REVHouse - Blog

The Importance of Direct Bookings for Hotel Revenue Management: Tips for Increasing Direct Bookings

Mon, 19 Jun 2023 18:13:00 +0000

Direct bookings are essential for the success of a hotel. By encouraging guests to book directly, hotels can save on commission fees charged by Online Travel Agencies (OTAs) and gain better control over their pricing and inventory management. With the right strategies in place, hotels can increase their direct bookings and improve their revenue management.

Here are ten powerful tips for increasing direct bookings:

Optimize your website for direct bookings. Your hotel website should be easy to navigate and visually appealing. The booking process should be simple and user-friendly. According to a recent study by SiteMinder, 52% of travelers will abandon a booking if the booking process is too complicated. Ensure that your website is mobile-friendly, as an increasing number of travelers use their smartphones to book travel. Research has shown that mobile bookings account for 48% of all hotel bookings.
Offer incentives for direct bookings. Incentivizing guests to book directly on your website can be an effective way to increase direct bookings. For example, offering a discount, a complimentary upgrade, or free breakfast can motivate guests to book directly. A study by Expedia found that when hotels offered a 5% discount on their website, they saw a 3% increase in direct bookings.
Leverage social media to drive direct bookings. Social media can be an effective tool for driving direct bookings. Use social media platforms such as Facebook, Instagram, and Twitter to promote your hotel's website and booking engine. Research has shown that social media can influence travel decisions, with 52% of Facebook users saying that their friends' photos inspired their travel plans.
Monitor and respond to guest reviews. Online reviews can have a significant impact on a hotel's reputation and booking rates. A study by TripAdvisor found that hotels that respond to guest reviews receive 17% more engagement and are 21% more likely to receive a booking. Monitor your hotel's online reviews and respond to them in a timely and professional manner. This shows that you value guest feedback and are committed to providing excellent customer service.
Offer personalized promotions and experiences. Personalization is becoming increasingly important in the hospitality industry. By offering personalized promotions and experiences, hotels can increase guest loyalty and direct bookings. For example, sending personalized emails to guests with special offers can encourage them to book directly. A study by Expedia found that hotels that offered personalized promotions to their guests saw a 22% increase in direct bookings.
Offer Exclusive Deals and Packages. Providing exclusive deals and packages to direct bookers is an effective way to incentivize them to book directly with your hotel. According to a survey by SiteMinder, 43% of travelers said they would book directly with a hotel to get a better deal. You can also offer packages that bundle together room rates and additional services, such as spa treatments or meals, to increase the perceived value of the offer.
Provide a Seamless Booking Experience. It’s important to provide a seamless booking experience for guests who choose to book directly. In fact, a study by the Baymard Institute found that 28% of online bookings are abandoned due to a complicated or confusing checkout process. Ensure that your website is easy to navigate, has clear calls-to-action, and allows for a quick and easy booking process.
Leverage Guest Reviews. Encourage guests to leave reviews on your website or other review sites, such as TripAdvisor or Google Reviews. A study by TrustYou found that hotels with a higher review score tend to have a higher conversion rate on their direct booking channels. In addition, displaying guest reviews on your website can help build trust and credibility with potential guests.
Use Retargeting Ads. Retargeting ads are a powerful way to remind potential guests who have visited your website but haven't yet booked to come back and complete their booking. According to AdRoll, retargeting ads can result in a 147% increase in conversion rates. By placing retargeting ads on social media and other websites, you can remind potential guests of your hotel and provide them with an added incentive to book directly.
Offer Loyalty Programs. Loyalty programs are an effective way to encourage repeat business and increase direct bookings. A study by Accenture found that 75% of consumers are more likely to make a purchase from a brand that recognizes them by name, recommends options based on past purchases, or knows their purchase history. By offering a loyalty program that rewards guests for booking directly, you can encourage repeat business and build long-term relationships with your guests.

By implementing these powerful tips, hotels can increase their direct bookings and improve their revenue management. The benefits of direct bookings include higher profits, better control over pricing and inventory management, and improved guest loyalty.

Sources:

Bieger, T., Wittmer, A., & Laesser, C. (2019). Revenue management in hospitality and tourism: Best practices and recent developments. Journal of Travel Research, 58(8), 1318-1336.
Lefranc, G., & Mendola, S. (2020). Smartphones and travel behavior: A study of how smartphone use influences the travel process. Journal of Travel Research, 0047287520980246.
SiteMinder. (2019). Global hotel business index 2018.
TripAdvisor. (2018). Influence and the customer journey: Understanding the impact of online reviews on traveler behavior.
Expedia. (2019). Expedia group's 2019 travel trends report.
SiteMinder. (2019). The impact of direct bookings on hotel revenue: Survey results.
Baymard Institute. (2020). 41 cart abandonment rate statistics.
TrustYou. (2018). The ultimate feedback guide: Everything hotels need to know about online reputation management.
AdRoll. (2020). 10 retargeting stats that will make you rethink your digital strategy.
Accenture. (2017). Seeing beyond the loyalty illusion.

Dynamic pricing. How to use it to benefit everyone?

Fri, 12 Mar 2021 08:29:00 +0000

Amazon, the largest e-commerce website, Uber, the ride-sharing company and Airbnb, the accommodation booking platform. These businesses are similar not only in terms of rapid growth, but also in terms of dynamic product and service pricing³.

Dynamic or real-time pricing is one of the types of price discrimination, that entails charging different prices for the same product or service. Price discrimination is usually classified into three types:

First-degree price discrimination, alternatively known as perfect price discrimination, occurs when a company charges a different price for every unit consumed. In practice, first-degree discrimination is rare.
Second-degree price discrimination means charging a different price for different quantities, such as quantity discounts for bulk purchases. For example, if a large number of hotel rooms are booked, or if they are booked several months in advance of the arrival date, a discount may be offered.
Third-degree price discrimination means charging a different price to different consumer groups. In the context of lodging industry, this means different prices for different guest segments, such as individual travellers, groups or corporate clients².

Dynamic pricing is the second-degree of price discrimination, and time is the key factor. Airlines, car rentals, and hotels have used it for decades, charging different prices depending on the level of demand at any given time. In recent years, these pricing practices have been significantly influenced by machine learning and artificial intelligence technologies. The most sophisticated revenue management systems allow for real-time pricing, considering the demand at a given moment, monitoring the behaviour of online consumers, the number of current reservations, the behaviours of competitors and other related factors. Typically, it operates independently, storing large amounts of data and dynamically changing prices across distribution channels.

Effective hotel revenue management tool

Modern hotel revenue management began in the early 1990s, when hotels began to implement various revenue management strategies, taking over the experience of airlines. The main goal of revenue management was to optimize the hotel's revenue by applying various types of price discrimination. As well as phasing out fixed prices, dynamically adjusting them to the market situation and other variables. Initially, there was no clear assurance about the effectiveness, benefits and drawbacks of such practices, and the observations made were contradictory. However, the results of recent research show that dynamic pricing has a positive effect on RevPAR (Revenue per Available Room). Furthermore, there have been correlations discovered between the range of price fluctuations and the increase in RevPAR¹.The results suggest that such pricing practices are one of the most effective revenue management tools and, when used skilfully, can significantly optimize accommodation revenue.

How do customers react to price changes?

How do customers perceive such practices? While there is no doubt about the positive impact of dynamic pricing on revenue, hotel guests are unlikely to be interested in hotel costs or revenue management issues, as well as efforts to increase revenue and profits. Buyers are interested in personal benefits and are determined by the perception of the predicted value-price relationship. A good purchase is one in which the advantages outweigh the potential losses or charges.

Does changing the price also change the consumer's perception of the value of the product or service? This topic has been extensively researched, and the prevailing view is that price changes must be reasonable and understandable to the buyer. For example, when surveying the customers of the company Uber, it was found that the company's pricing strategy, in which price increases are dictated solely by demand, often triggers negative feelings in customers. A significant number of the respondents felt that pricing was unfair because of its lack of clarity and predictability, as well as a lack of knowledge that would enable them to make informed decisions⁴. The fact that demand for a company's services (in this case, Uber) has increased is not a sufficiently justified reason for the customer to raise the price; this fact does not increase the product's value.

A completely different example are periods of increased demand on the market, which are now identified in advance (for example, December 31, which is traditionally the demanded date in hotels). In this case, the price increase is a reasonable step that is understandable to the consumer. While the price of both cases conceptually determines demand, the second example gives the buyer the sense of price justice.

Conclusion

There is no doubt that the potential of dynamic pricing in hotel revenue management is huge. Combined with a capability of machine learning technologies, it can significantly optimize hotel revenue and streamline sales and marketing processes. It can also benefit hotel guests, for example, to buy luxury services at a lower price during periods of low demand. However, the use of such practices and technologies does not in any way guarantee the effectiveness of the hotel's revenue management. Equally important factors are the quality of the product or service itself and communication with customers. Any revenue management tool that is not based on honest, understandable, and respectful communication with the customer would be inefficient and fail to achieve the desired results.

References:

Abratea, G., Nicolaub, J.L., Vigliac, G. (2019). The impact of dynamic price variability on revenue maximization. Tourism Management 74, 224-233. https://doi.org/10.1016/j.tourman.2019.03.013
Economics Online. Price discrimination. Available from: https://www.economicsonline.co.uk/Business_economics/Price_discrimination.html#EasyJets_Dynamic_pricing
Forbes. Dynamic Pricing: The Secret Weapon Used By The World's Most Successful Companies. 8 Jan 2019. Available from: https://www.forbes.com/sites/forbestechcouncil/2019/01/08/dynamic-pricing-the-secret-weapon-used-by-the-worlds-most-successful-companies/?sh=67707e7c168b
Santos, F.A. do N., Mayer, V.F., Marques, O.R.B. (2019). Dynamic pricing and price fairness perceptions: a study of the use of the Uber app in travels. Tur., Visão e Ação [online]. 2019, vol.21, n.3, pp.239-264. Epub May 08, 2020. ISSN 1983-7151. https://doi.org/10.14210/rtva.v21n3.p239-264

RevPAR, TRevPAR or GOPPAR?

Sun, 21 Feb 2021 08:00:00 +0000

Systematic monitoring of the company's performance is one of the key factors for a successful business. In this article, we will look at and compare three key performance indicators used by lodging properties to measure efficiency: RevPAR, TRevPAR and GOPPAR.

RevPAR

RevPAR (Revenue Per Available Room) is a measure of accommodation revenue per available room. It is calculated by dividing the total accommodation revenue by the total number of rooms available at the hotel. Or by multiplying the hotel occupancy (percentage) by the ADR (average room rate).

For example, if in a hotel with 50 guest rooms, the net revenue for one day from the rooms sold is 5000 EUR, then RevPAR is 5000 EUR / 50 rooms = 100 EUR.

RevPAR is widely used in the lodging industry. For example, in the publicly available financial statements, Hilton Worldwide Holdings, Inc. and Marriott International, Inc. include RevPAR together with indicators such as EPS (Earnings Per Share) and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

However, the RevPAR has one drawback: it is measured based on room sales only. Income from the sale of other facilities and amenities, such as food and beverages or other services, is not considered. Although the greatest share of lodging revenue has traditionally come from room sales, RevPAR is not inherently an empirical measure of the performance of the entire hotel.

TRevPAR

The TRevPAR (Total Revenue Per Available Room) indicator describes the total revenue per available number. It is calculated by dividing the total revenue by the total number of rooms available at the hotel.

For example, if in a hotel with 50 guest rooms, the total net income for one day is 7500 EUR, then TRevPAR is 7500 EUR / 50 rooms = 150 EUR.

Unlike RevPAR, TRevPAR represents the operations of the entire property and is relevant in hotels where other facilities, such as convention centres, restaurants and bars, as well as SPA services, etc., are commonly offered in addition to accommodation services.

Both RevPAR and TRevPAR, however, are revenue metrics that do not consider costs. While revenue increases reflect a company's ability to expand, increase sales and market share, business owners are often much more interested in the company's profits. Furthermore, even in everyday life, these indicators can give a misleading impression when assessing the profitability of a potential business. For example, when two group booking requests are compared with the same RevPAR or TRevPAR, but with a different number of rooms or additional hotel services used, the cost may vary and the profitability of each group booking may be different.

GOPPAR

Aware of the shortcomings of both revenue indicators, hotels are increasingly using the GOPPAR (Gross Operating Profit Per Available Room). It is calculated by dividing the operating profit by the total number of rooms available at the hotel.

For example, if in a hotel with 50 guest rooms the operating profit (total revenue minus operating costs) is 1000 EUR, then the GOPPAR is 1000/50 = 20 EUR.

The GOPPAR indicator reflects the revenues generated from all of the hotel's revenue centres, which in turn helps to draw conclusions about the profitability of the operation as a whole. It can be a major challenge for any lodging property to conduct and calculate a GOPPAR on a regular basis, as correct cost items are not always available or understood. GOPPAR is easier to use when analysing and comparing the efficiency of a hotel over a time period (day, week, month, quarter, etc.).

How can these metrics be interpreted?

There is still no clear answer to the question of which of the three metrics represents the performance of the operations of the hotel best.

The authors of a recent study* summarizing data from 500 US hotels from 2000-2017 and evaluating the correlations between RevPAR and GOPPAR with hotel operational factors, the financial performance of the business and macroeconomic indicators, found that:

Operational factors (hotel class, location, operation style, number of rooms) better describe RevPAR and have a higher correlation than GOPPAR;
RevPAR has significant correlations with the financial performance of a lodging company such as TSR (Total Shareholder Return). It was a surprising finding, counter to the belief that the net return on shares is typically influenced by the company's value, which in turn is influenced by the profitability ratios (GOPPAR in this case). However, financial market participants and potential investors are more likely to value the growth potential of a business, and revenue (RevPAR) explains it better than profit (GOPPAR);
Two of the macroeconomic indicators (GDP per capita and unemployment rate) have significant correlations with the GOPPAR, while the total GDP indicator correlates with the RevPAR;
RevPAR has significant correlations with GOPPAR.

In view of these findings, it can be concluded that, despite its shortcomings, RevPAR (as well as TRevPAR) more accurately reflects the long-term efficiency, growth potential and directly impacts GOPPAR, unless there are more important macroeconomic factors (e.g., drastic changes in the unemployment rate) affecting profitability. However, to obtain a comprehensive picture and draw reasonable conclusions, it is important to emphasize that any indicator or ratio must be assessed in the context of other parameters and processes taking place within the lodging company itself.

References:

*Lee, S, Pan, B, & Park, S. (2019). RevPAR vs. GOPPAR: Property- and firm-level analysis. Annals of Tourism Research, 76: 180-190. https://doi.org/10.1016/j.annals.2019.04.006

Revenue management models

Fri, 12 Feb 2021 17:05:00 +0000

Revenue management plays an important role in making effective and strategically sound decisions in a lodging establishment. Although it is difficult to imagine modern company management without it, this area is often only a "privilege" for large hotels, since small accommodations are unable to employ a full-time manager due to limited resources. This, in turn, has contributed to the development of various alternative solutions.

In 2017, a study* was conducted to identify revenue management implementation strategies in lodging establishments. 188 US hotel managers were interviewed, and range of revenue management models were identified: inhouse, centralized, corporate outsourcing, third-party outsourcing, and mixed method.

Inhouse

The paradigm of inhouse revenue management is a classic form of revenue management in which the lodging property invests in its capacity - personnel, IT technologies and training. One of the main benefit is more control over these processes. This model is often chosen by large lodging establishments.

Centralized

The coordination of various lodging properties by a central office is central revenue management. They are most commonly small accommodations that share a similar cooperative model (within a single chain or group of hotels). Thanks to the advancement of information technologies and the Internet, the Central Office Revenue Manager can collaborate with hotel networks and remotely provide the required functions.

Corporate Outsourcing

Outsourcing can be defined as the outsourcing of work or operations of an organization to an external entity that specializes in specific tasks. Corporate outsourcing is typically linked to branded businesses, such as where single-brand hotels purchase revenue management services from the headquarters of the company. For example, the Hilton Revenue Management Consolidated Centre (RMCC) is providing this service to individual hotel owners and operators.

Third-party Outsourcing

Outsourcing by third parties varies from corporate outsourcing in that the work is assigned to a third-party company. Even though outsourcing initially meant outsourcing less important tasks, the popularity of its use and the number of areas covered has expanded exponentially over the last decade. From housekeeping, food and beverage services to the reservation centre and revenue management services.

Mixed

A mixed model is a variation of each of the models listed above. For example, to make strategic and operational decisions, the lodging property integrates the data gathered with the forecasting algorithms derived from corporate or third-party outsourcing.

Key factors in choosing the most suitable model

There are at least three important factors to consider when choosing a revenue management model, based on the priorities and specifics of the lodging property.

Costs. The first and foremost concern is the financial aspect - the cost of recruiting a revenue manager and implementing revenue management technologies. Does revenue management require a full-time employee and how much will it cost to hire a qualified professional? If these costs are too high or the performance of specific tasks does not provide full-time work, then there is an alternative - to entrust these operations to one of the employees of the front office or sales departments as an additional task, for example. However, as there is always a need for more expertise to carry out these tasks and make decisions, it is vital to ensure that this employee has the required skills. Or consider outsourcing from third parties.

The second cost item is investment in revenue management technologies. Tools such as online distribution channel manager, competitor analysis, rate shopping and revenue management software are needed to replace manual operations and perform the simplest revenue management functions effectively. The selection of digital hotel management software is wide, and the offer is continuously expanding. Prices of online subscriptions range from a few tens of euros to a few hundred euros a month.

In-depth research. The second consideration is the need for in-depth research to obtain a more comprehensive analysis of the situation and the opinion of experts in the area. This would be particularly important when making long-term strategic decisions where, for example, macro and microeconomic indicators or a different target market analysis are needed.

Personnel management.The third is the personnel management factor, for example, allowing the hotel's qualified personnel to focus more on guest service than on data collection and analysis. Each of the revenue management models has its advantages and risks. Before choosing one or the other model, it is important for the lodging company to balance its needs with financial resources, as well as to assess the long-term importance of this service. Targeted and planned investments in automation of revenue management processes, technologies and attraction of qualified personnel will increase the company's competitiveness and encourage its growth.

References:
Altin, M. (2017). A taxonomy of hotel revenue management implementation strategies. Journal of Revenue and Pricing Management 16, 246–264. https://doi.org/10.1057/s41272-017-0077-1

What does it mean to manage revenue?

Thu, 21 Jan 2021 16:43:00 +0000

What is revenue management and what is the role of revenue manager in a lodging company? It is likely that such a question will still be posed by many lodging property owners. Such fields as sales or accounting are recognizable and common, but the assumptions of revenue management appear to be different or non-existent.

Accommodation facilities are the primary product of the lodging sector and the main income comes from the selling of rooms. It is the aim of any accommodation provider to sell all the rooms available on a given date. However, the achievement of that goal is complicated by the fact that a room in a lodging is a perishable product. In other words, it will not be possible to sell today's hotel room the following day. Like the aviation industry, where a seat on a single flight is the main product, it can no longer be offered after the flight departure date. Thus, the primary purpose and, at the same time, the most challenging aspect of revenue management is to make pricing decisions on hotel rooms that will be sold before the date of arrival of the guest for the highest possible revenue.

The key concept in revenue management is the calculation of opportunity costs or waiving revenue today to retain the opportunity to sell at higher rates in future. This principle works on the assumption that demand will rise, and consumers will be willing to pay more. Revenue management techniques vary, but the major ones are two - dynamical room pricing and room type restrictions.

Beginning 50 years ago in the aviation industry

While revenue management practices have existed since the dawn of commercial trade (for example, through marketing goods of varying quality at different prices to different groups of society), modern revenue management has emerged in the aviation industry. To increase demand, in 1972 BOAC (now British Airways) decided to experiment with seat pricing on passenger flights. For all travellers who were ready to book their seats in time, BOAC offered discounts on their flight tickets. The innovative discount policy of the airline was simple: limit the reduced price to only the number of seats that would be empty if discounts were not available. Once the limit has been met, BOAC continued to sell seats at full price.

Following the example of the BOAC and pursuing a similar discount policy, airlines quickly discovered that granting discounts would entail conditions in the event of a modification or cancellation of a reservation and that extra costs would apply. Initially, airline customers did not grasp this quid pro quo concept, but it was accepted over time and became the industry's common practice.

Driven by effective revenue management practices in the airline sector, a tiered pricing scheme, combined with discounts and booking restrictions, has been adopted by the lodging industry. The pioneers of revenue management were the Marriott International hotel chain, which was soon followed by other large hotel chains and hotel groups.

Early stage

Initially, revenue management practices were introduced in three major areas:

Pricing during periods of high, medium and low demand or during high and low seasons (prices have been printed and placed in a visible place in the registration area as well as published in the hotel marketing materials);
Setting restrictions on highly demanded dates. The key constraints were a minimum night stay or closed dates for arrival;
Setting the contract rates and conditions for business customers and other parties in exchange for a guaranteed volume of the reservation.

These decisions were strategic decisions that were reviewed once a year. They were approved by the general manager together with the heads of the sales and room division department. In turn, the implementation of the strategy was entrusted to the reservation manager. The key metrics of revenue management were hotel occupancy and ADR (Average Daily Rate).

One of the benefits of revenue management was the ability to forecast future reservation flow more accurately. This factor was often the primary reason why lodging properties wanted to implement revenue management principles in day-to-day management. Higher forecast accuracy allowed managers at all levels to make more strategically and tactically sound decisions on employees, strategy, and spending, as well as to formulate short-term and long-term business goals.

A New position - Revenue Manager

A new role was developed in the early 1990s - Revenue Manager, who became part of the hotel management team. However, strategic decisions were still taken at senior management meetings, and the revenue manager was only responsible for executing the decisions taken.

It was only after revenue management started to generate results that the position of revenue manager expanded. The revenue manager became a policymaker under the direct authority of the hotel manager. As revenue management practices evolved, new performance indicators were introduced. One of the main ones was RevPAR (Room Revenue Per Available Room), which, compared to hotel occupancy and ADR, provided a broader picture of the efficiency of the accommodation.

Over time, the revenue manager has also been tasked with the revenue management of other revenue centres, such as food and beverage department, room rentals, etc. Naturally, the future business was increasingly evaluated from the total revenue potential, or with a higher TRevPAR (Total Revenue Per Available Room).

Different models of revenue management

While the role of revenue management has become increasingly important, this position was often only a "privilege" for large hotels, as small accommodations are unable to hire a full-time manager for this function due to limited resources. This in turn facilitated the development of various alternative solutions and revenue management models, such as corporate outsourcing and third-party outsourcing. The advancement of technological solutions has made it easier to handle the key processes of revenue management remotely.

In turn, when evaluating a potential business, not only the potential revenue but also the costs and the potential profit of each project were increasingly analysed. In parallel with the revenue ratios RevPAR and TRevPAR, a profitability indicator such as GOPPAR (Operating Profit Per Available Room) was introduced.

Future perspective

In recent years, digital transformation has taken place in the field of revenue management - a range of innovative technological solutions have been developed. And it is also likely that the use of technologies, like artificial intelligence (AI), will have a further impact on the efficiency of management processes. Any manual process that is predictable and standardizable can be automated with relatively simple technological solutions, but AI is capable to analyse the historical experience and apply it in response to various non-standard scenarios. For example, dynamic pricing tools for hotels. AI software constantly analyses the market demand for a particular day, accommodation availability, simultaneously collects and evaluates historical data, analyses possible development scenarios, determines the most cost-effective price offer, adjusts, and personalizes it for different market segments and automatically changes the price in all online distribution channels. All these processes take place in real-time. The human role is only to initially help the software "learn" to make the right decisions, and then to monitor its operation.

Naturally, the role of the revenue manager has changed under the new circumstances. Understanding of digital technologies and their application in revenue management processes have become important and necessary. Extensive knowledge of finance, economics and digital marketing is required, as well as the ability to structure, analyse and interpret large amounts of data. However, the key role has not changed - the revenue manager must be an expert and competent advisor in strategic decision-making of the hotel management.

References:
Ferguson, M., Smith, S. (2014). The changing landscape of hotel revenue management and the role of the hotel revenue Manager. Journal of Revenue and Pricing Management volume 13, pages224–232. https://doi.org/10.1057/rpm.2014.11