By Kelly McGuire, Executive Director, Hospitality and Travel Global Practice for SAS Institute Inc., and member of HSMAI’s Revenue Management Advisory Board
Optimism has returned to the hotel industry, consumer confidence continues to rise, demand is up, and investment is increasing. The climate over the last few years has certainly left its impact on our industry, and revenue management will continue to feel the effects in 2014 and beyond. It’s time to apply what we have learned from the past so that we can survive and thrive in 2014 and beyond.
This article provides a perspective on what’s ahead in 2014 and how it will impact revenue managers. The content comes from the HSMAI Revenue Management Advisory Board, an organization made up of revenue management professionals dedicated to advancing the discipline in the hotel industry. A roster of all advisory board members is at the end of the article.
Performance in 2014
Most analysts and industry insiders predict the hotel industry will continue to see growth in key metrics in 2014, and we agree. Tim Wiersma (Revenue Generation LLC) says we should look for construction to increase and expect more owner involvement. Linda Gulrajani, CRME (Marcus Hotels & Resorts), Janelle Cornett (TPG Hospitality) and Karen McWilliams (Concord Hospitality Enterprises) concur that we should expect growth in ADR for 2014, but suggest this will come from transient demand and managing mix. Group demand is still down, and corporate negotiated rates are not recovering as fast as other segments. Veronica Andrews (STR) suggests that, given this change in business mix, there should be more focus on profit contribution – costs of doing business (cost per occupied room, per customer, per group lead, etc.) and total revenue generated.
In 2013 we saw a continuation of the shift from brand.com to the OTAs. With meta-search on the horizon, hoteliers are continuing to be challenged by a distribution landscape that is becoming more complex, and more expensive. “HAMA announced groundbreaking research showing that commissions paid to intermediaries are growing at 2-3 times the rate of growth of revenue. If this trend continues for even 3-5 more years, it would degrade the profitability of hotel companies to the point of risking insolvency for many hotel owners and operators particularly as the economic cycle shifts,” says Patrick Bosworth, CRME (Duetto). Revenue managers, and the industry as a whole, will need to pay close attention to rising distribution costs, and do what they can to shift business to more profitable channels.
Consumer behavior has changed, and will continue to do so. Consumers engage with companies they do business with through multiple channels, online and off. They are active in social media, widely broadcasting their experience and opinions, so they expect a deeper relationship with us than just being part of a large, “generic” market segment. Hotels need to be sure that they remain relevant and engaging, providing the best possible experience through every interaction point with consumers, or they will risk losing them to an OTA or other third party. Bonnie Buckhiester (Buckhiester Management Limited) says, “The biggest challenge in 2014 will be for revenue managers to keep up with rapidly changing/evolving consumer buying behavior – which will impact lead times, forecast accuracy, device use, and price optimization algorithms." I would also add that we need to take a hard look at how our guests do business with us, and make sure that we’re making it as easy and relevant as possible. Consumers today are not always confident that they can get the “best deal” – or best value – from transacting directly with the brand. Yet, they are telling us what they want from us in multiple ways including browsing behavior, reviews and ratings, and interactions at the property. We should be working with our counterparts across the organization to ensure a seamless, relevant and compelling consumer experience, from research, to booking, to the stay, and after. This will provide a differentiator for us over the third parties, and keep our guests coming back to us. This may not sound like “revenue management,” but revenue managers have a key role to ensure that pricing is aligned with value, and that guest experience can still be delivered profitably.
All of us are watching the technology landscape closely. Advances in technology platforms, new players innovating with technology to attract consumers, and all of the data generated by these technology-enabled interactions will provide both a challenge and an opportunity for revenue management (and the hotel industry in general). The landscape is getting more complicated, and is blurring the lines between marketing, ecommerce and revenue management.
We’re keeping an eye on mobile for 2014, as a booking engine, but also as a research tool and an engagement mechanism. OTAs and other third party distribution channels are using their mobile platforms to offer a fully integrated experience, facilitating booking, but also providing relevant information and an integrated experience. Hotels will need to keep up. “Brands and independent hotels must ensure that their mobile experience is designed for mobile devices and provides for a first class user experience. We know that the world is moving to mobile devices (i.e., tablets and smart phones), so the sites must have responsive and adaptive design to ensure highest possible conversion,” says Mark Molinari, CRME (Las Vegas Sands). He adds, “Hotels will find it increasingly difficult to compete with the OTAs from a technological perspective and direct channels will find it more difficult to offer the same type of value. OTAs have the ability to consolidate the guest’s itinerary on one app and provide useful information such as flight status updates, gate information, etc. Guests will continue to seek out the ’one stop shop‘ experience, and the OTAs can provide that better than any brand or independent hotel can.”
In this rapidly changing environment, many of us see the systems that support revenue managers creating both a challenge and an opportunity. Calvin Anderson (The Lexington New York City) says, “The biggest challenge for the 2014 Director of Revenue is going to be adjusting old non-adaptive systems to the new ever-changing buyer. We need to synchronize our methods and systems to match the pace of the market. Whoever can do the most with the information the quickest wins the prize.” Veronica Andrews, Vish Bhatia (Aston Hotels & Resorts), Linda Gulrajani and Karen McWilliams echoed this thought – pointing out that systems are becoming, and will need to continue to be “better, faster and stronger” with broader metrics, enhanced dashboarding and the ability to incorporate new data sources like reputation scores, weather or air lift. We will continue to see innovations in the systems that support revenue management decision making in 2014 and beyond, as the conversation turns to how revenue managers can take advantage of data and analytics to think more broadly and strategically about pricing and its role in business strategy.
What does this mean for revenue managers?
You can read a theme in this article encouraging you to think beyond the “traditional” revenue management role – to understand profitability, marketing trends, and business strategy. Revenue management is definitely becoming a more strategic role in the hotel, responsible for profitable revenue growth instead of just opening and closing rates. Revenue managers need to be prepared for more of that in 2014 and beyond.
“Marketing, sales, revenue management, and operations are becoming more and more dependent on each other for success,” offered Veronica Andrews. Bonnie Buckhiester and Kathleen Cullen, CRME (Commune Hotels & Resorts) stressed the increasingly close dependency between revenue management and digital marketing. This means more cross-functional teams within hotels working together to ensure alignment towards the common business strategy. Obviously, this will require an “enterprise view” of data and analytics, as well as an organizational alignment of incentives and goals. Neither are easy tasks, but both will be crucial for long-term success.
One of the primary concerns of the HSMAI Revenue Management Advisory Board is developing the revenue manager of the future. You’ll hear a lot more about this from us in the coming year. The hotel industry will continue to be challenged to attract, develop and retain top revenue management talent. As the job becomes more complex, it will take a unique set of skills. As Linda Gulrajani points out, “The RM discipline is tough. Either you have a person who is strategic and can talk and sell the strategy to the team, but isn’t great at the analysis and data, or you have someone who is great with the data, but can’t communicate it.” Kathleen Cullen agrees, but adds a caution for our ambitious revenue managers: “2014 will bring continued importance on the person in RM and the position. More owners and companies are starting to realize the importance of the ‘right’ person. But we have to be careful with the RMs becoming too cocky for their own good. I see this already happening and it's a dangerous line to cross. It can totally backfire on not just the individual but also on the profession overall.”
The HSMAI Revenue Management Advisory Board will continue to bring you content that will help you to survive and thrive in 2014! Stay tuned for more in-depth looks at the topics that matter.
Happy New Year and best wishes for a successful 2014!
About the Author
Kelly A. McGuire, PhD
As Executive Director, Hospitality and Travel Global Practice for SAS, Kelly is responsible for driving the offering set and setting strategic direction for the practice. She works with product management, sales, alliances and R&D to ensure that SAS solutions meet the needs of the market, and evangelizes the value of advanced analytics to the industries she serves. Before joining SAS, McGuire consulted with Harrah’s Entertainment on restaurant revenue management strategies for their major markets. Prior to that, she was a senior consultant at Radiant Systems. She also worked for RMS (Restaurant Revenue Management Solutions) providing menu item pricing recommendations to major chain restaurants.
Kelly has a BS from Georgetown University and a MMH and PhD in Revenue Management from the Cornell School of Hotel Administration. Her research has been published in The Cornell Hospitality Quarterly, Journal of Pricing and Revenue Management, Journal of Hospitality and Tourism Research and the Journal of Service Management. She is also a frequent contributor to industry publications, speaker at industry conferences, and is co-author of the SAS/CHR blog “The Analytic Hospitality Executive.” She serves on the HSMAI Revenue Management Advisory Board and is also active with the Cornell Center for Hospitality Research Advisory Board.
About HSMAI’s Revenue Management Advisory Board
The Revenue Management Advisory Board leverages insights, emerging trends, and industry innovations to guide the development of products and programs that optimize revenue for hotels. www.revmanagement.org
- Chair: Kathleen Cullen, CRME, Vice President Revenue & Distribution, Commune Hotels & Resorts
- Calvin Anderson, Director of Revenue, Lexington New York City/The
- Chris K. Anderson, Professor, Cornell University
- Veronica Andrews, Director of Active Data, STR
- Vish Bhatia, Vice President Revenue Optimization, Aston Hotels & Resorts LLC
- Patrick Bosworth, CRME, CEO & Co-Founder, Duetto
- Bonnie E. Buckhiester, President & CEO, Buckhiester Management Limited
- Tom Buoy, CRME, EVP Pricing and Revenue Optimization, Extended Stay Hotels
- Janelle Cornett, Regional Director, Revenue Management, TPG Hospitality
- Sloan Dean, CRME, Vice President of Revenue Optimization, Ashford Hospitality Trust
- Jon Eliot, CRME, VP Of Revenue Management, Premier Hospitality Management
- Neal Fegan, CRME, Executive Director of Revenue Management, Fairmont Raffles Hotels International
- Nick Graham, VP, Hotel, Hotwire, Expedia
- Linda Gulrajani, CRME, Corporate Director Of Revenue Management, Marcus Hotels & Resorts
- Dev Koushik, VP, Global Revenue Optimization, IHG
- Kelly McGuire, Executive Director, Hospitality and Travel Global Practice, SAS Institute Inc.
- Karen McWilliams, Sr. Corp Director of Revenue Strategy, Concord Hospitality Enterprises
- Mark Molinari, CRME, Corporate Vice President of Revenue Management and Distribution, Las Vegas Sands
- Garth Peterson, CRME, Director Of Sales, Americas, IDeaS - A SAS COMPANY
- Susan Spencer, Market Director - N. America, ChannelRUSH
- Tim Wiersma, President And CEO, Revenue Generation LLC
- Nicole Young, CRME, Corporate Director Revenue and Sales, SBE
Want to Learn More?
Many of the topics mentioned here will be addressed as part of the 10-part 2014 Revenue Management Webinar Series produced by the HSMAI Revenue Management Advisory Board and HSMAI University in partnership with HotelNewsNow and STR. Each month a webinar covers one aspect of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you’re not able to attend a live program, archives are available.
Also, plan to attend HSMAI’s 2014 Revenue Optimization Conference (ROC) in Los Angeles on June 24, 2014.
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Well put together. Most relevant aspects of the changing business environment are addressed. Good read.