Hospitality · revenue management

Sales and revenue management; friends or enemies?

Sales And Revenue ManagementIn the early nineties, the roles and responsibilities of the commercial departments in the hotel business were clear. Sales tasks consisted of acquisition activities, contracting and relationship management with local corporate accounts, FIT and series contracts with incoming and foreign tour operators, airline crew contracts and the generation of group requests for both business and tourist groups. And sales determined the pricing policy.

The ‘reservations’ department was part of the front office. They booked the individual and group bookings according to these contracts and for the ‘daily prices’. Reservations were made by telephone or by fax. International travel agencies used GDS (Global Distribution Systems) and KLM sent their telex daily. And banquet sales, which was part of F & B, provided the meetings and events bookings; from quotation to execution.

Sales used to be crucial

Because these departments reported to various division heads, communication between the departments was not always optimal and there was often no question of a clear commercial direction. A little bit for everyone and God for us all. An average 4/5 star hotel in the center of Amsterdam had an occupancy rate of 70 to 75 percent, of which the vast majority of the turnover was generated by ‘contracts’. The rack rate, the only published rate, was booked by less than two percent of the guests. At that time, sales were crucial to the success of the hotel; no contracts, no sales.

Since the development of the internet in the late nineties, there have been a number of elements that have had a major influence on the way revenue was generated in the hotel industry:
– the arrival of low-cost airlines, which provided tourists with the greater influx
– the online booking channels, making booking a hotel easier
– a transparent price structure, with ‘Best Available Rate’ as a benchmark rate

In this period, the term revenue management hotel and the associated officers also arose. Price structures were adjusted under their influence. From unsalable rack rates to realistic BAR rates. And with these realistic BAR rates as a benchmark, early bird rebates and finally, after a lot of fighting with wholesalers, the dynamic FIT rates.

Around 15 years, 95 percent of the bookings were ‘contracted’ and these were booked directly at the hotel. Now we see a completely different picture in hotels. For hotels in Florida, more than 60 percent of turnover comes in digitally.

Distribution figures American hotel industry 2015

DIRECT:
Telephone / email 29%
Own / chain website 14%

INDIRECT:

Tour operator/wholesaler 7%
GDS 9%
OTAs 29%
CRS 7%
Other 5%

Revenue managers determine strategy

The role of traditional sales in the commercial process has declined sharply in recent years. Where the influence of revenue management on the commercial strategy of the hotel has grown. In many hotel organizations, we see as a consequence that revenue managers often determine the commercial strategy. These often analytical people are perfectly capable of supporting their decisions with facts using statistics, reports and other figures. On the other hand, salespeople are more focused on relationships. Administration, reports, and statistics are less of a thing.

It seems that the ‘power’ has shifted from sales to revenue management. Certainly also because often the distribution channels are also placed under the responsibility of revenue management.

In any case, let’s assume that the general manager is responsible for the results of the hotel. And therefore also responsible for the commercial policy, with or without support from a head office. Depending on a number of components, such as location, segmentation, and size of the hotel, a GM can choose to manage sales and revenue management or choose to hire a commercial manager. In both cases, there is sales and revenue management or an equivalent hierarchical level.

In any case, sales and revenue management must work together to achieve optimal results for the hotel. To be able to cooperate optimally, the direction is needed. This comes from the GM or the commercial manager, naturally with a say in sales and revenue management. To kick in an open door again; a strategic business plan really helps!

The annual business plan is often written in August or September and then ends up in a closet. Often it is seen as an assignment from a head office (at chain hotels) or as a briefing with the budget to owners. Sales are usually at the cradle of this plan. An external analysis is made on the basis of gut feeling, supplemented with reports from the newspaper and perhaps some statistics from the city marketing organization. The internal analysis is a piece of cake; we know the hotel. We no longer fill in statistics on nationalities; the reception does not keep up with that anyway. Then the activity plan of last year is copied and a sales & marketing budget is added. At the same time, revenue management systems makes the budget for next year. The head office or the owner has already indicated that 5 percent must be added, so we only work towards it. The coherence between plan and budget is not entirely complete and is ultimately only aimed at delivering what head office or owner expects.

Statement: ‘Participation in campaign sites such as Travelbird, Groupon, Holiday Auctions and other discount sites is good for my hotel’
When a hotel has a sales challenge, these channels are often used. They have a large reach and deliver demonstrable extra sales. However, they also undermine your own pricing policy and distribution. And can damage your company in the long term.
A good long-term strategy in which you use your own distribution channels provides a greater return, both in terms of turnover and image. The use of these promotional sites as marketing and distribution channels often show a lack of commercial manpower, knowledge, and creativity in the hotel.

Statement: ‘Contracted corporate accounts, which necessarily require last room availability, are more of a burden than a lust’
This statement shows the necessity that sales and revenue management hotels must work well together. Of course, a city hotel is not happy with an account with LRA that only books on Tuesdays and Wednesdays. Tuesday and Wednesday are the busiest business days and we can also sell our rooms for BAR. It is therefore wise to analyze on a regular basis when an account produces and to align a contract (price and conditions) with booking patterns and turnover potential, more than on booked volume alone. Revenue management helps sales with this analysis, which allows sales to show the customer that he/she can really sell!

Theorem: ‘Seasonal, static FIT rates are no longer at this time. All hotels should only work with dynamic FIT rates’

Hotels only need to cooperate with wholesalers on the basis of dynamic FIT rates. We then also hold them responsible for unauthorized distribution to B2C websites directly. Then we can finally guarantee our guests that they can at all times book the best rate with the best conditions through our own direct distribution channels.
For traditional package tour operators, you can still work with static seasonal FIT prices. In that case, please note in the contract that these prices may only be used as part of a package consisting of at least 3 components. As a result, the B & B component is not visible and does not conflict with your own published rates … Provided the balance between BAR, early discount and FIT rate is good.

Step-by-step plan for a good strategic business plan

1. External analysis; What is happening in the world, my country, my city. What should I take into account because it can affect my business? Build it up from macro to micro.

2. Internal analysis; What happens in my hotel? What do my guests think of the delivered product? Use the reviews on the various websites.

3. Competition analysis; Who are my real competitors? You can have different competition per segment. Do I also have competitors outside my city or outside my country?

4. SWOT analysis; Process the above information into a concise analysis of strengths & weaknesses and opportunities & threats.

5. Mission or positioning statement; The core or the basis of your strategy! What is my hotel? How do I want guests to experience my hotel? What distinguishes me? What does this mean for my employees? Vaal is only written from a sales perspective. Pull this wider and make sure it is supported and propagated throughout the hotel.

6. Segmentation; Describe the segments (and possibly sub-segments) that you focus on with your hotel. Which customers belong to this? Which distribution channels do they use? Repeat this for your restaurant or other outlets.

7. SMART targets; Determine your SMART targets per segment. (Specific, Measurable, Attainable, Realistic, Timeframe)

8. Key strategies; To determine how you will achieve your SMART targets, you make key strategies for each segment. Stay at a high level of abstraction and constantly ask yourself the question; why does this help to meet my targets?

9. Budget; Only now can you make a substantiated budget for the coming year.

10. Activities: The department heads can now make their action plan with the corresponding budget and possible requests.

Jason Winberg has its own Strategic Hotel Consultancy Office for commercial projects, interim management www.winberghospitality.com.

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