Top 5 takeaways from “Preparing for the Recovery”

1. The path to recovery will vary: It was pretty clear through the discussions in this webcast that the recovery will vary globally. Some markets are seeing clear signs (Singapore), others are still waiting (Las Vegas). Further, industry segments will vary as well. Echoes of the AIG effect, for example, will continue to impact the luxury segment. Destination gaming markets will be slower to recover than the locals markets. I was encouraged to hear Doug Hesley, Corporate Director of Revenue Management at Norwegian Cruise Line, say that he’s seeing customers booking farther out and spending more. Unfortunately, we are a lagging industry, so these signs are just the beginning of a long road ahead. I also think it’s important to understand what we mean by “recovery.” PKF Consulting – Hospitality Research Group is forecasting demand increases through the year – a good sign of a turnaround. Bill mentioned, though, that we’ll still see price declines in 2010. Supply will increase slightly this year as well, so this means occupancy will be even or down. Operators need to understand what each of these signs mean for their business and how to react to them.
2. The strong will survive: Or should I say the smart will survive. This is pretty obvious, but worth mentioning. The panelists all talked about the revenue management function being just as essential during recessions as during boom times. Yes, the industry had to react to price pressures in ways they wish they didn’t have to. Yes, pressures from owners created conflicts between rate integrity and occupancy. But those who took a thoughtful approach to EVERY decision they made, even those they were forced to make, are the ones who will continue to thrive in the new economy. Sherri mentioned the Cornell study that showed that those firms that stayed at the top of their competitive set in price, beat out in RevPAR those that were dropping rate in favor of occupancy – both in recessions and peak periods. Maybe these hotels had to drop rate, but they still maintained a premium over their market – and it worked. Jan mentioned that there is a lot of “distressed” inventory out there – run down properties in bad locations. Properties in bankruptcy and foreclosures right now are probably NOT properties that should have been in business. Investors and developers also need to be “smart” about how they make decisions – just because it’s cheap doesn’t mean it’s good! Jan deRoos made some interesting points about having the courage to renovate, rebuild or redevelop when necessary. Michael Vinci, from Harrah’s Chester, reminded us that any capital investment must generate an ROI, even more important advice when capital markets are so tight!
3. Be proactive, not reactive: I heard this over and over again from our industry experts and the panelists. The panic days when the bottom fell out of the economy are over. Yes, we’re still suffering, but smarter operators are looking forward, and being creative. Being proactive does not simply mean actively sourcing alternate demand sources, developing creative promotions or forecasting demand in advance and setting prices intelligently. It means taking a step back to think about and document what happened during the recession right now. The executive team needs to pull together and talk about what decisions worked and what didn’t, and develop a forward looking plan for the climb back out. Those managers that look at the recession as an opportunity to reevaluate their internal business processes, reevaluate their customer segments, and reevaluate their service offerings will emerge in a much better position than the ones who continue to just put out fires. This is certainly difficult for those firms operating on shoestring budgets with skeleton crews, but well worth the effort and time. Operators must consider the long term implications of short term decisions. Corin Burr, Owner and Founder of Bamboo Revenue , mentioned that this RFP season resulted in many contracts whose conditions were less than favorable to the hotel. This was a necessary short term strategy, but I’m hoping it was made with an eye to the long term implications – and with the understanding both with the customer and the sales team that these concessions were certainly temporary. We have started to train our customers to expect “recession level” discounts and incentives, and I’m afraid the gaming industry in particular will have difficulty in “retraining” their patrons to expect a different level of incentive in exchange for their play. Now is the time to get ahead of this problem.
4. Social Media will influence the recovery in ways we probably don’t understand yet: OK, I’m cheating with this statement, since I had the advantage of spending the day with the panel (and believe me, this was a GREAT opportunity). We spent a good deal of time off camera talking about emerging trends in social media. It’s pretty clear that customers are greatly influenced by these channels, and will continue to be so. What is not clear is how revenue management will interact with these channels in the future, and more importantly how hotels can monetize these interactions – tune in for more on this topic in our April 16th webcast. SAS in particular is doing some really cool things with social media analytics, which I’m excited to share during that webcast.
5. This will be revenue management’s finest hour: Bill Carroll coined this phrase, and I think it’s very appropriate for this current discussion. Revenue management is a much more mature discipline in the hospitality industry than it was during the last few global downturns (the Asian Financial Crisis and the recession following 9/11 come to mind). Revenue managers are much more entrenched in the organization than they have ever been before. The growing implementation of analytic solutions enable more and better access to the information needed to make critical decisions – and the revenue managers know how to interpret this information. General Managers now rely on the revenue management function to keep a pulse on the business. This positions the revenue management functions to lead organizations through the downturn and into the recovery. Philip Schaetz, Vice President of Revenue Management and International Operations at Hyatt Hotels & Resorts mentioned during the webcast that revenue management and sales and marketing must continue to work very closely together, and I anticipate that this collaboration will thrive and grow into the recovery. Organizations are recognizing that demand generation and demand control are two sides of the same coin, and are leveraging information from both departments to make the best possible decisions about discounts, promotions and even service offerings. Forecasting models will be adjusted to better account for unexpected events that impact demand. Technology will enable tighter integration of revenue management and marketing, and analytics will incorporate new streams of data into the pricing decisions. SAS and IDeaS are working on some exciting new developments in this area, that you will all hear much more about in the months to come.

What are your thoughts about what the industry has learned through this recession? What do you think will change going into recovery? I would love to hear your thoughts!

Click here to comment...

Cornell Hospitality Research Study Finds that Guests Want to Know Hotels’ Rate Rules

Guests Say Familiar Hotel Revenue Management Practices Are Fair Practices

Hotel revenue management techniques cause hotels to adjust their rates in response to demand and occupancy patterns. But if guests don’t know what those rate-changing rules are, they tend to think of them as being unfair. A new Center for Hospitality Research (CHR) study found that hotel guests are more likely to think a rate setting practice is fair when they know how the rules work.

The study, “How Hotel Guests Perceive the Fairness of Differential Room Pricing,” by Wayne Taylor and Sheryl Kimes, is available for Download at no charge from the CHR.

The hotel revenue management study involved showing one of eight distinct scenarios to 815 U.S. respondents, and asking whether the hotel was acting fairly in that particular scenario. Taylor, who is a marketing analyst for the Venetian Resort Hotel Casino, conducted this study for his senior thesis at the Cornell School of Hotel Administration, where Kimes is the Singapore Tourism Board Distinguished Professor in Asian Hospitality Management.

“We know that hotel customers accept the idea that hotel rates will change, but we don’t know when guests will think of those rate changes as being fair,” said Kimes. “We tested three factors that we thought would influence guests’ perceptions of fairness—type of trip, amount of information, and hotel brand class, in this case either five-star or three-star. Of those three factors, only familiarity with the rate rules had a strong effect on perceptions of fairness.”

As a result of this strong indication that guests want to know the rules, Taylor and Kimes suggested that hotel revenue managers focus their efforts on increasing guests’ familiarity with their pricing practices. While this does not necessarily mean publicizing all of a hotel’s rate fences, hotels could post the conditions for a particular rate class on its website, and indicate ways for guests to lock in a particular rate (typically, by booking far in advance). In the current environment, Taylor and Kimes suggest that reservation agents and front-desk clerks can explain differential rates and their associated conditions, thus shifting the guest’s focus away from simply asking for a discount.

About The Center for Hospitality Research
A unit of the Cornell School of Hotel Administration, The Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center’s 78 corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial and operating practices. The center also publishes the award-winning hospitality journal, the Cornell Hospitality Quarterly. To learn more about the center and its projects, visit www.chr.cornell.edu.

Download IDeaS White Paper: Enhancing Your Hotel’s Pricing Strategy

Learn how rate optimization is the next big advance in revenue management and how it can help intelligent hotels from being dragged into constant price wars.

Click here to comment...

Time to Clean Up Your Toolkit

Quite simply, hotels need to make sure that they have a sufficient tool set in place now. Despite the so-called green shoots, the return of confidence and economic growth is likely to be slow and drawn out through 2010. As a hotel, do you have the tools to make sure that you are maximizing every revenue opportunity today?

Accurate demand forecasting, optimal pricing setting and parity across all selling channels is fundamental. Make sure that you have tools that will allow you to react to the first sign of change and above all make sure that you have skilled people in place to make the right revenue management decisions. Companies that react late in a downturn typically overreact, often at great expense and find themselves in the position of playing catch up with the competition and slashing prices is not the answer.

You will find that hotels that have previously dropped their rates most will find it hardest to recover to the level that they were previously selling at – a lesson borne out time after time, but seemingly hard to learn.

To learn more Download the White Paper: Do You See a Price War in Your Future? How to Win Without a Battle.

This white paper demonstrates how hoteliers can intelligently respond to competitors’ rate strategies and avoid a price war during uncertain economic times.

Click here to comment...

Maintaining your Hotel’s Revenue Management Momentum Whenever a Revenue Manager Is Not in Place

Video: Benchmarking Competitive Performance in the Hospitality Industry – Key Steps to Measure Your Success. This video will explore how to evaluate your hotel’s revenue management performance and next key steps you should take when setting up your hotel’s competitive benchmarking strategies. Click to Continue >>

Click here to comment...

Will 2010 be the year of (missed) opportunities?

As Hotels are entering into the crucial stage of setting their strategies for 2010, one of the biggest dangers is the continuing uncertainty about the future state of the economy.

While economists around the world are declaring an imminent end to the global recession, the biggest global chains continue to announce double digit drops in RevPar and ever increasing losses, indicating that “we can’t see anything in our numbers at the moment to suggest we’ve hit the bottom”.

As we have experienced in the last few months, ‘A busy Hotel is a successful Hotel’ certainly has been the mantra in many properties around the world as Hotels have attempted to maintain occupancies at the cost of often considerably lower rates – and often to the detriment of long term revenue gains.

In this period of uncertainty, how does a Hotel set long term strategies for 2010? Who can predict how next year’s economy is going to shape up and when demand is going to return if even the world’s best economists are having difficulties predicting global economies for the next few months.

As shell shocked Executive Teams around the world sit down and finalize their strategies for the coming 12-18 months, how will they avoid making 2010 the year of missed opportunities?

Interestingly, a recent report from Accenture had the following to say on the trend to mass discount, when faced with weaker business conditions:

‘In many situations, business leaders listen to salespeople who insist that the sky is falling, so they must have pricing relief. But savvy managers push back with queries about where, exactly, the sky is falling and where it isn’t, and they continue probing until they learn where, in which markets, and with which customers and which product lines there is cause to be confident.’ *

Savy Owners, Operators and Managers therefore should not only push back on dooms-day scenarios but put in place two key strategies for a successful 2010:

1) Maximize the revenue opportunities throughout the entire customer journey
2) Maintaining flexibility to adjust revenue optimization tactics as demand changes

Maximize the revenue opportunities throughout the entire customer journey

Even with lower occupancy levels experienced during the current economic crisis, there are plenty of opportunities for Hotels to increase revenues from existing customers.

“In developing a strategy for the 2010 pricing year, the executive team at any Hotel needs to ensure that they really have a full understanding of the revenue opportunities available to them. More than ever, it is a time for ‘total hotel’ revenue management so that all sources are maximized” commented Bernadette A Davis, Managing Director of the Asia Pacific Chapter of the Hotel Sales & Marketing Association International (HSMAI).

“Through a greater understanding of the needs of the customer, and the different financial drives around customers needs, Hotels can provide good value and meet their revenue budgets” Bernadette Daviswent on to explain.

A ‘race to the bottom’ is a short term pricing strategy with a potential long term impact. Once a mass discounting strategy is implemented, it is hard for a hotel to return to normal rates when demand increases, given lost brand prestige and market position.

Given the current operating environment, Hotels need to be smarter about how they price themselves and what incentives they are using / giving away to attract business. Overuse of incentives to attract guests can actually reduce the revenue coming into a particular a venue. According to Bernadette Davis, Hoteliers should be asking themselves: “Why provide an upgrade to the executive or concierge floor when the customer will pay the price difference from a standard room because they want use of the lounge for business meetings?”

Maintaining flexibility to adjust revenue optimization tactics as demand changes

With 81% of procurement departments of multinational companies believing that cost reductions in travel can be achieved mostly from hotels, the pressure to further reduce or at least maintain corporate rates for 2010 will only increase. A recent study by CWT in the US market confirms this expectation, with negotiated rates to fall by around USD 10.00 from current levels

Companies know that this is probably the last opportunity to get decent rate reductions. They will be keen to exploit this opportunity.

As long as demand remains weak, Hotel Sales Executives will continue to suffer from a lack of pricing and negotiation power, making any proposals for rate increases in most markets nearly impossible.

At the same time, with the future being more uncertain than ever, the appropriate negotiation strategies must be set to enable the Hotel to increase rates when eventually demand increases. Just as this year, corporate accounts returned to the negotiation table when demand declined, Hotels must insist that they should be able to do the same when and if demand increases.

For fixed rate contracts, this could take the form of offering time-restricted promotional rates, setting terms and conditions to at least review rates at either a certain time in the future (ie end of the December, end of Q1, 2010) or through negotiating multiple rates (and room types) that come into effect under certain conditions. In any case, negotiating flat or reduced rates should always include specific volume commitments by the client.

While this might be difficult for many – especially larger – companies to accept, dynamic rate contracts should be offered as an alternative. While dynamic pricing in the past has received a negative reception by many companies, this year’s round of multiple re-negotiations by corporate clients has resulted in an increased interest of dynamic pricing as a cost and time saving alternative within the industry, with more buyers already adopting de facto dynamic pricing arrangements for travel this year.

Industry experts believe that Accounts will start seeing the benefits from a range of dynamic rates. Larger companies will begin to make noise about it, and smaller companies will then follow in their operations.

With the eyes firmly set at maximizing the revenue opportunities throughout the entire customer journey and sales strategies in place to maintaining flexibility to adjust revenue optimization tactics as demand changes, the industry should be able to avoid making 2010 the year of the missed opportunities.

References:
1 – Andrew Cosslett, CEO of IHG, Wall Street Journal, August 12, 2009
2 – CWT Forecasts 2010 Airfare Increases; Hotel, Car Rate Declines
3 – Buyers Redefining Dynamic Pricing
* Marketing: How to Price Smarter in Uncertain Times – John G. Hanson, George L. Coleman and Raymond C. Florio

Click here to comment...