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Revenue management – What's your score?

15 August 2014
Revenue management – What's your score?

Benchmarking has always been important for hotels looking to remain agile, identify trends and spot opportunities for growth. But in the past decade, thanks to more and more new hotel development, as well as the increase in online customer reviews, benchmarking has become more of a focus for
revenue managers. It has evolved beyond the standard performance indicators (occupancy, average daily rate (ADR) and revenue per available room (revpar) to encompass less tangible measurements, such as guest satisfaction.

Essentially, benchmarking is the comparison of certain key performance indicators (KPIs) against a specific variable, which could be anything from a set of qualifying competitor hotels to a defined geographic area or market segment. The data hotels can gain from benchmarking - if it's done right - is an important driver for positive change and improved business performance.

"As market conditions change, information plays a crucial role in the revenue manager's decision-making processes," explains Riko van Santen, vice-president of digital strategy and distribution at Kempinski Hotels. "Performance ratios and expectations can be different by looking at the macro level. An increase of 7% may sound positive, but if the market is growing at 10%, something may be amiss."

Compare and contrast
So where do you start when looking to define your competitive set? "Typically the location and positioning in the market would define the broad set (for example, if there is a five-star hotel nearby), and then look deeper at the size, the physical comparison of the product and the competitor's strategic approach to business development," says van Santen.

Ally Dombey, director of revenue management consultancy Revenue by Design, adds: "What you're doing on the primary level is looking at hotels in your competitive set that offer a similar experience to you; for example, in terms of star rating. Then you look at the service and facilities: do you offer the same style of restaurant or spa, for example?"

A hotel that offers weddings may want to create a competitive set related to wedding offerings. "You would need to benchmark yourself with all the hotels that offer weddings of a certain class or quality," Dombey says. It can also be useful for hoteliers to establish an aspirational competitor set, which can help them define where they want to take their property in, say, three to five years.

"It is important that the hotel's management agree beforehand on what they would like to see - short-term performance can be a different variable from a long-term strategy," van Santen says.

Benchmarking toolkit
Once a competitor set has been defined, hoteliers should benchmark themselves against other similar properties based on KPIs such as revpar, ADR and occupancy, or less tangible indicators, such as guest satisfaction scores.

"With the increase in online reviews, less tangible KPIs have proven as relevant as the more standard RGI [revenue generator index] scores," says Suzie Wotton, vice-president of marketing at Red Carnation Hotels.

There are tools that can help in return for a relatively small investment. STR Global and HotStats offer benchmarking reports covering everything from revpar, ADR and occupancy to information on different profit centres, such as food and beverage operations.

Guest satisfaction ratings can be measured and compared using software that benchmarks online user-generated content across major online travel agents and review sites.

What not to do
One of the key pitfalls is for a hotelier to inherit a competitive set that is no longer relevant for their property. "The hotel might have had a
refurb or been upgraded, or it might have suffered during the recession," Dombey explains.

Setting parameters too high can also cause problems for hoteliers. "You're then trying to compare yourself with hotels that are significantly over-performing in comparison to you, and that can be really depressing," Dombey says.

"Or, you can go the other way and set your bar too low. Then you would be comparing yourself to hotels that aren't at the same level as you and
can be lulled into a false sense of security."

Dombey advises either asking for advice from the benchmarking report provider or requesting a 'show-round' of the hotels you believe you are competing against.

If the information gathered from benchmarking is used properly, it can result in everything from improved pricing and distribution strategies to physical improvements. "Hotels are realising that the role of the revenue discipline is evolving and becoming a pivotal point in the hotel's strategy," van Santen says.

"The successful hotel will be the one that can best optimise its business intelligence to translate this into actionable pricing and distribution tactics."

The revenue manager's view
Suzanne McKie, revenue manager, Rockliffe Hall

How do you ensure your hotels stand out? We strive to be unique and continually evolve our experiences to engage with our guests and build momentum for up-and-coming seasonal promotions and events.

How do you maximise your distribution?
As an independent property, a key focus is raising our resort profile. Without the backing of a group or head office it is vital we are connected with the correct distribution channels for both our brand and our target markets. It's about making yourself as visible as possible to the right people.

Make sure you are reporting on each channel's production and use a tool that enables you to distribute rates and manage your channels from a central
location, preferably linked to your PMS [performance management system].

Do you work with online travel agents (OTAs)?
OTAs are very useful at topping-up occupancy. It's wise to get to know the account managers and ensure they understand your brand, your products and your points of difference.

For an independent like Rockliffe, the OTAs have far stronger resources and technology to reach a wider audience that we may miss out on. A good
working relationship equals a successful business relationship.

How do you maximise your direct business?
The best way to is to invest. We spend time understanding and researching what guests want and ensure we capitalise on direct booking channels.

A friendly reservationist, a mobile-optimised booking engine and a promotional code for a closed user group offer can encourage guests to book direct.

How do you measure the success of your online marketing activity?
You must look at more than enquiries and conversions - you need to have a long-term strategy. Each guest that has booked via a specific channel or campaign is on a lifecycle with your brand.

The secret to success is to make that lifecycle last as long as possible. Put tracking in place to work out the potential lifetime value of each guest, then strategically target timely communications to meet their needs and requirements.

How do you communicate less tangible assets, such as customer service?
Having a sound in-house communications and guest feedback strategy means that any potential service recovery issues can be identified while
the guest is still on site, leading to a better online reputation and an increased awareness of your service.

What the benchmarking reports don't know

For Ally Dombey, director of revenue management consultancy Revenue by Design, there is one fly in the ointment when it comes to benchmarking: alternative accommodation providers such as AirBnB.

"From a benchmarking perspective, we don't have an STR report that goes out to Mrs Jones who lives in number 1 Chestnut Close, asking her what her rate was last night," she says. "So there's a whole market there that we can't benchmark ourselves against."

Dombey believes this will be a trend to watch in the coming months and years. "You can become very confident about your performance against hotels in your competitor set, but when it comes to other types of accommodation, how well are you really doing?" she asks.

"When you look at the real performance of your hotel against where guests are actually choosing to stay, it becomes far more difficult because you can't include this sector."

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