Loyalty, profit optimization key for hotel revenue strategy

NATIONAL REPORT—Revenue management is a critical part of the hotel business today. With increased competition—from other hotels, as well as numerous booking channels and alternative accommodation options—hotels need to optimize their booking potential. Hotel Business spoke to revenue leaders— Ravneet Bhandari, CEO, LodgIQ; Patrick Bosworth, co-founder and CEO, Duetto; Mike Chuma, VP of product strategy and marketing for IDeaS Revenue Solutions; and Tammy Farley, president of The Rainmaker Group—to gain insight into the biggest developments and trends in hotel revenue strategy.

The industry’s emphasis on loyalty has been shifting over the past year. What kind of impact has this had and how will that evolve?
Bhandari: The industry has long looked at loyalty from a purely commercial angle, and it worked in the past. We, as an industry, are now trying to move in the right direction, but it will take time. The new consumer demands an emotional connection, constantly wanting us to meet their expectations, so we need to innovate and anticipate what is next.
Bosworth: Yes, these campaigns for loyalty programs and book-direct campaigns have had an impact. If hotel brands say they’re seeing increases in loyalty club enrollments and that they’re getting a higher mix from their direct channels, you can take them at face value. But could they be doing more, and is this the most cost-efficient way of achieving their objectives? I think there’s room for improvement and believe the brands think so, too. They’re moving in the right direction, but they’re going to run into technology obstacles when they try to take their strategy to the next level. Most of the big hotel brands are tied to the big CRS brands, and those systems will have a hard time implementing something like Open Pricing.
Chuma: The emphasis on loyalty in the industry has had a strong impact. We’ve seen larger brands make very concerted efforts to bolster their loyalty programs with reported success and, as a result, more hoteliers are rethinking their current strategies. We also see other brands doubling down on their OTA efforts to potentially steal some of the share major brands may be giving up in the process. OTAs are also adapting their business models to offer hotels other services beyond distribution. This is, in large part, to maintain their relevancy in a changing landscape. Many hotels are also more aware of the types of data they need to implement a successful loyalty program and better personalize experiences for their guests, which will significantly improve guest satisfaction and profitability for hotels.
Farley: Hoteliers seem to have finally come to the realization that guests care little about points or rewards-based redemption programs, and are beginning to understand that being able to provide personalized experiences, along with improved access and availability, is what creates guest loyalty. It is not clear if the majority of hotels have fully shifted their focus to address this issue, but it would be ideal to see loyalty programs instantly recognize the preferences and value of each guest. This would provide hoteliers with the opportunity to make sure that any amenity a guest finds valuable is available for their stay. It could also be used to recognize and measure the value of each guest. While the industry, as a whole, does not seem to have adopted this kind of loyalty program on a widespread scale, once it becomes mainstream, it stands to create a substantial impact.

Let’s talk about the impact of disrupters like Airbnb. Are there any others the industry should keep an eye on?
Bhandari: It’s predicted Airbnb will hit $160 billion by 2030, overtaking the likes of Expedia and Priceline. For the consumer, it’s a great time, as there is more choice and more transparency than even before. Hotels need to reconnect with the travelers and see what advantages they can bring to the table.
Bosworth: I don’t see any new major threat of disruption at the moment. Airbnb and the rest of that business model will continue to mature and put pressure on the industry. Expedia and Priceline aren’t sitting still either. They’re investing right now in next-generation technologies that hotels aren’t yet taking seriously, such as enabling bookings through voice assistants like Google, Amazon, Apple and soon Microsoft. The AI-enabled processes will be the next phase in delivering convenience, efficiency and flexibility to the guest and to streamline the booking process.
Chuma: I think Airbnb’s long-term place in the market is still yet to be determined. Hotels shouldn’t ignore its existence or hope they will be regulated out of the industry. With the travel and tourism industry contributing $7.6 trillion to the world GDP, why wouldn’t there be new entrants after a piece of that pie? Hotels and OTAs need to continue to reinvent themselves in ways that appeal to an evolving traveler, or else they risk the inevitable fate of the video rental store or the highly threatened taxi. Much of the success of Airbnb is in its ability to provide a cost-effective alternative to traditional hotel lodging. However, it needs to continue to focus on delivering value, not just undercutting price.
Farley: The hospitality industry has been fretting over the appearance of Airbnb and other disrupters, although it’s apparent that hoteliers actually invited their appearance by not clearly fulfilling a consumer need for more personalized experiences. If the market had been addressing such needs all along, there would not have been a space for Airbnb to fill. Ultimately, however, I don’t believe such entities will be considered disrupters in the long term, and will be just another sector that the hospitality establishment will embrace. Airbnb, for instance, seems to have resonated more strongly with leisure guests than business travelers. With studies indicating that the length of stay of an average Airbnb guest is typically longer than that found at hotels, hoteliers should ask themselves if that sort of guest is one that is even desired? Leisure guests staying for longer periods could, for example, be taking up space that may otherwise be used for more profitable group or business guests.

Other trends—such as AI and voice-activated services—are eventually going to be ingrained in much of what a hotel offers and how it operates. This aspect may even apply to revenue management where a staff member can simply ask revenue optimization software questions, such as, “What are the days I need to pay attention to?” Voice and AI are fast appearing to be features that will disrupt the way business is conducted.

It seems like more hoteliers have started focusing on Net RevPAR and the bottom line, as opposed to top-line revenue. Yes?
Bhandari: Conversations have clearly heated up over the last few months, but we are still far away from adopting this as a norm. Profit optimization has always been the holy grail; however, two hurdles always stood in the way of wide adoption: legacy technology does not allow hotels to optimize based upon profitability; and there is no common definition of what should be included in the calculation of Net RevPAR.
Bosworth: Yes, in general, that’s where the world has been going, and it has been a long-term trend. Getting the necessary data right has always held the industry back, but now we’re getting access to better customer data. With more information, hotels have been better able to get beyond merely managing the demand coming to them and move toward a more holistic revenue strategy that yields room rates for maximum profit. The way to ensure that continues is to differentiate your loyalty program so you are getting more business from your direct channels, and this industry-wide push toward personalization is a big part of that.
Chuma: This is absolutely true. In fact, it is because of this that the emphasis on guest loyalty has been so prevalent. The loyalty initiative is a means to an end, in that the goal is to reduce acquisition costs and better serve the guest, which will, in turn, lead to even more revenue. If you ask most hotels how many room nights a particular OTA brought to them last year, a report could be quickly generated to give you that answer. But if you ask how much they paid in commissions to that same OTA for that same time period, many hotels don’t have that answer readily available…but shouldn’t net revenue be the end goal? The more hotels align to metrics like Net RevPAR or Gross Operating Profit Per Available Room (GOPPAR), the better their chances are in improving the asset value of their hotel and keeping their owners satisfied.
Farley: Yes, this is true. It is something hoteliers should have been focused on all along. To maximize profits, hoteliers should look at profit, not revenue, and should be mindful of all the assets they have to determine which ones are most profitable. If, for example, a resort fills its rooms with business guests who leave early in the morning, there is likely a host of unused services/staff that is not only not generating profit, but is draining revenue. To avoid this, hotels need to analyze all amenities and how such services can be optimized to meet a higher level of profitability.

With customer acquisition costs being central to a property’s profitability, hoteliers should also consider how much is ultimately spent to place a guest in a room. It is not just guestroom revenue in isolation and certainly not just revenue, but is, in fact, total revenue and profit of every guestroom and every guest that should be under scrutiny at all times.

What are big mistakes you see hoteliers making with their revenue strategy?
Bhandari: Kneejerk reactions and not following through with their strategy. Hotels are generally good at setting strategies but fail to execute properly on them. They become tactical and you see rates dropping, discounting, opening up of closed rates, etc.
Bosworth: Too many hotels continue to hang on to BAR pricing by length of stay. It is long past the time when that strategy was useful. Open pricing, in which room rates are yielded independently depending on the demand by booking date, customer segment or distribution channel, is the future of revenue management. Another big mistake is not investing in talent, whether for revenue management or on-property operations. A third is hotels’ insistence on building technology in-house themselves, rather than partnering with companies trying to innovate to solve specific problems.
Chuma: My short answer: pricing. Not necessarily because hoteliers are not pricing appropriately, but because they focus so much on price. No matter what the price is, it’s the value perception that brings you guests and turns them into loyal customers. There are so many ways to influence a revenue strategy beyond price; however, price is often what industry technology focuses on. As a result, a hotel’s revenue strategy can become very one-dimensional. As you start to think about other ways to influence revenue, like dynamic inventory controls, overbooking, targeted marketing, etc., the opportunities to drive more revenue become endless. But to get to that point, hoteliers must instill a revenue management culture across their entire organization.
Farley: One of the most common mistakes hoteliers make is being hyper-focused on comp sets and improperly using them as a benchmark. This can lead to inadvertently following a comp set or overreacting to a comp set without thoroughly understanding what specific internal factors a competitor’s pricing was based on. Other frequent issues involve not pricing groups correctly, which can lead to a negative impact on transient guests. There is also a tendency for hotels to assume price is the only or most important lever when it comes to attracting more guests. When business is not going well, instead of issues with pricing, properties may instead have a problem with how they offer their overall product, services or promotions. Lowering prices when faced with this kind of obstacle provides little, if any, resolution to improving demand with consumers. Lastly, hotels frequently make the mistake of not working in full collaboration with marketing, which really should be viewed as a symbiotic relationship. By having a strong connection, hoteliers can fully understand when they need to be doing something in particular, such as a running promotion to a specific segment, or conversely when they should not. HB

To see content in magazine format, click here.