that are forecasting above supply just as a start. Some other hallmarks of this level of development would be: stronger RevPAR than the compset, consistently accurate demand/revenue forecasting, and a strong reliance on market segment level data to make pricing decisions, rather than just top-line occupancy.
At this level, reporting must be robust and easily customizable. The hotel’s reporting suite should support the following forms of analysis: rate level production, company production for sales purposes, pickup by market segment, pace data (how are we comparing to same time last year). There should also a robust rate shop that shows how the compset is changing rate, and demand and occupancy forecasting tools to help guide pricing and yielding strategies with an emphasis on market segmentation and not just room night totals.
So how many hotels are at this level? Maybe 10% to 20%. This is the biggest leap of them all (from step 3 to 4), and is where you can begin to say that the ever elusive ‘revenue management culture’ exists.
This level of the hierarchy can be maintained year-round and is not controlled by the vagaries of seasonality and demand. For most intents and purposes this is the level that most all hotels should aspire to be at, because even the strongest of hotels typically alternate between cycles of stages 4 and 5.
The Self-Actualization Level (5) represents a Hotel that is at the absolute top of its game, this corresponds to the ‘self-actualization’ step in the human hierarchy. Hotels in the self-actualization stage are very rare, and may not be able to stay in the top tier for extended periods of time, as seasonality sometimes reduces demand, or certain days of week may be historically so soft that a hotel can only reach this stage on certain days of week.
So, what’s going on in this level?
- Reporting capabilities allowing analysis down to the reservation level, rather than simply the market segment level which allows for maximum detail in strategy decisions. Individual reservations can be highlighted in real time on a revenue call to confirm efficacy of existing strategies.
- Revenue Management has buy-in from all team members and ownership. Sales and Operations teams are involved and present for all weekly revenue calls, and know that RM’s decisions are based on deep analysis. Ownership does not make capricious recommendations for the sake of ‘mixing things up’.
- The Hotel’s occupancy is consistently high (85%-90% or higher) with multiple consecutive sell-outs. Missed sell-outs are the exception, not the rule.
- Revenue Management team can try new creative strategies due to persistent excess demand and confidence in the proven reliability of forecasting tools.
- Revenue Manager is not burdened by manually creating forecasts or pulling disparate reports. The revenue manager’s time is not spent scrambling in any way but in maintaining an already well-oiled machine.
- Occupancy is high enough that the revenue manager can begin to worry about channel optimization, driving more direct bookings, and actually worry about the slight differences in margin between different booking sources.
What percentage of hotels are truly at this coveted level? Maybe 2%-5% of hotels during certain points of the year, with possibly only the top 1% of hotels maintaining this level all year-round. This level of near-perfection is not just for 5-star properties, however; some select service and midscale properties can reach this level, but it of course requires a phenomenal amount of effort and a great team along with a robust reporting solution.
I won’t lie to you and tell you that I’m at level 5 with all of my properties, in fact most of my properties are in the process of rising from level 3 to 4, with my strongest properties being level 4 properties that occasionally break into stage 5 only in high demand seasons of the year. Realistically level 4 is where all hotels should aim, and then slowly work over time to fine-tune and perfect the three sides of the hotel equation to begin to see flashes of brilliance, and maybe, maybe get to the 5th level. If you are stuck in the 3rd level, as most hotels are, reach out and see how Kriya RevGEN can take you to the next level! If you already have a great team and know that the only thing keeping you back from the next level is robust reporting, please reach out for a demo; we’d love to show you our reservation-level data and automated forecasting by market segment capabilities!