3 challenges for resort revenue managers (and a possible solution)
In the nineties I was head rep for an Italian TO in Rhodes. Our main product was the Blue Sea Hotel >> in Faliraki, where we would have…
Category: Revenue Management
Author: Marcello Bresin

3 challenges for resort revenue managers (and a possible solution)

In the nineties I was head rep for an Italian TO in Rhodes. Our main product was the Blue Sea Hotel >> in Faliraki, where we would have about a hundred weekly arrivals, up to 300 hundred pax in August. There was a guaranteed allotment contract in place, nevertheless during high season we would have a few overbooked rooms every week! NO kidding. I guess it was a smart strategy for Mr Costas Nikitaras, the General Manager, as he certainly knew his trade. But in the long run, I think it was way too costly for the hotel; I know for a fact that it was for the Italian operator.
Over twenty years later, I am amazed to find out this kind of procedure is still used in certain resorts, in spite of the massive industry-wide changes in terms of distribution and technology since Mr Nikitaras’ tactics. The two main reasons, obviously, being a lack of proper revenue management, and an unhealthy dependence on wholesaler business. Which, of course, stem huge problems in inventory management and price dynamicity. Owners and GMs of small chains or independent properties are realizing something should be done, so they hire anybody able to use Excel to revenue manage the hell out of that mess, only to dismiss recommendations. Meanwhile, large leisure chains are giving their RM and everybody in the distribution environment a hard time, with a thousand ridiculously named room types, sold by the dozen and stop-sold every other minute. Have you ever worked with/at Sandals?
 I really think that leisure revenue managers are the unsung heroes of the accommodation industry; although I expect this text to be of little help, at least may it serve as a tribute to their effort.
An incomparable setting
As opposed as their urban colleagues, resort revenue managers cannot count that much (or at all) on the standard RMS. Package rates, complex seasonality, virtual room types, inflexible wholesale contracts, honeymooners, and the list goes on. To further complicate things, many properties have such a unique setup and exceptional circumstances that standard industry tools are impossible to adopt. Should those hotels keep wrangling their collection of spreadsheets, or dismiss revenue management altogether? Absolutely not: the good news is that now business intelligence tools are cheaper and easier to use than ever, so many data sources can be combined and analyzed in order to obtain advanced forecasts, dynamic pricing recommendations, inventory optimization and much more.
 What I mean is:
It is possible to create a comprehensive, tailor-made and cheap RMS, by processing your own data on a BI solution.
Actually, a single BI tool can benefit all areas of a property, but today I’m addressing my revenue manager friends. These are the three hardest challenges they face, and my proposed data-driven solutions…
1 — Contracting nightmares
In most popular holiday locations around the world, long gone is the Golden Era of DMCs and resort hotels working in harmony, reliant on each other’s business. A global online distribution paradigm is the main culprit, although not the only one. We all know that OTAs take most of the available rooms on independent medium-to-small sized properties in popular destinations, while the largest TO’s prepay a great deal of rooms (up to 75–80% in certain cases) at well positioned branded hotels. The second situation may make sense for both parties (not ideal for the hotel, though), while the first one is hurting small players, no doubt.
It is a well-known fact that all kind of properties would profit much more from a balanced distribution, leaning on direct sales as much as possible (as long as the cost of acquisition is kept at bay). But that’s easier said than done, more so on the leisure world. I’ve been advocating for a long time the obvious solution, for both branded and independent properties: to move towards a dynamic price scenario. No proper hotel can (will) survive without a channel manager these days, so if a wholesaler wants to buy standard product, it should be able to connect to online distribution systems. As of last year, some hoteliers (even more wholesalers) would laugh at my proposition… Well, guess what: tour operators finally started embracing dynamic rates ( see an example here >> )
Perhaps fixed rates contracts are not dead yet, but hotels can certainly conduct a thorough evaluation via data analysis, in order to establish if/how each contract is profitable, which intermediaries can get lost, and so on. Moreover, hoteliers would be able to regain control over inventory and play with rate elasticity, to some extent. Only adequate analytics can help with that.
 However, direct integration with online distribution systems is the best bet for all parties. No more clunky stop-sales reports, no more boring negotiations, great opportunities to be discovered through data analysis. Hotels that are way too dependable on TO contracts, in many cases will finally realize that full occupancy does not necessarily mean positive bottom line; those critically depending on OTAs could find a way to generate higher and higher direct sales.
2 — Hello dynamic pricing!
Even if wholesalers are starting to accept dynamic contracts, many hoteliers I know are still against rate oscillations. It’s the usual case of “why fix what’s not broken?”, since their bottom line looks good so far. I get it: why bother if numbers are not red? They’ll be doing something only when the alarm rings, but by then it may be too late. The level of shortsightedness is higher when the hotelier is also the property’s owner… It’s the same type of hotelier that in the nineties told me “Why would I want a website with a booking system?”. None of those hotels exist today, but that’s not the point. The point is, why would you sell a room at 100 when you could’ve sell it at 200? Plain and simple math. Of course, it’s not easy to establish what’s the right price for the right segment every day, especially if you have many markets and even more room types to play with… but it’s way easier -and cheaper! — today than it was a year ago. There are no excuses: the market offers instruments >> that allow even tiny properties to establish the perfect pricing strategy, no large investments or specialized personnel required. I’ll go further on, stating that with a reasonable investment, that tiny property could even afford automated pricing strategies, just like the big chains!

3 — Inventory overriding
You know how it goes, especially in the luxury segment: the property has 40 rooms, but it might have 54 room types. Add to the mix the several extra options like sea view, butler service, honeymoon package and so on… Got the picture? It certainly makes sense from the commercial standpoint, but this “sukk” policy originated when there was no revenue management or instant booking confirmation. It’s a pain in the neck to manage, distribute and price that spiderweb of rooms and amenities, but it shouldn’t be. Suppose a property decides to allot 50% of its rooms to online distribution and the rest between TOs and direct: analytics will come handy not only for pricing options but it will be a must when it comes to inventory management. Instead of a convoluted collection of spreadsheets, how about a single interactive dashboard that would allow for simulations and disparate forecasting? And I mean artificial intelligence-powered forecasting, not the age-old pick-up based method, or similar crap based on historical data only. The kind of forecasting that would be able to foretell when/what and how much will spend every clustered segment… which in turn was clustered by an A.I. algorithm that’s included in your cheap, homemade RMS. So much so that with a system like that, the property with 40 real rooms could have 80 room types, each personalized by cluster, segment or even particular client. How about having a room called “Triple Coraline Seaview Exclusively for Mermaid Princesses”? I know my daughter will love it so much that I’ll be forced to return next year.
 Allow me to state it again: all this is possible with a reasonably priced BI system >> now. No need for the ultra-expensive RMS, that can’t go anywhere near something like that, anyway.
Conclusion
Everybody is talking about chatbots and bitching about OTAs, everybody is obsessed by RevPar and pissed by wholesalers’ attitudes. But the real problem is internal. Many hoteliers worry about not catching up with technology but are not willing to spend a dime on it, unless the competitor next door does it. Few of them realize that they already have the main ingredient to bake the profitable cake: data. Moreover, these days one does not have to be a Data Scientist or Mathematician to perform revenue management, nor possess an “analytical mind” as per job ads. And it makes no sense to spend hours and hours compiling spreadsheets and reports that are outdated (useless) the moment they’re finished. All that is needed is the oven (a BI system) and the recipe to convert data into a fragrant and profitable cake. What’s that recipe? The data-driven mindset that will turn you into a capable cook. Where are the ingredients? All the data collected by your PMS, plus any competitive intelligence you got yourself (from Expedia, Booking, webscrapping, etc.) or bought (from STR >>, for instance) and voila! Combined with a BI system, you’ve got yourself the basics for a tailor-made revenue management system.
If you are an experienced RM, and your tools are basically Excel and little more, please have a look at the alternative >> . If you’re a newbie, you might want to try the old methods first, to learn and realize later on the importance of using modern tools… But if you are the property owner, you’d better let your ready-made, A.I. powered, customized RMS do the revenue management for you, while you dedicate your time to the holidaymakers enjoying the premises. After all, human touch beats number crunching anytime.
Thanks for reading!
Marcello Bresin
Originally published at revva.pro on July 9, 2018.