John Kennedy

Basic revenue management guidelines Hotel, hostel, apartments & meeting rooms. By John Kennedy- HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES INTRODUCTION Revenue Management (RM) This guide will explain what RM is about, how to create a set of RM rules and how to focus on a rate and occupancy strategy with examples on how to use RM. To succeed with RM you need to know what you have sold historically, the inventory you have available, the price you want to sell it at, an allocation of rooms to be sold to meet demand, have a demand forecast, decided the mix of business you want and then have tools to measure your on-going performance. The building blocks for RM are: training, a decision-making procedure, a regular allocation of time to RM, resources available to input and analyse data, processes in place, and top management commitment. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES GOAL & MISSION Goal • Develop a rate and room strategy that your team can apply as the level of customer demand changes up and down over a year Mission • Benchmark performance against competitors • Provide easy to understand revenue management guidelines and instructions • Agree performance measures and responsibilities on who does the tracking • Reduce efforts needed to manage rates and rooms inventory • Profile your customer • Document the historical demand and booking patterns • Create a future demand calendar www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES RM COMPONENTS RM COMPONENTS 1. Market segmentation 2. Pricing and rates strategy 3. Budgets, forecasting and demand calendar 4. Performance measures 5. Support tools 01 www.happybooking.se 02 03 04 05 HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES MARKET SEGMENTATION One of the components needed to apply RM is market A property may have various booking channels that sell to the segmentation. It allows you to target and market to a range of customer; examples of these are listed below: customers that behave differently with an offer that matches their needs and budget. • Public channels direct to the hotel by the phone, email and fax or making a reservation at the reception desk Market segmentation identifies the purpose of the trip for example • Through the corporate brand website if a guest is on business, meetings or leisure. Price does not • OTAs (online travel agents) i.e. Booking.com necessarily dictate the market segmentation. • GDS (global distribution service) – mainly for business travel Today's ways of booking makes it difficult to identify the purpose • Tourist or professional associations that your property needs of the trip but you can segment by default for example the to be a member of. individual bookings for short midweek stays as business, and a booking of a double room over the week-end as leisure – it does also depend on the season. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES MARKET SEGMENTATION Identifying what the market segmentation is for your property: • Leisure guests can be individuals or retail customers that book through public channels or may be a part of a tour group that has a block booking • Business guests are individuals or contracted companies that have negotiated rates available only to corporate employees or customers that book through a particular travel agency or via the GDS. • Meeting or conference customers (individuals/delegates or contracted companies) that book a meeting room • Food & Beverage customers (guests or meeting delegates or “passers-by” who pop in for a meal or drink. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PRICING AND RATES Pricing is the process of setting rates to get the optimal revenue. Developing the RM rate strategy should be based on typical It can be dynamic and will be demand and season driven. There customers needs that could be defined as follows for example: should be a strategy on how much a price set at the beginning of the year as a standard rate can move up or down throughout the • Mid to low price level and desire to seek value for money year depending on demand. So for example it would be • A location near to things to do and see recommended that as a base rate of 100, the highest rate should • Convenient location for business travellers to visit local be 110 and the lowest 90, a 10% fluctuation from the base rate depending on demand levels. Typically inventory can be classified as: companies/offices • A safe and secure environment to stay in • Clean and tidy room and public areas • Near to transportation hub • A hotel • Easy and hassle free bookings • A long stay apartment • Access to a fast and reliable WIFI network • A hostel • Food & Beverage restaurant facility • Meeting rooms • Attraction or activity www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PRICING AND RATES Rate parity It will help you to better understand your property’s distribution In order to implement rate parity properly in a hotel, and truly have mix if you place room nights against each channel and the cost of the same price over all your distribution channels, you need to doing business. know all your commissions and margins for 3rd party channels. Next step is to configure a channel management system with the A recommendation would be to make an excel table with all the correct margin and taxes so you can easily load the same sell rate conditions of each third party channel, to include; for each extranet all at one time. o Tax % (included / excluded) o Net / commissionable If you have more than one room type per online travel agency o Margin % / fees website, you may want to configure a differential, variable per o Cancelation policies room type. For instance, set the difference between your superior o Payment policies room and deluxe room to 400.00 kr. This way you will save time o Free sale / allotment on rate loading a price for each single room type, and will only have to submit the BAR for one room type and the channel management system will update the rest. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PRICING AND RATES Having the same rates on all public distribution channels will The right price based on = value, customers perceived value, stimulate more consumers to book directly with your hotel. positioning and competition • What rooms do you sell first and last? Each customer has different motives on why they buy, experience • By room type what is the starting price point? expectations and a level of willingness to pay at a particular price • Corporate deal commitments – is there a percentage % per point, different needs/drivers for different products. To understand this we segment into interests, pricing bands, day of occupancy that needs to be blocked? • reservation terms and customer journey. There is also a product factor that brings together, hotel, destination, experience, and For how long in advance of bookings before any rate reductions or increases? • services. Will customers pay more closely to an arrival date / last minute? • Does mid-week business pay higher rates than on a weekend? Price determinants – demand, seasonality, business cycle, channel shift, competitor environment, product positioning, marketing, and costs of doing business and their pressure on profit. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PRICING AND RATES Price positioning strategy Equal Pricing Strategy - The hotel sells at comparable rates. Choosing a clear price positioning strategy for your base rate will Does your value proposition make the difference in the clients' help strengthen your value perception to consumers. There are decisions? several strategies you can follow; 1. Penetration pricing strategy Surrounding Pricing Strategy - Your first room type will be the 2. Equal pricing strategy cheapest in the market or among the cheapest ones. Your 3. Surrounding pricing strategy superior room type will be sold at a rate close to the first available 4. Skimming pricing strategy rates of your competitors. Penetration Pricing Strategy - The local market accepts and The key success is to offer added value, with the room types you have understands your positioning: you may be among the cheapest in are you offering better facilities or specific features, and additional tow which is ok if that positioning does not drive the market rates amenities. down. Skimming Pricing Strategy - The skim strategy is to position Is there an opportunity to still sell more expensive on specific clearly your hotel among the most expensive. Price leaders often periods? How does your client value your hotel? achieve among the highest profitability. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PRICING AND RATES Can you provide more value than your competitors? Can the consumers clearly understand the reasons that they would pay Dynamic more staying in your hotel? What are the consumers ready to pay Pricing for? GOPPAR Setting different prices PRICING The graph to the right shows some reasons for having different approaches to pricing (GOPPAR means gross operating profit per room): www.happybooking.se Differential Positioning Pricing Strategy HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PRICING AND RATES Yield management in hotels works best when you can target You can develop a pricing grid with room products with different different types of clients at any given time with different prices. benefits and characteristics. If you have not priced rooms for clients who potentially have a Products are a combination of price and value. Developing higher budget range and your prices are too low you will lose different products enables you to target different type of clients profit margin, likewise if you price too high you may also lose with different needs. business. • Sell more than one room type • Create value differences between them This basically means we are introducing a price segmentation • Detail the pricing matrix for all the room types strategy. • Ensure clear differentiation through descriptions in your distribution systems So we have determined that we need more than one rate. So how many rates should we offer? How can we sell multiple rates for our hotel at the same time? www.happybooking.se your room type HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PRICING AND RATES Pricing grid We call the price range BAR (Best Available Rate) levels. In your Now that we have created our demand calendar, how do we start pricing grid you can include various BAR levels to offer at different with pricing? We can develop a pricing grid that provides a range levels of demand. of rates that can be selected depending on the level of demand. Below an example of a basic price grid: RACK PREFF BAR1 BAR2 BAR3 BAR4 Standard 200 160 140 120 110 100 Superior 215 175 155 135 125 Suite 230 190 170 150 140 www.happybooking.se BAR5 BAR6 WKD1 WKD2 90 80 70 60 115 105 95 85 75 130 120 110 100 90 HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PRICING AND RATES When putting together your pricing grid take the following criteria into account: Build your pricing points (BAR levels) as per expected level of demand (High to low for each season) To determine what prices each BAR level should have it will help if you study at what rates you sell the most by channels, month and rate types. This way you will not miss out on any rate levels. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES BUDGETS, FORECASTING AND A DEMAND CALENDAR Budgets, forecasting and a demand calendar A demand calendar is a way to show past and future demand mapped together, based on historic and future events that could At what rate and how many rooms can you sell for each day in the impact business. Positive and negative demand generators and future? exceptions must be mapped and updated regularly on the calendar. When you are assessing a forecast some of the The budget is made once a year, divided up into market segments variables to and uses as a metric room nights and revenue, based on historic reservations on the books, events, economic situation and data and an estimate of what the market situation will be like in occupancy. review are competitor activity, seasonality, the future. You should aim at 5% maximum (+/-) variance for the next month, A monthly forecast reflects the expected situation in the short variance between your forecast and the actual results. Take the term (1 to 3 months). Forecasts are compared to the budget to time to analyse the variances to understand, learn and improve flag up any down or upwards movements in demand. You may your hotel forecast. want to apply a new rate or selling strategy depending on what the new forecast says. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES BUDGETS, FORECASTING AND A DEMAND CALENDAR A basic version of a demand calendar should contain the following Forecasts are not perfect. It is a strategic management tool. A information; basic Forecast is better than none. It is the path to market and customer knowledge. • RevPAR last year (Revenue per available room) • Meeting room bookings A forecast can help you to estimate for example the double • Demand level indicator last year (High, Medium, Low, occupancy, the number of arrivals and departures: useful for the Distressed) by month front-desk and housekeeping. On the basis of your forecasted • Demand level indicator this year number of nights by segment, you can anticipate the number of • Public holidays guests: it helps housekeeping to forecast their costs, and for the • School holidays number of breakfasts. The forecast can help you identify • Exceptional demand indicators challenges in reaching your objectives: it gives time to adapt strategies or work out additional actions. The forecast can help to identify low demand period: you can develop it as a communication tool to focus sales efforts. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES BUDGETS, FORECASTING AND A DEMAND CALENDAR Forecasting activity: 1x per week for the next 4 weeks, 1x per month for next 3 months, 1x every 3 months for the year and at least 1x per year for the next year Analysis – daily average occupancy %, Average Rate, RevPAR and reservation pick up and monthly Guest Origin Business, Length of Stay, Lead-time and channel mix. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES CAPACITY ALLOCATION Capacity allocation IT / analysis support tools There is a value in having specialist software and resources Setting the capacity allocation is a decision of whether to accept necessary to configure and maintain information systems in or reject an offer to book a room, how to then allocate capacity to support of the business data. different market segments or channels and when to withhold a room from the market and sell at a later point in time. Because • Google analytics demand is variable and uncertain, RM users must decide if they • Online booking engine should sell capacity to a low paying customer today, or hold that • Channel manager capacity for a later arriving, potentially higher paying customer, • Benchmarking intelligence – to see how you are positioned who may or may not materialize. with your competitors • Property management system How much of your room inventory you allocate to each channel will depend on your forecast and demand calendar. You should have the knowledge of the number of one night stays, two nights stays, three nights stays, four nights stays etc, a booking curve graph will help you visualize the booking pace and flag up any issues. www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES CAPACITY ALLOCATION It is important to keep the history of your competitors' availability and prices. That piece of information is an important part of the understanding of the demand to come. Does your main competitor sell more or less expensive on the forecasted period versus the same period previous year? How will that impact demand? Other questions to ask about your competitors: • What are their fully booked dates? • Are they changing their selling strategy? • Low or High rates periods, are they the same? • What are the openings and closing of competitors for refurbishment? • Are any competitors being taken over with new management? www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PERFORMANCE (COMPETITIVE SET AND BENCHMARKING) Hotel properties receive rankings based on Revenue Per Available Check the public rates of your competition, at least once a week. Room (RevPAR), which incorporates the Average Daily Rate (ADR) Also check periodically pricing by length of stay (LOS) i.e. 2 nights and the hotel occupancy in its calculation. Hotels define a stay by arrival day, 3 nights stay by arrival day etc. competitive set of similar service level hotels within the same geographic area. Benchmark on the following criteria: Benchmark your competitors' rates in order to anticipate their • Prices strategies, list who your competitors are and keep tabs on • Product everything that they are doing from rates to marketing campaigns. • Level of service • Location So how will your competitors selling strategies by segments • Distribution channels evolve? Market share reports help you to understand your performance • How will that impact your demand to come to your hotel? versus your competitors, both in terms of occupancy and average • Are you benchmarking your hotels GDS performance? rate. • Do you know you hotel's GDS market share? • www.happybooking.se HAPPYBOOKING - BASIC REVENUE MANAGEMENT GUIDELINES PERFORMANCE (COMPETITIVE SET AND BENCHMARKING) They can provide the following information: • • • • MPI - Market Penetration Index (your occupancy results For week-days, week-ends, events, when is the low demand periods? versus the average occupancy of your competitors) • Do you have the right market segmentation? ARI - Average Rate Index (your ARR versus the average ARR of • Is your price positioning by segment correct? your competitors) • It is also important to compare yourself to the right RGI - Revenue Generator Index (your revenue share of the competitors! market, the market being your hotel and the hotel Develop a checklist to evaluate your competitors in terms of competitors) product & quality: Score the quality of your competitors over the following measures: Your RGI should be above 100 (Index base 100). If not, that would • Welcoming and openness of the employees mean that some of your competitors convert more business than • Quality and cleanliness of the bedroom you do. • Food & Beverage outlets and other services Reading the day-by-day RGI, when do you achieve the lowest • Location score? You can of course also put into the mix score from hotel review • sites like TripAdvisor. www.happybooking.se