The competitive, dynamic and often unpredictable Indian market has brought revenue management to the forefront. BY BABITA KRISHNAN
Rapid development and the emergence of major international hotel operators in all the sectors have created a very different business environment. If the rules of the game have changed then hoteliers need to implement new disciplines and methodologies to retain their market share. Therefore, the need for robust revenue management strategies is greater than ever before.
Revenue management is about optimising your available inventory in the best possible manner so that it maximises your profitability. As revenue management has developed, it has become more disciplined and technical in using a variety of analytics to predict consumer demand through automation.
AUTOMATION & BIG DATA
Global trends, pace of economic growth and infrastructural developments can really affect demand levels. Historical data and trends will always help the revenue managers (RMs) to understand the pattern of booking, pace and booking windows by different channels. “Clear data from the revenue management systems certainly helps the property RMs to foresee the demand and potential opportunities thus helping them to decide on pricing and other pricing-related decisions. These decisions can be both tactical as well as strategic,” explains Aresh Babu, associate director of revenue, Crowne Plaza, Bengaluru.
Data is the key to analysis and this is what derives trends that the marketing department follows with the RMs. “Need period behaviour of key segments, changes that need to be deployed to an existing business-mix, how agile the property needs to be with a price point and bundled offers, the lead time for these segments and the buying propensity of geo sources are some of the relevant data that is arrived at and analysed to give shape and direction to a revenue strategy,” explains Smriti Khandelwal, director of marketing, The Four Seasons Hotel, Mumbai.
Next-gen revenue management tools can quickly churn out vast amount of data and provide key insights across pricing, customer segmentation, channel mix and overall performance for the distribution strategy. RMs need action-oriented intelligence that responds to the market dynamics available to them easily. “Technology automation is not just limited to providing analytics, it can also perform a very important task – that of rate and inventory adjustments. This task directly impacts the RevPAR and occupancy and requires speed and agile adjustments that is difficult to manage manually,” says Mike Kistner, CEO, RezNext, one of the leading revenue management system (RMS) providers to the industry globally.
According to Abhishek Sadhoo, director of operations, Shangri-La’s Eros Hotel, New Delhi, four Big Data strategies used in the industry today are: Performance Management, Data Exploration, Social Analytics and Decision Science.
Hospitality industry has increased investment on sophisticated technology that captures data and creates a compelling MIS but the success lies in correct interpretation along with the homogenous business situations which gives a holistic picture. Big Data analytics enables hoteliers to slice and dice data and understand market and business dynamics better. But the critical part is that they are able to prioritise on what data is important/needed. Big Data is useful not just to power the pricing function but is also extremely important in providing deep insights into customer behaviour and purchase patterns.
REVENUE MANAGEMENT SYSTEMS
Effective revenue management is the key to maximising profitability for any hotel business; ensuring rates are optimised as per the seasonal peaks and valleys for meaningful occupancy figures. RMs are increasingly turning to automated RMS to get this balance right. Automated systems can also be managed across chains to push targeted segments into sites that are experiencing a fall in demand and identify market changes on a much more immediate level enabling the entire business to adapt quicker and remain competitive.
“RMS have brought about automation in daily revenue management tasks, but RM as a significant role player has only been introduced into Indian hospitality in the last 10 years, hence hoteliers are still getting used to RMS,” feels Varun Whig, the cluster revenue head of Ritz Carlton, Bengaluru.
“RMS works on algorithms based on revenue management principles directly communicating with performance management systems and extracting, calculating, formulating data for decision making / recommendation. Indian industry depended a lot on manual data as direct benefits of RMS were not understood till the time multinational chains displayed the same,” reveals Vinay Singh, director of sales & marketing, The Westin Mumbai Garden City. It integrates room demand and room price statistics to stimulate high revenue producing product scenarios which aide managerial decisions. “Indian hotel industry has been slow in integrating systems with RMS mainly due to concerns related to high investment and inexperienced handling, hence very low perceived ROI,” feels Merwin Dawson, AGM-revenue management & global distribution, The Leela Palaces, Hotels & Resorts.
Today’s RMs need much more than forecasting and pricing. RMS should have big data capabilities, it should incorporate price sensitivity of demand and analyse impact of online reviews and competition rates on pricing. RezNext offers an advanced revenue management solution – ReV powered by Maxim – that eliminates countless hours of tedious work, adopts the principles of big data analytics helping RMs adopt speedy and accurate responses to competitive actions and changes in demand. ReV also optimises the rates and availability controls to maximise revenues and profits and automatically sends the optimal rates, controls and booking limits to all electronic distribution channels.
Lemon Tree Hotels have invested in the right kind of technology platforms across all its properties. “We use IDeaS Revenue Management solution. We were the first hotel chain in the country to have invested in a multi property single database PMS, Protel, which is hosted out of a data center and connected to all locations via MPLS. It also serves as our CRS platform without any other layer on top. Apart from being a cost effective solution, it facilitates better control and accessibility,” says Tarun Lakhanpal, assistant VP-revenue management & distribution for the brand.
Yet why has the industry been a little slow in adopting and integrating RMS within their systems? The concept of revenue management arrived in India after it was adopted successfully in the west. “Initially, there wasn’t much significance given to revenue management. Coupled with the fact that the cost of employing an RMS can be quite high, the industry was a little slow in adopting it,” explains Akansha Gupta, revenue manager at Trident BKC, Mumbai.
“I believe that the Indian hospitality companies still rely on traditional Human Intensive Sales Structures and multiple levels and channels to do business. Profitability has not been the essence of their existence and accountability may have been fragmented till recently. RMS and their integration at a property level is capital intensive as well,” Khandelwal of Four Seasons elaborates.
In India, revenue management tools have been restricted to mostly high end 4- and 5-star properties because of the implementation bandwidth and the cost involved. Also, the associated complexity in deploying RMS and employing skilled personnel to maintain and utilise it has also added to its low adoption among mid-market hoteliers. Hoteliers in popular destinations have an expected occupancy level that they achieve year on year. Hence they fail to recognise the opportunity that a RMS can provide them in terms of improving their RevPAR. Other factors that have contributed to the slow adoption of revenue management are lack of trained manpower, limited service providers, lack of knowledge, need for upskilling, integration challenges.
NEW TECHNOLOGY
Essentially, a successful revenue management strategy is characterised by how dynamically an organisation can interact and interpret market data from four sources: market segmentation, forecasting, pricing and inventory allocation. Some of the solutions in the market offer a standard functionality across all hotel segments. Mid-market hotels do not need the full-fledged functionality and reporting features that a five-star hotel chain may need and hence they do not see it as a fit from a functionality and price perspective.
“RezNext understands these challenges and offers a ReV lite version for smaller hotels with customised functionality. We are demystifying revenue management for the mid-market hoteliers and showcasing the merit in scientific data analysis and helping them achieve the right balance between occupancy and profitability through right LOS promotions and controls in place,” explains Kistner. ReV powered by Maxim is a leading solution in the industry globally. Citing an example Kistner says, “One of our large clients has seen considerable increase in the RevPAR and occupancy using ReV. They are also able to balance the revenue generated during peak and non-peak seasons to maximise on their profitability over the year. While there are other solutions in the market, ReV’s uniqueness is its patented Marginal Value Engine (MVE) that analyses historical and currents trends quickly to churn out recommendations that deliver the highest profits.”
LOS recommendations and restrictions that the system automatically passes on to the distribution channels is growing in demand. An advanced revenue management can also pass on dynamic packages real-time to the channels through the distribution platform. Advanced analytics that provide actionable intelligence is another development in RMS. Also revenue management is now expanding beyond rooms to look at all outlets in the hotel, restaurant, meeting and event spaces. A tighter integration between reputation function and pricing is another new and advanced technology feature for revenue management.
At Shangri-La’s Eros Hotel, New Delhi, IDeaS (revenue management software) is used to control the rates and inventory on all the channels. “IDeaS pushes the rates into various control portals like SynXis, TravelClick channel manager and property management system to maintain the parity,” reveals Sadhoo.
THE HUMAN TOUCH
Revenue management has grown and evolved in the hotel industry during the past years. As part of this evolution, the role of a revenue manager has become a necessity. Whether a dedicated revenue manager, multi-property shared resource or a paid consultant, most properties have invested in some sort of revenue management support. Although revenue management has become an accepted practice, the role of the revenue manager can vary dramatically from strategy maker to number provider. Behind all technology is a good manager. Technological solutions are simply tools, powerful though they may be, to inform the decision making process of a dedicated and accountable revenue manager. Their business acumen and ability to drive proactive change throughout the organization is integral to the success of any strategy.
A revenue manager is an integral part of a sales team today as some of the most profitable business is transacted on the channels that come under their purview. With a constantly evolving market, the RM plays the role of monitoring the changes and implementing new strategies. It is, therefore, essential to have a trained RM with a keen mind and sharp excel skills to optimise the use of automation. The RM needs to keep a track of market segments, pick up and comprehend changes in market behaviour to use them effectively for accurate forecasting which is where automation plays a key role. “In the past, we often made a person with a reservations background as the RM. But today, it is important to understand his orientation on the internet, savviness with technology and capability for embracing the social platform,” reveals Sunil Prabhakar, director, asset management, Duet Hotels.
Increased efforts are invested in optimising profitability by monitoring the GOP for the hotels; the need of the hour for RMs is to focus on enhanced overall profitability which means optimising F&B, banqueting and other revenues too. “With the technological advancements in the industry, revenue managers can no longer make decisions based on ‘gut feel’ but need to back it with substantial data analysis. Brand loyalty has decreased and hospitality business today is more of a cyclic phenomenon which requires revenue manager’s intricate attention to manage and drive demand closely and dynamically,” explains Dawson form The Leela.
The need for talented managers behind the technology and good corporate awareness of the discipline has not escaped the attention of the solution providers. Most package consultancy and training services into their software products to avoid hotels investing in one-time system implementation with the unfounded expectation that nothing further will be required.
At Lemon Tree Hotels, great emphasis is laid on revenue management training across the board as the brand believes that revenue management is a culture. “For us, it is a phenomenon that is not one individual but the organisation. We have created training material which is constantly refreshed to incorporate new learning. Apart from this we also invest in training of the team at IIM and run training programmes to ensure that best practices are incorporated,” Lakhanpal reveals.
It is critical that the revenue management team can drive action, not just analysis, and have the ability to turn data into recommendations. Also, the strategy needs to be given time – it needs to be long term strategy supported by short-term tactics. It would be hard to achieve all of this without an engaged and motivated team.
OTA ENGAGEMENT
OTAs help in reaching out to a wider audience. They generate additional room nights for the hotel from the markets where they do not have direct reach. “Different OTAs are popular in different regions of the world and hence have a larger reach than hotel brand websites. Flash sales and special promotions are popular on OTAs and really help in picking up pace,” says Gupta from Trident BKC. Though they increase the visibility of the hotels all over with their marketing spend, Crowne Plaza’s Babu believes that “OTAs – even with their sometimes-onerous commission structure – can level the playing field, and often make the difference between success and failure, surviving and thriving.”
Singh from Westin, however, cautions that they can rarely be treated as a stable source of booking, considering that the buying behaviour of an OTA customer is complex to understand as compared to brand web. “OTAs, due to shorter lead time, help sell-out inventory / achieve optimum rates for the day,” he adds.
For Four Seasons, they are an important segment and plays very well in both need period dates and also in pushing sale of higher category rooms. “It also helps channelise more profitable travel from accounts that would otherwise resist a Dynamic BAR pricing approach. A user feels more in control of his buying decision when he books through an OTA. The OTA as a segment can be controlled if managed effectively,” says Khandelwal.
Moevenpick believes in keeping a close vigil on OTA’s or B2B Agencies rates to track unexpected flash sales, private sales, etc. Maintaining a data of all such bookings helps the brand understand the channel that is troubling revenue the most. The dynamic nature of rates can also bring more revenues into the property while maintaining both ADR and RevPar. According to Prabhakar from Duet Hotels, OTAs have created the revenue window that is increasing being used by guests for their transactions. “There is continuous transition of buying behaviour from traditional channels of distribution to OTAs. Their mobile apps are already registering high transactions giving the guest an option to transact on the go,” he adds.
Direct channels account for 45% to 50% of the total business for Lemon Tree’s leisure hotels. “We have initiated and built successful partnerships with all major online travel agents in India and the world. In fact, Lemon Tree Hotels was amongst the first domestic hotel chain to contract Makemytrip, Desiya/travelguru/Yatra, Expedia, Booking, Agoda, Cleartrip, Wotiff and Rakuten. Our aim is to get the distribution strategy right and map our demand taking into consideration the life time value of a customer/market. Our endeavor is to distribute directly to the customers/markets with high potential, which are easier and cost effective for us to access. For other markets we invest in building symbiotic partnerships. This helps us drive superior long term ROI,” reveals Lakhanpal.
Evolving brands have to live with multiple distribution channels as the prime focus for hotels apart from retention is also acquisition of a customer. “Customers today are smart and will book you through the cheapest channel. The key is to have a unified rate strategy, which integrates with all segments,” Lakhanpal elaborates.
CHALLENGES
ROI is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of various investments. Hence, ROI is a critical benchmark for revenue strategy. Key stakeholders need to be aligned to ensure and optimised ROI. The revenue strategies today encompass both online and offline sales. It is possible that an online marketing effort could result in an offline sales conversion and vice versa. The crisscrossing of visibility and conversion makes the measuring of ROI more complex but challenging and exciting feels Prabhakar.
All marketing developments in the SoLoMo sphere bring along opportunities for revenue managers to launch effective promotions. Where to launch promotions, how to do this effectively and measuring ROI remains much of a revenue management challenge. Situations like these often lead to alteration in revenue strategies as well.
To ensure the success of RMS, owners should be convinced of its ability to deliver ROI and be aware of the resources required. On the other hand, hotels need to ensure that their organisational structure supports revenue management policies and introduce effective changes as well.
While some brands like Moevenpick have introduced new rate types, MICE and F&B promotions, room inclusions as per the demand, etc., others like Four Seasons focus now more on profitability than on revenue. Smartly pricing, the best available room rates, more OTA engagement, identifying new target markets, introducing new customised packages for special events and higher conversion ratios are some of the other changes one has seen in the recent past. At Ritz-Carlton, Bengaluru, “There has been considerable focus on GDS bookings where investments have increased which is yielding better results. Also there is more forward thinking (six months out) which helps to create a roadmap for future and puts less pressure closer to date,” reveals Whig.
To drive profitable bookings, hoteliers today should have a complete view of their business performance. Revenue generation should be optimised across
all revenue streams and for this a holistic understanding of various hotel functions such as distribution, pricing, competition, customer insight, marketing programmes, online reputation is required. The revenue management function must result in the creation of new product and services and their pricing. Revenue managers must utilise technology tools to the fullest to drive total hotel revenue management beyond just rooms and this will help shift the focus from RevPAR to GoPAR and from driving revenues to improving profitability.
Correctly positioning and integrating revenue management into the organisational structure is the key to success. Revenue management is the glue that binds departments together and success is predicted on sales, reservations and marketing all appreciating its value.
