Taktikons Blog about Revenue Management

Taktikons Blog about Revenue Management

Revenue Management

In this blogg I aim to give a background on Revenue Management and Distribution. It discusses both organizational issues as well as lectures regarding Revenue Management and Distribution. Many of the blogs can be used as preparation to the Courses and Workshops in Revenue Management and Distribution that Taktikon organizes.

Rethinking Market Segmentation

Revenue ManagementPosted by Annemarie Gubanski Apr 28, 2014 07:44:50

Rethinking Market Segmentation
Market Segmentation has always been one of the most powerful tools to identify which client groups to target during which periods. By understanding which segments have the most impact on your result, strategic decisions can be made in when, where and how to target your customer groups. Traditionally, segmentation is chosen by:

- Type of clients, for instance corporate- and leisure individuals or corporate- and leisure groups
- Type of Rate Products, for instance negotiated-, public-, meeting-, spa- or campaign rates
- Type of Channel, for instance Merchant, Retail, GDS, Brand Website
- Extra Revenue, for instance meetings, F&B, Spa, Minibar
- Origin, which country or region
- Booking pace, when do these customers book and where

In an individualized world, adapting your communication as well as your offers and products towards your individual customer is more vital than it ever has been. As all individual guests have individual needs, hotels see themselves forced to rethink the way they set up their segmentation and go over to Customer Segmentation, which not only diverts type of customer but places them in groups depending on their needs.

Customer Segmentation in Action
Applying customer segmentation means that you will have to start understanding the needs of customers and what makes them decide between one offer and another. When you know this, you can start to form groups of customers who share the same or very similar values. This enables your property to determine which groups of customers are best suited for which product and service.

Traditionally your corporate customers like efficiency. Furthermore, they care about their expence bill but quite often would like to compensate themselves for spending a night away from home for business purposes. The offers they might like to see from you can include

- Highspeed breakfast
- Highspeed internet
- Highspeed check-in and check-out
- Dining credits, drink vouchers

Your leisure guests however might appreciate anything that makes their stay more memorable. They could be interested in:

- Early checkin and late checkout
- Tickets to attractions
- Tourist information

At it’s turn, each market segmentation consists of different groups that have different needs and different booking patterns. Why keep them whithin one group? For instance; leisure individuals can consist of both couples and families, though their needs and booking pace is completely different. Furthermore, you would need to keep in mind that corporate customers might come back to your property for leisure purposes and your leisure guests might partly be using their leisure trip working. This means that different offers might apply on different occasions and a specific guest might fall into several segments.

This is not a new way of segmenting your business. It can be seen as a sign to what is happening within the business at the moment; a much closer internal communication where departments work more closely together. Social Media has from the beginning been seen as a “Thing for the Marketing Department” but has an increasing influence on Revenue Management as positive ratings can influence our pricing when potential guests might be willing to pay a bit more if they see that we outperform our competitors. What is written on Social Media mostly relates to the operational departments. This means that these departments have an increasing influence on pricing. This means that we no longer can look at our business consisting of different departments working together on their individual goals. I will write more on the changes in the organizational schedule in my next blog.

Rethinking in Practice
Your customers are already telling you what they would like you to offer. Social Media is a source of information.

· List all the comments your guests have regarding your facilities and services. This does include the services and facilities they are lacking

· Involve your guests. Ask them what they are interested in and how they would like to see your property in the future. What services and facilities do they appreciate?

· Determine which services/facilities you might want to add or change and group the different services/facilities.

· Now group the customers that share the same interests and values. Adapt your marketing communication to their needs.

Most likely you will find that you would need to devide your segmentation in different segment groups and you will need to look into the handling of your guest profiles. As more detailed information per customer is stored on your profiles and this information is used for marketing purposes, duplicate profiles can cause even more challenges in the future.

Need help?
External help always makes it easier to Think Outside The Box (don’t you also hate that expression?) as they have a possibility to view your property from the outside in they can offer you a new level of looking at your own business. Taktikon, as a number of other experts in Revenue Management, does offer a number of services that might help you increase your result. If you would like to contact me, you can do so by tel: +46 (0)73 9044 222 or +31 (0)6 55 81 00 86, or send me an email at: annemarie.gubanski@taktikon.com and tell me what you would need help with. I would gladly like to see if I could help you. When in doubt, you can always visit my website for more information: www.taktikon.com

Read this article in Pdf

  • Comments(0)//blogg.taktikon.com/#post8

Total Revenue Management, the future Revenue Management?

Revenue ManagementPosted by Annemarie Gubanski Feb 11, 2014 14:04:07

Total Revenue Management, the future Revenue Management?
Cheryl Kimes conducted a study in 2010 regarding the future of Revenue Management, which concluded that “In the future, Hotel Revenue Management would be more strategic in nature, would be more technology-enabled and that it would encompass all parts of the hotel. The respondents identified function space and restaurants as the most likely candidates for future applications of Revenue Management”. I agree with this point of view; a good way to make sure to achieve the optimal result is to focus on all departments that create Revenue. This conclusion is also strengthened by the survey that HSMAI recently conducted and which was presented by Carl Oldsberg during the HSMAI conference in London on the 6th of February 2014.

Some hotels and hotel chains are starting to extend the responsibility of Revenue Management to the Function Spaces. However; there is no massive movement in applying Revenue Management to other departments such as; Restaurants, Minibars, Spa, Shops, etc. This might be so because these departments are considered to be a service and a loss or Break Even is therewith acceptable. Basically properties are missing out on a potential growth of 30% per department.

The Six C’s in Revenue Management on different departments
Previously we talked about 4 C’s (Capacity, Calendar, Clock, Cost) with a fifth binding factor; Customer. The sixth factor increases in importance; Channel.

Capacity: There are many similarities to the "traditional" Room Revenue Management, conducted by most hotels, though the time factor is even more important when it comes to Conference-, Spa- and Restaurant Revenue Management, as these facilities can be rented by the hour, part of day or whole day. Also Space Management is an important factor to keep in mind as many times space, such as swimming pools and floor space, can be limited compared to, for instance, the treatment- and hotel rooms available.

Calendar: Calculating Total Demand is a vital parameter in determining the right price. On the same day and time, the demand may vary from department to department, which might be challenging, but can mainly be seen as a great opportunity to achieve the optimal effect, as all departments can benefit from each other and pricing can be adapted strategically. This does mean that the various departments should be able to co-operate well and trust each other’s judgement.

Clock: Knowing your booking pattern, such as time of booking, expected length of stay and the pick-up levels that can be expected are also important factors to calculate Total Demand. When applying Revenue Management on Conference, understanding your customers booking pattern is one of the most important parameters in determining the probability to expect the most profitable requests and which requests to say No to.

Cost: Every sale comes with a cost. This does not only concern Cost Of Sale on your distribution channels, but even operational- and personnel costs. How do we relate cost towards revenue and achieve the best margins on all departments? Do we work with Dynamic Rates and how do we sell this practically? How does Menu Engineering work and how can we use this tool to increase profitability?

Customer: How do we define the optimal Marketing Mix and what is the Total Revenue per Market Segment? Do we need to break this down to Customer Level in order to be able to offer customer adapted packages? How can we make sure we know the Total Margin per Segment and how do we make sure we can offer availability to our most loyal and profitable customer? Furthermore, how do we find the systems that support us in these questions?

Channel: This factor is increasingly important. Which channels do our customers use and which customers do we need to attract in order to find new markets and new possibilities? How do we make sure we can find the packages our customers want to buy and to which rate? Furthermore, what are the possibilities the different channels create to offer packages and which channels are best adapted to our needs?

Challenges and Opportunities in the implementation process
There are basically three main challenges, that all are related:

Organization: There usually is a fear factor involved; department heads can be unsure if they will be able to handle an increased responsibility on an already overloaded schedule or might be afraid to delegate a certain responsibility to somebody else. It is not always easy to have a person from a different department determining which rates to sell to. Trust is an important factor and it is vital to know all involved know what to do in order to increase result. This leads directly to the second challenge/opportunity;

Knowledge: Not only training is of an essence; staff members from all departments will have to be aware of the implications on their daily tasks. In many cases, a Revenue Management project on a property starts with making sure that all heads of department are aware of the changes of the impact the implementation of Revenue Management will have on their department. By the end of the day, all involved will achieve increased knowledge and new challenges. With knowledge comes the demand for good statistics and tools to analyze. This relates to the next challenge;

System Solutions: Where can we find the Systems that help us know the Total Revenue per customer or per Market Segment? Will we be able to offer the possibility to offer a booking engine that enables our customers to book all our departments directly through our website and are there any systems available, or being developed, that will help us yield all Revenue generated?

Related Articles:
Cheryl Kimes article on Total Revenue Management: http://hotelexecutive.com/business_review/3620/total-hotel-revenue-management

HSMAI Survey: RM%20succession%20planning_1.pdf (attached)

Download this article in Pdf
Download HSMAI's Survey

  • Comments(0)//blogg.taktikon.com/#post6

The Art of Pricing

Revenue ManagementPosted by Annemarie Gubanski Nov 29, 2013 16:35:42

The art of Pricing

Pricing strategies during low demand periods are about of the most usual requirements I receive. Usually followed up with the question on how low I consider the rate should be in order to attract any business.

In my opinion there is a general misconception on the power of increasing demand by lowering rates. It actually takes demand for these kinds of pricing strategies to have its full effect. Without demand, you risk of “simply” decreasing your room rate without the benefit of the effect of retrieving more occupancy. It is not easy to withstand the temptation of a quick fix when competitors in the market settle for aggressive pricing strategies, but it is good to take into account potential damage coming from pricing strategies.

As always, it is vital to first calculate the total demand in your market before making a decision on rate strategies and to analyze the full positive or negative effect in order to form a long term winning strategy towards your competitors.

Low Demand Strategies

Our rate strategy is increasingly transparent and our guests understand that it can be valuable to shop around for deals even after the reservation has been made. This means that hotels are faced with last minute cancellations and changes when the guest finds a better last-minute rate. This can have a short term positive effect, as you might be able to “steal” some of your competitor’s guests. The risk lies in the fact that you might face last minute changes on your existing reservations. Not to mention guest complaints when they find that the exact room they booked earlier now is for sale at a cheaper rate. Furthermore, as we previously stated; we need to be able to forecast the total demand on a specific period in order to determine our rate strategies and for us to make a good forecast, we need to have reservations. How are you ever going to teach your customers to book as early as possible? Especially when you punish the early bookers by offering cheaper rates to those that book last minute.

It is not easy to withstand the temptation when competitors in the market settle for last minute campaigns. This can be avoided by offering Early Book Rates instead. This way you will be able to maintain a high integrity level towards your customers and avoid last minute drop outs.

High Demand Strategies

As important, if not more important, as the focus on Low Demand Periods, is the focus on High Demand Days. This is the time when properties have the opportunity to really increase their result. This can be obtained through a combination of the optimal marketing mix and public rate strategies. Usually we see that the price sensitivity decreases when arrival date is coming closer. This counts for first point of booking. Guests that already have booked and continue to search for last minute deals still are considered to have a long lead time. The trick is to be able to offer availability when the less price sensitive guests start to book. For High Demand Days, your focus lies on Displacement Calculations. This means that you analyze the reservations you were not able to take because you already were fully booked. If the ADR of these reservations is higher than the ADR you have on the books, there is potential to increase your result.

Shoulder Night Strategies

Shoulder Nights are the nights where demand is reasonably high. With the right strategies in place, you have the chance to achieve 100% occupancy and focus on these nights can give you a good revenue growth. Also here, focus on Displacement is vital. Many properties find that their displaced reservations depend on the fact that high demand days, in conjunction to these Shoulder Nights, were fully booked at an earlier stage. Here rate strategies can be all about positioning correctly, set the right restrictions throughout the whole period and aim for 100% occupancy without losing sight on getting the right rate during these nights.

Four things to consider!

  1. Strategy! Think before you start. Determine the pricepoints you are going to use for which daytypes and for which roomtypes; Distressed, Low, Medium, Shoulder and High Demand.
  2. Forecast! This actually is the base to correct pricing. The core reason behind any last minute drops in rates actually is a bad forecast. When you expect low or medium demand; do not start out with your highest rates, choose the pricepoint you determined for this type of day.
  3. Competitors! Take care to maintain the correct positioning against your competitors but be careful when it comes to last minute drops. If you make sure you have a base of reservations, you might not feel the need for last minute panic strategies.
  4. Analyze! Make sure that your strategies have had the right effect and find out if you could have improved even more. This is the best way to make sure you find the best long term strategies and will beat your competitors most days of the year.

Download this article in Pdf

  • Comments(0)//blogg.taktikon.com/#post3