Tomorrow's Strategic Revenue Leaders
Millions of hotel employees were furloughed or laid off due to the COVID-19 pandemic, which included thousands of hotel revenue strategists across the globe. After a successful summer of strong demand and millions of vaccinations, hotels slowly started calling staff back to work and hiring new team members.
The lodging industry seemed to see a glimmer of light at the end of the tunnel, however, this ray of light was quickly extinguished by the rise of the delta variant, which has left many hotel owners and general managers confused about moving forward with their plans for hiring and restaffing their operations. Leaders in all disciplines of the lodging industry have learned to manage with fewer associates and have made operational changes that are here to stay, such as bringing an end to daily housekeeping service in most hotels.
No doubt leaders have also been adapting new revenue management strategies and rethinking traditional methods of pricing based solely on demand. Past economic down turns have taught many industry leaders that demand is inelastic during weak financial cycles, and hotels have done a good job of holding their average daily rates while avoiding the temptation to start price wars.
While managing to hold rates, other new challenges have arisen around staffing shortages, which have forced many hotels to reduce their daily room capacity due to a lack of housekeeping and other operational staff. These experiences have required leaders to reexamine every part of their business including the most rudimentary principles of revenue management.
The philosophy of revenue management is evolving, but so are the skills needed to execute these new strategies and leaders will need to give deep thought to the knowledge, skills, abilities, and other characteristics that will be required by hotel revenue practitioners of the future; as well as the technologies that will be needed to compete in a rapidly evolving environment.
Strategic Differences: Branded Versus Non-Branded
Astute industry observers know that branded hotels have different sales and operating strategies than non-branded hotels. A city hotel follows one business model while a resort hotel has an entirely different one, and luxury hotels are very unlike economy hotels. Which raises the question, even before the Covid-19 crisis, why do all revenue management job descriptions look the same?
A cursory review of multiple revenue management job descriptions will deceive applicants and employers into believing that all revenue strategy roles are the exact same. Most revenue strategy job descriptions are peppered with many of the same copy and paste phrases, such as: lead revenue management teams, share analytical findings, strong Excel skills, and so on. While these functions are foundational to the role, these job descriptions focus heavily on tactical tasks while paying little attention to strategic undertakings.
Note there are some basic jobs that are common in all revenue management roles, such as the ability to forecast, track pace, understand distribution, communicate well, et cetera. Still there is a point of separation regarding the skills required in branded hotels versus non-branded properties. Branded hotel companies focus on a broad appeal to targeted demographics while delivering efficiency across all disciplines.
In these environments marketing, sales, and distribution are often centralized in a command-and-control environment that allows the operator little flexibility. The brand revenue manager doesn't need to worry about online travel agent (OTA) promotions or commission fees, because these agreements have been negotiated by headquarters with little say from individual properties. Branded property and regional revenue managers are not greatly concerned with distribution, because the brand has a department that focuses on these tasks, one simply needs to know which form to submit or whom to email.
Therefore, brand-centric revenue managers are more focused on task execution than actual strategy development. Revenue managers in branded hotels are extremely important, but their value comes from being an expert in the brand's systems and mastering the execution of duties that achieve the brand's desired results.
Independent or non-branded hotels do not have a formalized set of brand standards, checklists, or standard operating procedures to follow. Therefore, the independent revenue manager has greater flexibility and more agility in creating distinctive promotions with tailored distribution solutions to drive demand. When executed well a strategically focused revenue team can deliver tremendous success to a property.
Conversely, poor strategies can lead to disastrous failure. Therefore, revenue strategists in independent hotels must be experts in distribution channels because they don't have the resources that branded revenue managers enjoy. They must fully understand the hotel's value proposition and require creative out of the box thinking to grasp the demographics of the hotel's guests and create well-defined campaigns that will drive demand.
These revenue managers must be strategically oriented with the ability to quickly connect all the dots (marketing, sales, and distribution) into tactics that will drive optimal revenue for the hotel. Unlike their counterparts at branded properties, revenue managers at independent hotels must stay vigilant about rate expiration dates, consortia RFP deadlines, and countless other tasks that require continuous monitoring and updating.
As illustrated, the skills required for branded hotels vary broadly from non-branded properties beyond the essential duties. Yet, many employers and human resource managers simply replicate job descriptions from branded job boards without fully understanding the strategic implications. Socially we have been taught to benchmark the best, but thoughtful leaders understand that roles and their tasks need to align with the organization's strategy.
Organizational change expert, Price Pritchett, said it best, "the organization will never be what the people are not." In other words, if the goal is to create imaginative and innovated promotions that drive demand, the hotel needs to hire imaginative and innovated people. Pritchett's words apply to the fast-changing world of revenue strategy, especially when considering the evolution of the revenue management field. Afterall, most technical capabilities can be reproduced, but strategy requires deeper thought and distinct competences.
It doesn't matter if a hotel is branded or non-branded, the revenue strategist is ultimately held accountable to the same outcome, producing the most revenue for the hotel. The tactics required to achieve these goals are nuanced and vary depending on the hotel's overall strategy and managers need to carefully craft job descriptions to ensure they are hiring the people they need to succeed. Eventually, hotels must decide which characteristic is most important for their business model: process or flexibility.
Key Attributes of the Revenue Leader of the Future
It should now be clear that the business strategy serves as the foundation for the knowledge, skills and abilities that will be required of future revenue leaders. While individual job descriptions will differ based on the strategy, Covid-19 has exposed some skills that will be universally needed among all hotel revenue strategist in the coming years.
Future revenue leaders will need to focus on the overall business, not just rates and availability. For example, one independent New England hotel started operating on only Wednesday through Sunday during off season (meaning the hotel was only open four nights a week).
Initially, the property team was reluctant to adopt this approach, but within one month the hotel was more profitable than in prior years when it operated seven days a week. The profitability was a result of cost reductions on its low demand days and the ability to drive higher rates over the weekends. This met the revenue leader and the entire management team had to think about the business beyond increasing or reducing rates based on market demand. Agile thinking changed hotel's complete business model, but it has become far more efficient and profitable.
Revenue leaders will need to fully understand all distribution channels (specifically onward distribution), how those channels fit into the hotel's strategy, and the overall effect of participation. The revenue team at an independent Colorado luxury boutique hotel realized that it was commoditizing its product by selling on OTA platforms, where it was competing mainly on price. The hotel studied its core demographics and realized its target customers were either booking directly with the hotel or through luxury travel agents. The property decided to stop participating with all OTAs, and it has seen a boost in its overall profitability by not paying heavy commissions to OTAs.
While it took a minor hit in occupancy, the overall business is more profitable. This does not mean hotels should scrap OTAs, but when revenue managers understand the overall business strategy, it is easier to make confident recommendations about which channels the hotel should and should not participate in.
Over the past year numerous independent hotels have been implementing revenue management systems like IDeaS G3 or Duetto. Historically, branded hotels were the only ones that employed state of the art revenue management software (RMS), but today that technology is much more accessible. As technology solutions become more accessible, it will be important for both branded and non-branded revenue managers to understand what systems are being used by their competitors.
Revenue managers need to have a philosophical understanding of how these systems are collecting data and recommending rates. Some systems are extremely sophisticated and consider competitor rates, booking pace, historical data, and other attributes, while other systems are simple and operate on a basic set of rules that have been created by the operator. But, even the most advanced systems will fail to perform if the user lacks the necessary skills to operate these systems. Competitive intelligence is an important skill set because it gives the revenue leaders insight on how competitors are making pricing decisions and how often to expect rate optimization.
Revenue leaders will need to stay updated on emerging trends and technologies to become early adapters and platform masters of new methods for distribution and revenue management. Consider one of the major OTA companies is experimenting with an application that will show seasonal photos based on the guest's booking date.
For example, if a guest is booking a ski resort in the winter the OTA site would return images of snow-covered mountains, skiers, and cozy rooms with warm fireplaces. When a guest summer dates the site would return images of hikers, bikers, and swimming pools. The OTA hopes it can seize the emotion of the moment and convert the lookers into bookers.
Another technology company in Israel is working on an algorithm where online distribution channels can earn commissions based on the room type sold. In this example, an ocean view suite in a beach resort may only pay a 5% commission, whereas the room overlooking the parking lot at the same resort may pay 15%. These innovators want to help hotels sell all room types at higher rates by incentivizing travel resellers to promote less desirable room categories that are harder to sell. Of course, the technology company is still working on issues like what happens if the hotel offers a complimentary upgrade to that ocean front suite.
In general, revenue leaders need to be future focused not backward looking. The next generation of revenue leaders will need to have five core characteristics:
The ability to look wholistically at the overall business from a macro perspective.
Understand the profitability of all types of business and the costs of all distribution channels.
Realize that technology and software are tools of the trade, not the trade itself.
Maintain constant vigilance for disrupters and new applications that can change how a market operates overnight.
Understand the hotel's strategy and the target customer base, this alone will help the revenue leader make more decisive choices moving forward.
Building a New Strategic Job Description
In preparation for posting the next ad for a senior revenue leader, managers should follow the following steps to formulate a new job description:
First, think about the revenue strategy of the business. Is it to just drive the most revenue or the most profitable business? There is a big difference and depending on the answer will help establish what skills and abilities are needed.
Second, imagine the future, what knowledge, skills and abilities would the perfect candidate need? Keeping in mind that no individual will have 100% of everything, but those attributes should be weighted and ranked. The key questions are what are the most important skills? and why?
Third, what has traditionally been the biggest gaps in performance? Think about where the hotel is now and where it should be. In the past, what barriers have hindered strong performance? Has there been to much emphasis on historical data and not enough focus on the future?
Fourth, create a process map of the revenue management practice of the hotel. How will decisions be made, how often? What roles will other department heads play in the process?
Fifth, design performance measurements to make sure both the individuals and processes are working. What incentives will be used for recognition and rewards for high performers.
Once the new strategic job description is written, it is time to find the right team member to fill the position. Experience is important, but this is only one piece of the puzzle. Recruiters should find as many experienced applicants as possible, and then hiring managers should start looking for the traits that match the newly defined role. Hiring managers should not rush hiring decisions because the individual who will fill the role is a key tenant to the hotel's business strategy.
It has often been said that revenue management is both an art and science, and good revenue leaders must balance both. As the hotel industry evolves, revenue management will need to evolve as well and the industry needs leaders that can adapt to a continuously changing environment, because no one knows what new challenges tomorrow will bring.