Why having your distribution cost and net Revpar data sitting outside of your Revenue Management System won’t cut it.
Unless you have lived in a cave you have heard that the whole hotel Industry is talking about Rising Acquisition Costs and Focusing on new metrics such as Net RevPAR.
If you are one of these companies working with it, congratulations you are a pioneer even by thinking about it. That is already a step. The start is half the whole project and reflecting about Net Revpar in the organization sets the beginning of the journey.
But you might be on the next step, that is: you have reorganized your P&L data to measure all the acquisition costs. It is certainly good but does not give you any view on how much the customer was willing to pay, let alone if your online marketing investment of a few thousand euros a month landed business on the right days. At this point, you are unqualified to say I have implemented Net RevPAR.
After reorganizing your P&L lines the next logical step would be to explore the magic of Excel. Assuming you have good segment and channel data in a matrix you can start applying your standard OTA commissions, marketing spent and other costs. At this point, you start to be a little bit more strategic. Provided you have the courage to go through the pain of creating and maintaining a massive excel file. The outcome though will start giving you great information about your acquisition costs. At this point, you will start reorganizing your fixed yearly marketing budget into a more flexible one and start setting channel shifting strategies. Furthermore, when being in a multi-property environment benchmarking the different Hotels will give you tremendous insight on what goes well and what goes wrong. Net Revpar might or might not increase at this point.
So you don’t want to stop here. What you would be rather doing is being both strategic and tactical. In today’s digital environment you need to put the customer in the center. That is, you want to aggregate the most transactional data possible real-time. You want to allocate all your costs based on flexible time frames, production periods and stay periods across combinations of channels and segments. You want to add your loyalty spent per tier and even include these in-room amenities that come part of your client’s membership. And obviously, all of this forward-looking. Add to this your marketing spend and payroll and you start seeing opportunities at every corner. This is where Revenue Management comes together with Distribution Management and Finance.
So how does this process look like? It’s a cycle: What is the forecasted demand out there per segment and per channel? How much can I get out of it? Can I sell all my inventory with the current spent? If not how much do I need to spend to get extra demand and share shift? Is it worth it? What tactics can I use? Do I displace business? Do my short-term revenue goals align with my overall strategy? Do I take total spend and lifetime value in consideration? And finally, how should I price to meet this demand? And hopefully at the end assess, quantify success and repeat.
It is a complex decision process. That is why we have built the distribution cost module as an integral part of our platform together with Analytics and Price Optimization. It is all part of the same Revenue Generation process. In fact, if you are serious about improving Net Revpar there is no other way to do it. All of this makes me wonder why did we not do this a long time ago? What are your thoughts?