Too many hotel companies try to put heads in beds without clear thinking. They need a more nuanced commercial strategy, figuring out which customers will be the most profitable to pursue after accounting for all costs.
Editor’s Note: Skift Senior Hospitality Editor Sean O’Neill brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry.
Since 2016, I’ve considered Cindy Estis Green to be one of the brightest minds in the hotel sector. Her key insight is that hotel commercial strategy directors have to become more sophisticated about which customers will be the most profitable after accounting for all costs.
- Green is CEO and co-founder of Kalibri Labs, a consultancy and data benchmarking service.
- I’ve enjoyed listening to her presentations on hotel strategy at conferences since 2016.
- She just published a new book in late May summarizing these views — Demystifying the Digital Market & Guide to Commercial Strategy — along with two co-authors.
Here’s my paraphrase of one of Green’s core insights: Too many hotel companies try to put heads in their beds without keeping an eye on maximizing total profit.
- Like many insights in life, Green’s insight almost sounds too simple. After all, anyone can pay lip service to being thoughtful about their commercial strategy.
- The reality is that many hotel sector leaders have been stuck in their ways.
- “Everybody has sort of gone after any demand they could get and figured that if it was more than they had before, they were better off,” Green said. “But that wasn’t true.”
- Green tried to warn hotel leaders that they needed to figure out which guests will be the most profitable after considering all sales, marketing, and service delivery costs and accounting for how much those guests will spend at a property over their lifetimes.
The pandemic blew up the way the hotel sector operates.
- Most of the management companies cut their revenue manager and sales manager staffs in half.
- Labor costs have tripled since 2019, and debt service has doubled. So hoteliers care more about margin.
- Travelers have changed their behaviors. The timing, the rate sensitivity, and the types of products preferred have changed for all types of hotel buyers, such as individual leisure travelers, business travelers, group and events organizers, wedding planners, and so on. So the assumptions that many hotel company decision-makers had made, and the rules of thumb they used about understanding what guests want, or “the profile of demand,” had shifted.
In the past two years, many hotel leaders came to recognize that the old way of doing business isn’t cutting it. They decided to change their processes and assumptions to make sure they’re focusing more on growing the value of hotel assets and the contribution to profit.
- To be clear, we’re not talking about tactics of setting room rates and allocating room inventory, which is called “revenue management.” Instead, we’re talking commercial strategy — a bigger set of levers that depend on a bigger picture view of what kind of business a hotel should go after.
- “Before you start thinking about sometimes hourly decisions about pricing and room allocation, there needs to be a planning and resource allocation thought process,” Green said to me on Friday. “What should we even be pursuing? What’s the highest and best use of our funds and teams to go after?”
- “A first task is to view the market in terms of optimal business mix,” Green said. “What does data suggest would be the ideal mix of business that would grow your hotel’s asset value the most?”
- “Then it’s matching resources to that,” Green said. “You may spend more on digital advertising before, or maybe go more after influencers.”
- A more thoughtful hotel leader might shift a salesperson’s role and targets to business that will be more lucrative, such as what days of the week or lengths of stay to pursue, or whether to go after certain types of convention business, let’s say. A marketer might change the types of promotions they run.
Fintech players are changing the demand game for hoteliers.
- I asked Green what surprised her as she wrote her latest book. One thing she mentioned was the rise of the fintech players.
- “What surprised me is the imminent growth of this new category, fintech, that has the potential to create more competition among OTAs [online travel agencies], the global hotel brands, and third-party metasearch,” Green said.
- “The bank card companies like Capital One along with its Hopper partnership, JPMorgan Chase, Citibank, and so on, they are poised to have a meaningful role in hotel bookings that will displace others,” Green said.”
- “This is something you and Skift are aware of, but I hadn’t appreciated how they fit in until I did this research,” Green said.
Social media influencers offer an increasingly valuable channel for attracting demand, Green said.
- Another thing that Green said has changed since 2019 is that social media influencers have become a more important way to reach guests.
The above is my journalistic simplification of Green’s complex ideas.
- If you’ve read this far, you may want to download her free book for the nuanced details.
- Green is self-interested in promoting her philosophy about hotel commercial strategy. Her company Kalibri Labs offers services to help industry players — such as asset managers, management companies, investors valuing hotel assets — crunch numbers to estimate the optimal demand mix for any given property in any given market.
- Her company’s digital product launched six months before the pandemic. Green said it now has “more than 2,500 users.”
- Having said that, her company, Kalibri Labs, isn’t the only firm offering help with similar goals. Other players to varying degree include STR, the hotel performance benchmarking firm, and Amadeus (via the software it acquired when it bought TravelClick), plus various consultancies.