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.

Revenue Management Outsourcing should be more than just Outsourcing!

OrganizationPosted by Annemarie Gubanski Jun 23, 2015 11:35:12

A Revenue Management Outsourcing program can mean so much more than just outsourcing, it should always give you a long term solution.

A proper outsourcing program should not only mean that you hire an expert in Revenue- and Distribution Management, you also hire a mentor; someone to interact and be creative with. An external Revenue Manager might also give you a different view to your usual routines and commercial actions. Your situation will be seen with fresh and objective eyes that might bring new opportunities.

Another important benefit of a well working Revenue Management outsourcing program is that it gives you a chance to understand how you can increase your profit margin and be able to take over the Revenue- and Distribution Management function in the future.

As each property is unique, Outsourcing programs mostly are individually adapted to the individual goals and needs of the customer. The services Taktikon offers are various starting from Light (around 10-15 hours per month) to Full Revenue Outsourcing (around 20-25 hours per week) with a duration of a few months to a few years. Whatever the level or duration, we always aim to increase the level of knowledge so that our clients are able to stand on their own Revenue Feet in the future.

When a Revenue Outsourcing Program is tailor made, it is ideal for a broad kind of properties; individual hotels as well as mid sized chains, for organisations that would like to start with Revenue Management and Distribution/E-Commerce as well as hotels or resorts that do have a Revenue- and Distribution team in place but would like to have a mentor or are without a Revenue Manager for a period of time.

In our opinion, programs should start with a full Revenue Audit, which forms the basis of outsourcing services. An audit is aimed to find the revenue opportunities within each company and should result in a report with clear action points so that properties can start working together with their Revenue Expert. In the Audit that Taktikon performs, we focus to achieve the optimal Marketing Mix, Distribution Strategies, Rate Structure and Revenue Organisation. Our Outsourcing Program is aimed to help hoteliers implement our findings and achieve an improved profit margin.

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The future Revenue Management Organization

OrganizationPosted by Annemarie Gubanski May 22, 2014 14:16:13

The future Revenue Management Organization
The increasing importance from Social Media as well as the move towards Total Revenue
Management and Profit Management has an effect on the organization. In the near future we will see that the different departments will work more closely together.

Having an effective Revenue Management oriented organization will be more vital than ever. In this article I will try to highlight which effects are behind the necessity to work more closely together and what impact it has on your organization.

The Social Media effect
Social Media was, from the beginning, seen as “the thing for the Marketing people”. Fortunately, organizations are now acknowledging the effect it has on the entire organization.

A study that Micros published in april 2013 showed that a high position on TripAdvisor can lead to an increased amount of reservations through the hotels website. Cornell published in november 2012 a study on The Impact of Social Media on Lodging Performance where they stated that a hotel can increase their price by 11,2% and still maintain MPI if it increases its review scores by 1 point on a 5-point scale. This is confirmed by Expedia, who find that “good reviews of 4.0 or 5.0 generate more than double the conversion of a review of 1.0 – 2.9.”

So, Social Media can help increase both occupancy and rate. This means that these media are important tools for the hotel industry and for Revenue Management in order to increase result. And what are our guests talking about? Apart from the size of the room and location of the property, the comments mainly involve Operations oriented issues, such as cleanliness, friendliness, quality of food, etc. This means that one of the most important marketing channels; Social Media, actually is influenced by your operational departments. The better they function, the higher the rate and better the chance you get to increase your result.

We are moving towards a more individualized world, certainly helped with the increase of Social Media. We are so used to being talked to individually on the net, that we no longer are attracted by marketing campaigns directed to a broader group. We want to feel like a company is talking to us directly. This forces us to have a different approach towards our Market Segmentation. In a more individualized world, we can no longer group our market segmentation mainly depending on booking pattern and rate impact. We need to work with segments that enable us to send individualized marketing campaigns to our clients. You can read more about this in my earlier blog regarding Client segmentation.

So, Social Media has an immediate impact on our result as it has a positive effect on both rate and number of reservations. Furthermore, they are excellent channels that enable us to talk to our guests individually. The departments that ensure an increase can be achieved are the Operations Departments, the departments handling Social Media and the departments handling the brand website.

The Total Revenue Management effect
A clear trend within Revenue Management is the step towards Total Revenue Management. This means that we are no longer “only” focusing on Room- and/or Conference Revenue Management but apply this on all revenue increasing departments, such as F&B outlets, minibar, spa, parking, sport, etc.

Applying Revenue Management on different departments is interesting, as each department has its conditions to take into account. The Time factor is different on Room Revenue as it is on most of the other departments, as hotel rooms usually are booked per night, whereas the other departments can face multiple requests that can differ from a few hours to a few days. Menu Engineering is frequently used within Spa- and Restaurant Revenue Management and is an excellent tool that enables properties to maximize profit. I will write more on that in a later blog.

Smart scheduling can help optimize the use of the spa facilities, as Smart Menus are used to attract the highest-margined dishes. At its turn, all departments have the possibility to create highly commercial packages and can calculate which impact the different package elements should have on the different departments in order to create the optimized result.

This means that, besides increased knowledge in Total Revenue Management, an organization needs to establish Who Does What and have a close look into the different job descriptions and commission schemes for the individual departments in order to make sure that all departments are willing to work together to get the best total result for the property.

The Profit Management effect
With the move to Total Revenue Management, we see a further swift towards Profit Management. This means that we not only look at the revenue generated by the different departments, but even at the different margins from each reservation. This involves both flexible and fixed cost such as distribution, labor, rent, cleaning, purchasing, travel expenses and allowances.

This means that we will need to have a different approach when it comes to mapping the different financial department codes towards the revenue streams. Finance will need to have an increased cooperation with the Revenue Management department in order to get the best picture. If done right, we are able to calculate the exact net impact per reservation type or market segment and with this obtain the best profit possible.

Are you ready for the future?

All commercial departments, operational departments and Finance will be working together more closely in the future and if done right, properties have the possibility to increase their net result drastically. The question is; are you ready for the future?

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The power of a Compliment

OrganizationPosted by Annemarie Gubanski Mar 01, 2014 13:22:01

The Power of Giving Compliments

In my neighborhood lives a man I have given the somewhat non-original name; Compliments Man. It has happened to me a few times; when he meets me on the street, he comes up to me, looks me in the eye and says; “I just want to tell you, you look great”. I am far from exclusive, as most days he just walks straight past me and goes to another girl, looks her in the eye and says something. I know he tells her the same thing, as the reaction is exactly the same as the way I react. A big smile. A happy face. I must admit that I feel just a bit better and happier, the days I meet Compliments Man.

This reminds me about World Compliment Day, which is a non-commercial initiative, held on the 1st of March every year.

From a commercial perspective; giving compliments is about the best way to keep your staff and colleagues motivated and loyal. Showing appreciation actually is far better and has a longer lasting effect than pay raises, as these tend to be best only the first month. And why stop at the working space? When was the last time you gave any of your friends and family a spontaneous compliment? Think about how good it feels to receive one. Then think about how great it feels to give one.

Support Compliment Day and give at least one earnest compliment to any one of your friends, family, colleagues or innocent by passers. I promise you that both parties will feel a lot better the whole day. And with that said; why stop at Compliments Day? There are 365 days in a year, you know?

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The future of a Revenue Manager

OrganizationPosted by Annemarie Gubanski Nov 22, 2013 22:46:19
The Future Role of a Revenue Manager
After the first two articles in this series, we continue with the focus on the future role of a Revenue Manager. How will Revenue Management develop and how can a property adapt, so that the maximum result is acquired and they will keep ahead of their competitors? This is part three of a series of three articles, in which we will try to find an answer to the following questions:

- The current role of a Revenue Manager. In this article we defined that the purpose of a Revenue Manager is to use analytics in order to create the winning strategy.
- Forming a Revenue Management focused organization. After defining the role of a Revenue Manager, we used these findings to find the optimal organization
- The future role of a Revenue Manager. In an ever changing world, also the role of a Revenue Manager will change. In this article, we will find the answer to what implications these changes will have on the role of a Revenue Manager.

What do the experts say?
In Cheryl Kimes article about Total Revenue she refers to a study which she conducted in 2010 regarding the future of Revenue Management. She asked the respondents about what they thought what Revenue Management would look like in the future and in which other parts of the hotel they thought Revenue Management would be applied. “Respondents felt 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 believe this to be very true. Total Revenue Management can and should be part of the strategies of any property in order to ensure that increased result is being made. In future articles, I will write more about the subject of Total Revenue Management. In this article, I will limit myself to the implications for the organization and for the Revenue Manager.

During the Revenue Forum in November 2013, Idan Velleman from PowerYourRoom pointed out that Revenue Managers will become Demand- and Profit Managers and will move away from a Room Only Revenue Management effort. On the same Revenue Forum, Kim van den Wijngaard from Olery pointed out that Social Media already has a large impact on our Revenue Management strategies. There are studies done about the impact of Social Media on our result and on the possibility to attract more reservations coming in to our own website.

Cornell University published in November 2012 the outcome of their research: The Impact of Social Media on Lodging Performance, where they stated that “data from Travelocity illustrate that if a hotel increases its review scores by 1 point on a 5-point scale the hotel can increase its price by 11.2 % and still maintain the same occupancy or market share.” In the same report it is concluded that “a 1-percent reputation improvement leads up to a 1.42-percent increase in revenue per available room (RevPAR).” In other words; focus on Reputation Management together with the ability to give high quality service, generates reservations and revenue!

Jennifer Davies from Expedia says that “On Expedia.com, good reviews of 4.0 or 5.0 generate more than double the conversion of a review of 1.0 – 2.9,” Research that Micros published in April 2013 on How a Higher TripAdvisor Ranking Can Help Hotels Book More Room Nights has the following findings:
Properties ranked 20 see 10% more directly booked room nights p/month vs those ranked 40
Properties ranked 10 see 10% more directly booked room nights p/month vs those ranked 20
Properties ranked 5 see 9% more directly booked room nights p/month vs those ranked 10
Properties ranked 2 see 7% more directly booked room nights p/month vs those ranked 5
Properties ranked 1 see 11% more directly booked room nights p/month vs those ranked 2

The graph illustrates the importance of being on top. So; a great number of good reviews do not only generate Revenue, they generate Reservations. Do well and you will be able to attract more reservations coming through your own website; in most cases the cheapest channel you will be able to find!

The future is here!
I agree with the statement that the future of Revenue Management will be more focused on strategy, technology and applying Revenue Management on other departments. There already is a shift from hotels and hotel chains that is starting to extend the responsibility of the Revenue Management to the Function Spaces, however; I do not see properties to be massively moving to apply Revenue Management in their restaurants, which I consider to be a shame. I believe this is mostly because Restaurants are considered to be a service and not as the money making department it can be. There is no reason why the F&B Department should not contribute to the properties income more.

When it comes to technology, the shift is all about moving from Property Based systems to Cloud Based. On the Revenue Forum in Amsterdam, Thomas Broos from Van Hessen talked about the implications of this shift. He pointed out that today’s youngest generation will not know what a laptop looks like once they grow up. Developments in hotel systems are all done in the Cloud. Although we still are still not able to compile all our internal and external systems in one big database, the move towards The Cloud does mean that we are heading in the right direction. Imagine updating your PMS, OTA’s, Yield System and forecast from your Mobile Device. It will come! It does mean that we all should take this into account when purchasing any new technology. Think Cloud and skip Property Based! We have the knowledge, technology is moving in the right direction; why wait?

Challenges and Opportunities
The implication of the shift towards Total Revenue Management and Profit Management involves increased knowledge on the application of Revenue Management on departments other than Room. But not only training is of an essence. To an even greater extend staff members of 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 the implementation of Revenue Management on their department. This can either be the fear of not being able to handle an increase in responsibilities on an already overloaded schedule, or the fear to delegate a certain responsibility to somebody else. The trick is to address these fears and make sure that the project involves increased knowledge and challenges to everybody.

I would advise you to take good care of the job description for your current or future Revenue Manager and keep in mind that, as I wrote in the first article “The Current Role of a Revenue Manager” in this series; there is a difference between a Revenue Manager and a Channel Manager.

Read the previous articles “The current role of a Revenue Manager” and “Forming a Revenue Management focused organization”

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Forming a Revenue Management focused organization

OrganizationPosted by Annemarie Gubanski Nov 18, 2013 14:45:42

Forming a Revenue Management focused organization

After the first article in this series, we continue with an analysis on how to create a Revenue Management focused property. This is part two of a series of three articles, in which we will try to find an answer to the following questions:

- The current role of a Revenue Manager. In this article we defined that the purpose of a Revenue Manager is to use analytics in order to create the winning strategy.

- Forming a Revenue Management focused organization. Now we defined the role and skills of a Revenue Manager, we will see if we can use these findings to form the optimal Revenue Management oriented organizational schedule

- The future role of a Revenue Manager. In an ever changing world, even the role of a Revenue Manager will change. In this article, we will find the answer to the future role of a Revenue Manager and what implications this might have.

Revenue Management within the organization

Revenue Management is not a one-person job, reserved only for the Revenue Manager. Revenue Management involves forming the best strategy by analyzing result. For a strategy to have its effect, every department within the property should not only know about it, they should also apply the same strategy.

At the same time, forming a strategy is not only a job for the Revenue Manager. All relevant departments are involved in the decision making. The difference is that a Revenue Manager bases the strategy mostly on analyzing the result. To demonstrate what I mean I usually draw the following picture on a whiteboard. This is a picture of the whole organisation.

The hands and feet stand for the Operational departments. They are increasingly important as most of the comments made on Social Media are about Operations. The heart stands for all decisions we make based on feelings. For instance, it can feel right for the Group Sales Department to contract a large group and give a discount in order to assure the business. The head symbolizes the brain, or the analytical part of the organization. For instance; analysis that shows that a particular group should not be contracted against a rebate, as we expect to be able to book an equal amount of individual guests against full price.

We humans base most of our decisions on feelings. The analyzing part usually comes later. For instance, when we are hungry and see a snackbar close by, we could go in there and order ourselves a huge plate of French Fries. The notice that a salad would have been the healthy and less fattening option usually comes afterwards. As Revenue Management stands for the analytical part of decision making, it is good to take time to listen to analytics before making the decision.

The role of the General Manager

The General Manager is essential in order to guarantee success. I usually describe a Revenue Manager to be this negative and nagging person. With this I do not mean that we are negative, rather that we always calculate the loss of a certain piece of business. As we work with a fixed capacity, this becomes increasingly important during days and periods with high demand. We just do not like to see a space occupied by a guest paying 20% less than the rate we could have sold this space for. We focus on the 20% loss (displacement) instead of the 80% income. This means that you can expect us to be skeptical against any high producing contract, when we see that a great deal of this production lies in weekdays or periods in which we expect high demand. This goes right against the rules of negotiation; increase your volume and we increase your discount.

At the time the contract is being signed, the property has not yet experienced the demand the Revenue Manager is expecting for this certain period. Practically, you see unused space when the Revenue Manager already states that this space is going to be filled somewhere in the future. At that time, it is good to remember that a Revenue Managers role is to know about Lead Times and Expected Demand.

As Revenue Management comes with the need for a certain mandate to be able to direct the properties strategies, a Revenue Manager should be placed in the Management Team. This means that a Revenue Manager is reporting directly to the General Manager. This, in its turn, means that a General Manager should understand the principals of Revenue Management, in order to support the Revenue Manager sufficiently.

The organizational schedule

In order to assure there is a dynamic discussion regarding Occupancy versus Rate and Long Term versus Short Term, it is strongly discouraged to put a Revenue Manager under a Sales Manager or under an individual that does not have a profound knowledge of Revenue Management. As said; as a Revenue Manager has an active part in deciding on the strategies of the property, he/she is preferably part of the Management Team. For several reasons, a General Manager might like to keep their Management Team slimmed and chooses to have one representative for the Commercial Team. In this case, the Commercial Manager, being the head of all commercial departments, should have a profound knowledge of all different fields of work including Revenue Management!

Read the previous article “The current role of a Revenue Manager” and the next article in this series; “The Future role of a Revenue Manager”

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What is the current role of a Revenue Manager?

OrganizationPosted by Annemarie Gubanski Nov 13, 2013 15:41:20

What is the current role of a Revenue Manager?
As the job description of a Revenue Manager can differ depending on where you work, it is not easy to define the current role of a Revenue Manager. It is important, as it not only has an implication on our image of a Revenue Manager, but also on training needs, recruitment, the organizational schedule and even development within Revenue Management. In three subsequent articles we will try to find an answer to the following questions:

- What is the current role of a Revenue Manager? In this article we will define the purpose of a Revenue Manager and match this to the day to day routines of this role.

- Forming a Revenue Management focused organization. When we define the role of a Revenue Manager, we will use these findings to find the correct place within the organization

- What is the future role of a Revenue Manager? In an ever changing world, also the role of a Revenue Manager will change. In this article, we will define what implications these changes have on the role of a Revenue Manager.

The purpose of Revenue Management
Let us start with the definitions of Revenue Management. The classic definition of Revenue Management comes from Robert Cross, the author of the bestselling book “Revenue Management, Hard-Core Tactics for market Domination”: “Sell the right space at the right price at the right time to the right customer”. Later on, the evolution of distribution channels prompted us to add “at The Right Channel”. This is the most known definition of Revenue Management. Although this definition is easy to remember, it does not cover a good job description of a Revenue Manager. A more accurate definition can be found on Wikipedia: “Revenue Management is the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth.” Though much harder to remember, this highlights words like Analytics, Predict Consumer Behavior and Optimize Product Availability. It therewith comes closer to what a Revenue Manager actually is supposed to do.

When we describe the definition found on Wikipedia to be more actual, you can describe a Revenue Manager as a person combining a commercial talent with a love for numbers. We must have a brain for mathematics, as making calculations is part of our day to day routine. The thing that makes a good Revenue Manager is the ability to apply a calculation and an analysis in a commercial matter. This does not sound like too much of a revelation, but all too often analysis ends with a conclusion only. Making a commercial analysis means that you take it a step further and apply the conclusion in such a matter that it results into increased profitability.

Our main purpose is to determine the strategies that will increase revenue. We do this by analyzing our result and apply this to the commercial functions of the property. A Revenue Manager is responsible for the total revenue of his or her department. So, a Revenue Managers responsible for Rooms Division should have control over all reservations that involve rooms. This includes contracts and group business. A Revenue Manager that is not able to control anything other than the public rates is called a Channel Manager. These are two different capacities.

The four competences of a Revenue Manager
A Revenue Manager needs to have great Analytic, Commercial, Technical and Communication Skills.

Analytical skill:
As analysis is the core of our work, analytical skills are a must. As we also concluded earlier, we will need to apply this analysis in a commercial way. This means that we will need to have the ability to use our analysis in such a way that it increases profitability.

Commercial skill:
As we are responsible for the total revenue of our department, we are very tightly bound to all commercial departments, such as Sales and Marketing. This means that we need to have good understanding of what these departments need and how they work.

Technical skill:
As we are depending on various different systems and even see us forced to produce a great number of analyzing tools ourselves, a technical ability is vital to become a good Revenue Manager.

Communicative skill:
One perception of a Revenue Manager is this person that sits in the office and produces Excel sheets. We need to be able to communicate the best strategy in order to make sure that the strategy is executed. As we stand at the basis of strategic decisions, it is vital that all departments within the property are properly informed in order for strategies to get their full impact.

A Revenue Manager that has strong analytic, commercial and technical abilities is a good Revenue Manager. The difference between a good Revenue Manager and a great Revenue Manager is the ability to communicate.

A day in the life of a Revenue Manager
This is not easy to describe, as the day to day routine of a Revenue Manager not only depends on the current workload, but also differs from property to property. Above any property specific tasks, a regular routine of a Revenue Manager usually include:

- Analysis of Benchmarking reports.

- Updating Forecast and forecast Total Demand

- Analyze success and need of Marketing campaigns

- Analyze Wash Factors and Overbooking levels

- Keeping track of competitors strategies

- Make sure rate strategies are communicated both internally as on the various channels

- Analyze Denials and other lost business

As you can see, Revenue Managers focus on quite a number of details. As we previously concluded; a great Revenue Manager distinguishes him/herself from a good Revenue Manager by being able to communicate clearly. From these numbers of details, we should be form a strategy that is easy to understand and easy to communicate.

General misconceptions about Revenue Management
These are four, what I consider to be, misconceptions I regularly come across when I visit the properties that acquire my help to form a Revenue Management focused organization.

Misconception 1: Revenue Managers only take care of the Booking Channels
Updating and optimizing the various Distribution Channels is a different function, generally referred to as Distribution Management. Distribution Management and Revenue Management are two different capacities, though the one cannot function well without the other. The function of Revenue Management is to form strategies that increase revenue income by analyzing our result. Channel Management is our way to communicate our rate strategies to the applicable markets. This can be done by a Revenue Manager or by a function that works closely with the Revenue Manager, for example a Channel Manager.

Misconception 2: Revenue Managers are only responsible for the public rates
This usually is a direct result from misconception no 1. The most optimal use of a Revenue Manager is to make him/her responsible for the total Revenue income of the department he/she is responsible for (for instance Rooms Division, Restaurant, Meeting Facilities, etc.). As all contracted rates and group rates also have an impact on the result of these individual departments, Revenue Management should be involved in the volume, specifics and rate of these departments. The level of involvement and cooperation between the different departments can differ from property to property.

Misconception 3: Revenue Management should be above Sales
This comes from the knowledge that Revenue Management never should be placed under Sales or Marketing. In the second article in this series about the forming of a Revenue Management focused organization, we will discuss this point into further detail. In my experience, the optimal way is to place commercial departments such as Marketing, Sales and Revenue Management on the same level. You should take care that all individuals are equally strong and can come to terms with each other. When a General Manager wants to slim down the Management Team and applies one person who is responsible for the commercial decisions, it is vital that this person has a profound knowledge about Revenue Management and understands the analytics behind a Revenue Managers reasoning.

Misconception 4: Revenue Managers only care about short term result
Short term result is great. Long term result is always best and should be the focus of any member of the commercial team. As it is the focus of a Revenue Manager to increase revenue on all market segments for which we try to find the optimal rate and production, all rates and conditions are questioned. My experience is that the communication level usually is the core of the issue. Questioning decisions usually gives the best result and these discussions are best done by individuals that are equally strong. More about this in my next article!

Read the next articles in this series: “Forming a Revenue Management oriented organization” and “The Future role of a Revenue Manager”

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