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Ruling your room rates

11 June 2010

Are hotels sacrificing revenue in a bid to boost occupancy? And, if so, can an American concept developed by the aviation industry really be the answer, asks Elizabeth Mistry.

When Coworth Park, the new country house venture from the Dorchester Collection, opens near Windsor later this year, there will be one new addition to the team that guests will never be aware of, but which will have almost certainly played a role in securing their booking and the price they will pay for it.

For John Scanlon, director of revenue at the Dorchester Collection, the company's revenue management system (RMS) - the software that analyses data from the hotel's property management system (PMS) and then recommends the amount to charge for a certain type of room or suite - will play a crucial role in ensuring that "we are getting the right rate at the right time".

If the time is right, of course, the rate might be good enough to bring a smile to new general manager Zoe Jenkins's face, but the RMS can also suggest upping or lowering the tariff depending on historical data or other information the revenue management team chooses to include.

Revenue management - and the manual or electronic systems used to determine rates - is a hot topic, with several new industry-related groups formed in recent months.

However, "it can be a minefield", warns Peter Hancock, of hotel consortium Pride of Britain. "Rates are flexed up and down in the same way as airline fares, depending on demand, what your competitors are charging and how much you need to make a profit on the night."

With second-generation systems still only a year or so old, the period of adjustment for suppliers and clients is still in the early stages. And while many properties rely on front-office staff for day-to-day monitoring, it is still the case that only the larger groups can afford a dedicated revenue management professional to get the best out of the most advanced systems.

Some electronic systems have a forecasting facility that can be customised. If staff are adept enough, the system can even be used to respond to something as unforeseen as the recent volcanic ash cloud, which saw thousands of rooms needed at very short notice - even as many bookings were lost or cancelled.

Other add-ons can monitor and adjust the current best available rate, ensure rate parity, and supply forecasts up to several years ahead.

"A good system can do so much more for a property if it is fed clean information and used correctly," says Corin Burr, the founder of Bamboo Revenue, a small consultancy providing advice and, occasionally, interim revenue personnel.

Burr, who started Bamboo after a career that has taken him from Scotland to opening properties for Gordon Campbell Grey in the UK and Antigua, says: "The downturn in the economy made hotels look internally. GMs get very nervous when they see occupancy dropping. They come to us saying, ‘We just want to know we are doing the right thing.'"

To find out whether that is the case, Bamboo starts by auditing the hotel, looking at the people - "We look for an internal champion, because they know their business better than we will" - and technology already in place. Then it designs a "road map", which may or may not include the acquisition of a proprietary revenue management system.

"There are basically two players in the market, IDeaS and EasyRMS, which has a smaller market share and works in a slightly different way," Burr says. "EasyRMS pools more data, but IDeaS concentrates on market segmentation and has a lot of extras that don't cost that much more. If you are pitching to owners or to a board, a couple of hundred pounds on top of the total investment isn't going to make much of a difference."

The system, which is designed to interface seamlessly with the property's PMS, is priced according to the number of rooms and the level of detail that finance staff, or dedicated revenue managers, require.

While reluctant to give an exact figure, Scanlon, who oversaw the purchase of a bespoke V5i system from IDeaS that is used across the Dorchester group's portfolio, is convinced that the benefits far outweigh the cost. The outlay is estimated by one consultant to be about £2,000 per month, or a bit less for a smaller system, for a 100-bedroom hotel. EasyRMS says the charge for a similar-sized property would be in the region of £10,000 including set-up costs and training.

Shawn Jereb is another fan, who has championed the introduction of a pared-down version of the IDeaS software into most of the 50 properties he oversees as corporate director of revenue at Orient-Express Hotels.

"We wanted to understand demand," he says. "Uncertainty can lead to revenue loss - you find yourself scrambling for business. Knowing how to manage your market is also key. If you have a varied market segmentation, you can yield revenue and better your revpar."

How a system actually works is down to how much work you are prepared to put in, says hotelier Laurence Beere, formerly of the Savoy Group, who now owns and runs the 29-bedroom Queensberry hotel in Bath.

"There is a certain fear or snobbishness about revenue management and a feeling that it is only appropriate for larger groups or chains. It suits us because we make it work for us."

Beere shopped around the main providers and also ended up plumping for IDeaS v5i, which is the same product used by the multi-property Dorchester Collection and the budget chain Travelodge. The Queensberry is, to date, the first boutique hotel to install the system in the UK.

Clearly a bigger budget can more easily absorb the initial costs and ongoing licence fees, but cost should not be the primary factor affecting decisions, says coach Ally Dombey. She advocates a hand-holding, almost mentor-like, approach to developing a revenue management culture, especially for the smaller properties she tends to deal with, which she often recommends should spend time "developing a revenue management culture by spending several months using a manual system if necessary".

At the top end, Jereb agrees that ensuring staff buy in to a project is crucial.

"You have to make sure you have the right people and that they are aware of the potential of the system," he explains. "We've moved so far in just a few years - and rates have changed too. The rack just doesn't work any more."


how do Revenue management systems work

Modern electronic revenue management systems (RMS) are complex information harvesters.

An RMS typically looks at historical data from the property management system and, by working out when demand is likely to be highest, raises prices to ensure that a room is not underpriced.

In some cases it can cut off availability to unsold inventory under a certain price threshold because it believes that there will eventually be takers for the rooms - even at the higher rate.

By feeding a system extra data, revenue managers can also factor in events or dates when they know their own property is likely to experience a peak in demand - for Coworth Park this could be a polo event or racing, and for hotels near concert or sporting venues a sell-out event can be factored in to avoid discounting at that time.

Other options ensure that rate parity is held across all distribution channels - simply put, that the same rate is being offered wherever the rooms are on sale, be that on the hotel's own website or call centre or with third-party vendors such as Laterooms.com or Lastminute.com.


Case Study: Shawn Jereb - Orient-Express Hotel

"When I started we had no revenue management culture. At that stage Orient-Express was just an umbrella. Everything was done separately. The sales people did it all manually and we'd be selling at their old prices even if demand dropped. Now we're hitting peak days, so optimisation [the updating the system does automatically] is paying off.

"We're mostly leisure-driven and we wanted help to identify demand. Some of our properties are quite remote, and typically we don't have a benchmark (competitive set). Our market segmentation was very odd, and uncertainty can lead to revenue loss. I paid for it centrally. We have had good uplift, and as a solution it isn't that expensive."


Case Study: Laurence Beere - The new Queensberry Rule

Along with wife, Helen, who he met in the pastry kitchen at the Berkeley hotel in London, Laurence Beere "celebrates the personal, the eccentric and the luxurious" at the 29-bedroom Queensberry hotel and Olive Tree restaurant they run together in Bath.

Beere's house rules may forbid "pogo sticks and flaming torches at the bar" but he does believe that an RMS "isn't just for the big boys and girls". "Brits, in particular, are very snooty about our American colleagues when it comes to marketing," says the former Cliveden manager, who has also worked in the USA.

He lauds "the increasingly sophisticated, strategic US approach" and insists that "no business is an island. You cannot operate in isolation."

He already had a product from Softbrands but chose IDeaS to provide his RMS, although due to problems passing information between the two systems, "the initial installation was a nightmare. Luckily, IDeaS are very good at understanding and responding positively."

"I would say to any small hotel thinking of taking the plunge to ask, ‘Can it yield me a sufficient financial return, and do we have the human resources to manage it?'"

TagsTrends and Hotels
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