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Neil L. Salerno, CHME, CHA

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"What the Heck is Hotel Revenue Management, Anyway?"

 

Good Ideas are a Dime a Dozen…But, Success or Failure is in the Execution

By: Neil Salerno        

Knowing that the hotel business is often sensitive to nickels and dimes, not just dollars, it really pains me to see people throw money away without thinking things through. So many people have the energy to generate ideas, but too few have enough energy to think them through. Could it be because the responsibility for success or failure is in the planning and not in generating the idea? Stephen Covey, in his book “Seven Habits of Highly Effective People”, identifies “Begin with the end in mind” as one of those valuable habits.

It doesn’t take much extra time or talent to do some research and plan to the end, before you act, yet we see so many hoteliers who think coming up with an idea is a big deal.  I don’t know what drives these people to make some of the decisions they make, but an investment of a few more minutes to “begin with the end in mind” could save a lot of frustration.

Ideas are a Dime a Dozen

There was a day when we all lauded “idea people”. Today, it simply isn’t enough to come up with a good idea; without a plan to implement it and “see” the results it can produce. Today ideas aren’t enough. A weak idea, with well planned implementation, will perform far better than a great idea with no data or sufficient planning to back it up.

I will always remember a situation that occurred many years ago. Back in the days when bars were going strong and almost everyone was hiring live music to boost revenue, I worked with a food and beverage director who doubted the conventional wisdom of hiring live bands: “If we hire a band, we will need to support them with media advertising and we’ll need additional security; our investment will be in the $thousands. We’d have to sell a lot of drinks, just to get our investment back; with no guarantees.”

“If, instead, if we give two drinks for price of one, we run no investment risk and can still boost business.” Of course he was right in his hunch and the nightly “two-fer” was born. He began with the end in mind.

Stop looking to create that one consummate great idea, which will lift your property out of its doldrums. It probably already exists; steal a good idea, improve it, and make it work for you. Chances are that someone has already invested in its feasibility.

Do the Necessary Research

I talked to a hotel owner recently who has a small property in Southwest Florida. Granted, the transition from high season traffic to off-season can be pretty dramatic; demand tapers off quickly; it’s a little scary. Having seen a few guests from South Florida last summer, he decided to spend $2500 to place several ads in a South Florida newspaper. This amount may not sound like much, but for a small hotel it’s a sizeable investment. The sad thing is the only data he used was his own perceptions.

His results were 3 reservations for about 6 room nights at $129. Of course he needed 20 room nights, just to get his $2500 investment back! Successful or not, this is not the best way to begin a program. Check first to see the size of that market or to see if there are more lucrative markets available which would make much more sense.

If he thought it through, there are several things he could have done with much better probable results. One such program could have been to offer a dramatic discount for Florida residents, posted on his web site and specific third-party sites, which could have produced greater results, without any initial investment to recover. This has been and is still being done all over Florida with great results.

Unfortunately, there are no short-cuts or miracles in hotel marketing; if your hotel is located where business is seasonal, understand that creating demand, that doesn’t currently exist, is very difficult and costly. It’s far better to look for existing markets in which you can tap into. Resist the instinct to use your own perceptions to determine your objectives; perceptions are rarely correct. Experimenting is neither necessary nor rewarding.

Use the Resources Available to You

Your local CVB can be a great resource to determine the feeder-markets for your area and the demographics of those who are traveling to it. Find the most cost-effective way to reach those people, and then determine the best program to capture them. Most CVB’s collect this data to develop their own ad programs. Tap into the CVB’s efforts through their co-op ad programs. Most CVB’s hire ad agencies, which do research, to find the most lucrative demand markets for your area.   

The amazing thing to me is that the same people, so willing to spend money without thinking things through, are the same people who complain about high third-party aggregator commissions. Sure, commissions can total large sums of money, but, if there are no reservations, there are no commissions to be paid. Third-party aggregators can be great partners in boosting off-season business.

Commissions are an Investment with an Immediate Pay-Back 

I once met a general manager many years ago who told me that he wished his travel agent commissions were ten times as much as they currently were. At first blush, this sounded strange, until he followed up by adding, that he’d be getting ten times as much business from travel providers; business he would not have received on his own.  

Now, don’t get me wrong, advertising can be beneficial; if one is aware of the results necessary to make the program successful. What I am saying is that it helps to begin with the end in mind. Before committing to investing promotional dollars, know the size of the market in which you will be investing, know what results you will need to get your money back…plus profit. Then, determine if those results are probable or even possible.

Don’t overlook the obvious; discounts or special rates don’t cost a thing until someone buys it. The sad thing is that people who foolishly spend money to advertise, without planning, usually combine discounts into the ad itself as well; making a profitable return even more difficult.

The Internet is a powerful medium. Your web site and third-party booking portals have the ability to provide the boost you may need. Develop a dialogue with them; their goals are the same as yours. If your marketplace is sensitive to rate discounting, you can use opaque distribution; such as packaging. Creating packages can hide actual rates and provide a value to the guest without warping your rate structure in other markets.

Don’t be Afraid to Resurrect Old Ideas

It may be an old concept, but frequency of stay promotions, such as 3rd or 4th night free, still appeal to many consumers. The beauty here is that this is a discount with no cost attached unless people buy it. Think outside the box; offer your corporate accounts some special value-added amenities for your down periods. They could develop into amenities that they might pay for when you are busy again.

This is the time of year that hotels are usually contacted by third-party booking portals. Obviously, free listings on booking portals have no down side, but beware of booking portals that charge an upfront fee for listing your hotel. If they charge a fee, get the first few months free to see what kind of results you can get. If you can’t get that, check out their site’s traffic and check the results for other hotels in their listings. Begin with the end in mind.

If your hotel is smaller and you don’t have the resources to plan and implement promotions, there are an abundance of outside sources with which you can consult. Check to see if any of them will provide financial guarantees for their work. Often, their fees can be wrapped into promotion expenses and still produce extra profits.

Be aware of what results are reasonable for the investment you are making. Sometimes an investment in preparation and planning will bring the best results; begin with the end in mind.

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