Change has not come as fast as a 2010 survey had predicted. This study offers a few reasons why, but misses a big one: The industry is in desperate need of loud champions of new techniques and strategies.
A survey of 381 hotel revenue managers worldwide by Cornell University finds a surging interest in seeing the biggest possible picture of what’s happening at their properties transactionally.
Many say they’re interested in “total hotel revenue management,” a concept that looks beyond rooms to include revenue and profit on restaurants, room service, and meeting space rentals. About 63 percent of those surveyed expect total hotel revenue management to become common soon, where only 10 percent mentioned the concept when Cornell did a comparable study in 2010.
Both studies were done by Sheryl Kimes, a professor of operations management in the School of Hotel Administration at Cornell University.
More broadly, the latest survey finds that many revenue managers want to look beyond the traditional focus on revenue per available room. For instance, a significant percentage of survey respondents also predict that they may soon measure performance per available square foot.
One hangup that’s delaying this shift from happening is that the most popular benchmarking services from the consultancy STR Global don’t offer standardized alternative metrics.
Hotels’ internal power struggles stymie change, too. One survey respondent often sees general managers overruling them and the financial controllers with old rules of thumb (“Take last year’s numbers and add 2 percent”), rather than rely on data and the latest algorithms.
INDUSTRY REACTIONS TO THE STUDY
Skift asked several leading figures in hotel revenue management to comment on the survey.
A few flagged how the pace of change has not been as fast as was predicted in the last survey in 2010.
Erik Browning, VP of revenue management consulting at The Rainmaker Group, says: “I was a bit surprised that training was not mentioned by the survey respondents. If we hope to achieve total revenue management in the next five years, we have to take a good hard look at talent development….”
“In the Cornell survey, 38 percent of respondents stressed the need to be more strategic, which is akin to stating the obvious, since strategy is the very job description of a revenue manager. So, we should ask ourselves the hard questions: Are we properly analyzing the available data or are we stuck in the doldrums of simply creating reports?”
Browning insists: “It all comes back to proper training: edX, for example, has awesome courses on analytics, probability, statistics, and related topics that are completely relevant to our jobs…. As a revenue management leader, I would ask myself: ‘Do I have the right skill set – and do my team members? Have I taken steps to grow those skills?'”
Pamela Barnhill, chief executive of software provider IBC (InnDependent Boutique Collection) CEO and IHT President & COO, says, “Those who are dominating in this space, clearly understand connectivity, distribution and all the data that influences supply and demand.”
Few are dominating, though. “Probably fewer than 7 percent of the 156,000 hotels, resorts, and extended-stay properties that have greater than 50 rooms hotels use revenue management software instead of Excel spreadsheets,” estimates Ravneet Bhandari, chief executive of revenue management software startup LodgIQ.
TRIGGERS OF CHANGE
When do hotels typically update how they handle revenue management? It’s often at the moment when a person at the upper levels realizes that the company is leaving money on the table by not adopting more dynamic, science-based pricing, some experts say.
Not all revenue managers want to make an effort to change. “I bet that a vast majority answering the survey are still using an Excel spreadsheet or, if they are affiliated with a global brand, the software the chain provides,” says Marco Benvenuti, co-founder of software company Duetto. “Too often no one else knows what’s in the ‘black box’ of their Excel spreadsheet, so their work doesn’t get questioned. That’s job security for them.”
Organizations also need to change their structures to encourage teamwork and transparency, says Mike Chuma, vice president of product strategy for IDeaS, a seller of revenue management software. “Too many revenue management teams remain siloed,” Chuma says. He would rather see the teams “integrating with the sales, marketing, and meetings and events teams.”
One way to kickstart organizational change is to demand new metrics, challenging teams to place a greater focus on overall profitability rather than revenue, experts say. Hoteliers can also ask more questions like, “Does a reservation that comes in via a third-party like Booking.com with a hefty commission truly have the same value as one that comes in through a hotel’s website but has a comparatively discounted rate? Can we segment by demographic or by how last-minute a booking is?”
The survey does show some hope for change. Revenue managers predict that gross operating profit, or a similar, profit-centric measure, will replace revenue available per available room as a performance metric.
One person who is hopeful is Cindy Estis Green, co-founder of analytics software startup Kalibri Labs, says, “Revenue managers seem to be evolving from the traditional role of being entirely reactive [to demand changes] to being somewhat proactive…. Some are taking on the responsibility of both stimulating and optimizing that demand. They want to know what it takes to pull the levers, trigger bookings, and manage acquisition costs.”
LEARNING IN THE LONG-TAIL
Boutique independents and midsize chains like to blame the rise of third-party distributors like Booking.com for their narrowing profit margins. But this stock excuse is rarely matched by much new in the way of innovation in revenue management. Droopy leadership aside, the most critical problem facing hotels is a stunning lack of knowledge about exactly how much falls to the true bottom line for any given reservation.
The Cornell survey appears to represent the top end of the hotel market well. But revenue management is an issue for even smaller properties.
Ironically independent hotels and small chains are being educated on the concept, thanks to Booking.com’s heavy marketing of hotel revenue management software through its BookingSuite business services division (the outcome of its 2015 acquisition of Pricematch, a Paris-based startup).
Other startups educating the market include New York-based LodgIQ and Denmark’s UnitPal, both of which launched last year.
CHAINS OF HABIT
Chains have been more successful than independents in taking brand share away from the online travel agencies. But as the distribution battle moves beyond black and white, revenue managers at the globals need to advocate for a faster pace of change.
Chuma at IDeaS says revenue managers need to move “to a deeper understanding of selling the ideal room, to the ideal customer, at the ideal price.”
Others call for more leadership at the top. A case in point: Starwood Hotels & Resorts Worldwide spent more than $50 million on a next-generation revenue optimization system that the brand says helped boost its demand forecasting by 20 percent since 2015. Marriott International, which acquired the brand last year, may toss it aside. The company has already decided to move Starwood properties over to its antiquated, mainframe-based reservation system rather than upgrade Marriott’s properties to Starwood’s more modern platform — a move that doesn’t bode well for other decisions.
It isn’t fair to single out Marriott, though. Other global chains have been slow to integrate the latest pricing techniques and data, too. They may need to invest in revenue management software as part of their overall refresh of their tech stack.
The broader point is this: If Cornell’s survey of hotel revenue managers in the year 2022 is going to produce better finding, hotels of all sizes need to act now. They need to ask their team members some questions. Are you passionate about hotel revenue management? When was the last time you sampled the services of revenue management software used by many competitors? Who do you admire in the revenue management sector? Do you even like hotels?
The sector’s growing quest to understand who books what and when and why is also being powered by a broader a megatrend that Skift is tracking in 2017 of hotel owners and management companies analyzing their strengths and weaknesses when it comes to Airbnb, Google, and other players.
Caryl Helsel, president and CEO of Dragonfly Hospitality Resources, and the author of a widely-used textbook on the topic, says, “It’s time for systems, reporting, and key performance metrics to catch up to the reality that defines revenue optimization success.”
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Photo credit: A study of 381 hotel revenue managers reveals a profession expecting change. Pictured here is a product demonstration at a 2016 customer conference of a software provider. The Rainmaker Group