If you want to fly Southwest, you’re going to have to go to southwest.com.

It isn’t a cutting edge ad, but the underlying message is revolutionary.

“Dear Travelers. Southwest Airlines can’t be booked on Expedia, Travelocity, or any other OTA. If you book a flight on those sites, you have no reassurance you’ve received the best schedule or best value. To do that, you’ll need to make the herculean effort to check our website.

Yes, we’re that good. What we have to offer sets us apart. We don’t need to sacrifice profits by allowing someone else the privilege of selling our product. If you think we’re just another airline offering the same product and value as all other airlines, go ahead and book without checking our site. But we bet you don’t, and you won’t.”

What gives Southwest this confidence that hotel companies apparently lack?

When you think about it, the willingness of the major hotel companies to give up 15% – 20% of their rate through OTAs is in direct contrast to the claims made by their marketing efforts. Hotels sell experience first and foremost.

“Dear Travelers. Sure, there are numerous competitors to choose from, but your experience with us will be so uniquely (insert choice of hotel company name here), you really can’t book anyone else.

Except you might, because we really aren’t that special, so we list ourselves in the OTAs alongside every other hotel on the planet in order to ensure we have a shot at getting your business. It’s not like you’re going to go looking for us if we’re not on the OTAs. We only have (insert number between hundreds and thousands) of hotels to offer and if we didn’t put them on the OTAs, we assume you’re willing to forego awareness of those (insert same number again) hotels to save yourself the sixty second effort of checking our website.”

The number one argument as to why a hotel company has to be in the OTAs is exposure. This argument is usually provided by the hotel’s marketing person or the OTAs themselves. No one knows how many bookings generated through other channels were initiated by the traveler first finding the hotel on an OTA. I understand that for lesser known brands and independents. But Marriott? Hilton? Intercon? If Southwest can stand on its own, you’d think at least the largest hotel companies would enjoy sufficient brand awareness to do the same. And in my experience, the majority of the smaller players would love to pull out but can’t afford to do so as long as the big guys are there.

Simultaneous to providing our inventory to the OTAs , we’re putting all kinds of efforts into on our online booking engines to try and entice buyers away from booking us on the OTAs. Not sure how to define that strategy, but it definitely isn’t the stance Southwest chose.

Confidence.

The experts have all come out with industry projections, but for every article projecting double digit RevPAR growth there’s a contrasting article advising caution.  ADR is going to be up somewhere between 2% and 20% depending on whom you choose to believe.  Occupancy performance is going to depend heavily on which market segments provide the foundation of your business. 

No matter which industry forecast you adopt for guidance, there is one fundamental principle to keep in mind when building your hotel’s 2011 budget. 

None of the hotel industry predictions apply to your property. 

Allowing an industry forecast to influence your hotel’s 2011 budget projection is like using your country’s GDP to forecast your receptionist’s productivity.  The figure is far too general to be of use at the unit level.  Unfortunately, these guidelines tend to bring out the ego in everyone.  As soon as industry projected growth is mentioned, we become obsessed with outperforming the industry, regardless of our hotel’s individual circumstances.

Fortunately there is an algorithm that can assist each hotel in determining where its greatest opportunity lies to increase share, at least for the transient segments.  This in turn can set the table for an optimal strategic plan and an accurate budget.   The formula is a combination of two measurements and requires the following:

• Retail ADR – Most hotels have a market segment dedicated to transient retail sales.  These are the sales at the best available rate, rate of the day, or whatever term is used for the lowest unrestricted, non-negotiated rate.
• Overall Transient ADR – The ADR for all transient segments, including the retail segment.
• STR Report – With an accurate comp set, preferably by segment so transient data can be isolated.

Armed with this data, one quick calculation can determine the optimal transient strategy with no influence from industry forecasts necessary.

Step 1:  Divide the overall Transient ADR by the Retail ADR.  Research across a wide variety of property types has consistently indicated an optimal result is around 85%, give or take a few points.  This figure has different names in different organizations, for the sake of this article it is called the Transient Rate Ratio (TRR).

Step 2:  Apply the results from Step 1 to the hotel’s transient performance on the STR report.

A total of four combinations can result, with a separate optimal strategy for each combination.

1. TRR above 85%, STR transient occupancy index is above the transient ADR index.  This is an indication the property’s retail ADR is likely too low, there is room to push the retail rate within the marketplace.  Even if doing so loses a few sales, overall revenues are likely to increase.
2. TRR above 85%, STR transient ADR index is above the transient occupancy index.  This indicates the non-retail business (discounts and negotiated rates) is likely priced too close to the retail rates.  Offering larger discounts for restricted rates should result in more sales and improved RevPAR.
3. TRR below 85%, STR transient occupancy index is above the transient ADR index.  The property’s non-retail business is likely underpriced.  This could apply only to discounted rates, or negotiated corporate rates, or both.  Whichever non-retail segments are producing significant room nights at reduced rates should be reviewed with an eye to reducing the gap between the segments’ ADRs and the retail ADR.
4. TRR below 85%, STR transient ADR index is above the transient occupancy index.  There’s no easy way to break this news, the retail rates are likely overpriced.  Reducing the retail rates can generate increased occupancy and increase the mix of retail sales, improving revenues.

This tried and true algorithm consistently produces optimal transient strategies at the individual hotel level.   Ideally it should be applied to each month, as one transient strategy rarely fits all seasons.  Further disaggregation can include calculating it by weekday versus weekend if the differences between the two are significant.

There will still be plenty of mystery and surprises in the year ahead, but using your property’s specific performance within the comp set to determine transient strategy takes both the guesswork and the ego out of planning for 2011.

Rather than throw our hands up in the air and just let business fall where it may, it is revenue management’s responsibility to establish clearly defined parameters to direct future success for the sales team, even without the benefit of a crystal ball.  No group lead is going to fit perfectly into these guidelines, but they provide a measure by which different group opportunities can be evaluated.

They also go a long way toward mitigating the risk to the hotel in the event the group doesn’t  materialize exactly as planned, which only happens 100% of the time.  The client’s crystal ball works no better than the hotel’s.

Two room night considerations must be evaluated before assessing function space allocation. 

The True Lead:  Experienced sales executives know the first step is to take every lead and re-work it to reflect reality.   If the lead is for four peak nights but the program ends at 5pm on the third day, that fourth night is subject to 50% slippage or more.  History isn’t the reliable factor it once was in forecasting a group’s true pattern, but a little common sense and a healthy dose of scepticism can go a long way in stripping the fluff out of an RFP and determining the true potential of the group’s room night production.

Ideal Room Pattern:  Sounds simple enough, but pay close attention to defining the optimal peak room night pattern.  Leads often come through for groups requiring six nights, but the group peak encompasses only one or two nights.  In those instances, the group should generally be evaluated based only on the peak nights and the function space assigned accordingly.

Once the group’s room night requirements have been objectively evaluated, the real game begins.  Assigning function space can be annoyingly complex, but having guidelines established at the outset makes the process faster and less contentious. 

Following are a list of considerations that should be established up front to streamline the process of function space management.

1. Peak acceptable blocks for “room only” groups.  Okay, this doesn’t actually assess function space, but unless there is an extraordinary amount of local catering demand for the property, this needs to be established to ensure the space doesn’t go dark and fail to generate revenue during citywide conventions.  Generally this guideline is established by demand season, based on the amount of group demand anticipated and the odds of finding a “spacey” group to fill up those empty function rooms.
2. Group catering revenue per room night.  For groups requiring function space, this is a better consideration that the traditional guideline of rooms to space ratio.  A rooms to space ratio advises how much function space a group should receive based on how many room nights are provided.  That’s great, but a group taking a lot of guestrooms is automatically rewarded with a lot of function space, which is only warranted if they’re actually paying for that space.  I prefer to allocate space based on how much catering revenue, including room rental, is being collected per room night booked.  In my opinion, a small group with a lot of catering revenue can take as much or more space than a large group paying very little for the function space.  As long as they pay for the space, it’s none of my business how many people they put in it.
3. Headquarter status versus non-headquarter status.  If bidding on headquarter status, two offers should be included in the bid, one with a larger block and catering minimums for headquarter status, and one with a smaller block and a higher rate if the headquarter status is assigned elsewhere and the hotel is only being used for overflow.  There’s no harm in letting the client know up front why it would pay to assign your property headquarter status with all its associated catering revenues.
4. Affiliate business.  Group agreements often forget the clause ensuring affiliate business is not subject to the same concessions provided to the main group.  Discounted room rental or any other concessions provided in the group agreement should not be extended to affiliates.  Conversely, if a group bid assumes a significant amount of catering revenue from affiliates, a clause should be in place laying out the how the agreement will change if that promised affiliate business does not materialize.
5. Attrition and/or Advance Reductions.  Any agreement including an option for an advance reduction in room block and or an attrition allowance should have a corresponding clause in place allowing for a change in function space allocation if those reductions in room block are exercised.  I’ve seen too many groups drop significant room nights per their agreement but continue to cling to all of the original function space allocation, preventing the hotel from replacing those dropped rooms with another group due to lack of available space.  On the other hand, with a clause that ensures function space is reduced at the same time the client exercises any options for room reductions, a catering minimum reduction should be permitted simultaneously. 
6. Vertical space vs horizontal space.  I made this term up, but bear with me because there is a huge difference between the two.  Often a group is evaluated as being “spacey”, requiring too much space for the catering revenues (or guest rooms) provided.  However a group that is horizontally spacey is much more damaging than a group that is vertically spacey.  Vertical space means the group needs too much space on the dates the guestrooms are inhouse.  For example it fills half the hotel’s group room needs but requires all the hotel’s function space.  That’s bad.  But far worse is the group that is horizontally spacey, requiring the correct proportion of space for the dates the group is inhouse, but also requiring that same space for two to three days pre and post for setup and tear down.  That’s really bad, and likely to displace much more business than a vertically spacey group.  Few hotels pay attention to horizontal spaciness and get stuck with accepting the pre and post terms because they are too far down the line by the time this issue is noticed.  Have predefined setup and teardown parameters established, determining what is acceptable and what requires approval to keep this issue on the front burner during the “discovery” stage. 
7. Breakouts.  Often trickier than space for the plenary session, the number, size, and assignment of breakouts is frequently glossed over during contracting which can lead to lost revenues down the line.  At the very least, ensure every sales executive is armed with what can truly be accommodated in the breakout rooms, as well as all charges associated with converting guestrooms into breakout rooms if applicable.
8. Agenda due dates.  Generally assigned based on the size of the group and the length of the booking window, but something along the lines of “everything booked outside a year, agenda is due eleven months prior to arrival, everything booked inside a year, agenda is due at time of booking” will ensure the hotel isn’t turning down short term leads by holding too much space with no agenda attached.
9. Exhibit space.  Whether table top or booth, separate charges for each exhibit should be considered in addition to room rental.  This covers lighting, heating, cleaning, etc and is generally passed on to exhibitors so ensure it’s included.
10. Guaranteed room names.  Your convention services team may be happy to tell you how much business is lost because they are unable to re-assign function space due to meeting room names being guaranteed in contracts.  There are groups that will absolutely insist upon it, but it is costly to the hotel and therefore should be charged if offered.  Several hotels I’ve worked with will only agree to guarantee specific meeting rooms with rack room rental or a set fee (e.g. $5000.)  Once there is a price to pay for guaranteed room names, clients occasionally find ways to be flexible on this issue.
11. Catering minimums.  Don’t leave this to guesswork.  Take whatever your menu pricing is today, establish an annual escalation percentage, and provide your sales team with catering pricing for the next 15 years.  The impact of annual compound increases is not well understood and often minimums are set far too low by the time the group actualizes, cutting into F&B profit margins.
12. Freesale.  Left the most popular topic for the end.  In my opinion, freesale dates for function space are best established by revenue management.  Your wedding manager is likely to believe the ballroom should be freesale two years in advance, your corporate group sales manager is more likely to believe the correct limit is four months.  Revenue management doesn’t care who sells it, and can therefore evaluate solely on how best to ensure it is sold.  More often than not, different spaces warrant different freesale dates, so if there is currently a “one size fits all” approach, it may be worth taking another look.

This isn’t everything, but establishing guidelines for the above can improve both catering and room revenues by keeping function space as aligned as possible with the group room base in place.

The complexity of moving parts can be overwhelming. I have yet to see a lead for the perfect group. You know the one. It has the exact rooms to space ratio, stay pattern, and F&B spend the hotel is seeking. Never happens. In fact, I have yet to see a group lead that meets just the first requirement. Forget the Holy Grail, find me a group that requires precisely the function space warranted for the amount of guest rooms and F&B provided and I’ll believe in miracles.

I’ll be writing a series of articles specific to the needs of convention properties, but today’s topic is concessions.

Concessions are the subversive clauses in any group contract that can quickly turn a great piece of business into a marginal opportunity, and during each economic downturn they tend to spread unchecked. This is problematic, since the business being booked today is likely to actualize smack dab in the middle of a peak time several years down the road. When evaluating a lead, it is absolutely necessary to factor the concessions into the true value of the group.

Regardless of market conditions, there are methods of ensuring concession decisions are being made soundly. Most are simply a matter of communication with the sales team, ensuring each sales manager is armed with the information necessary to negotiate concessions with the lowest impact to hotel profits. Many believe they are, but most are not.

Consider two concessions that are frequent tenants of group contract clauses, complimentary room allocations and F&B discounts.

Assigning one complimentary room for every 50 paid rooms was the norm ten years ago, but that figure has slid to as low as 1 per 20 in recent times. Sounds ominous, but how does a 1 per 20 comp allotment compare to a 20% discount in F&B? In an either/or scenario, would your property’s sales person make the right call?

For larger properties, it’s a valuable exercise to put together a concession calculator spelling out the common concessions used, their cost to the hotel, and their value to the client. Below is a list of items to consider:

1. Complimentary Room Allotment:  The cost of comp rooms to the hotel largely depends upon the dates being booked. Is the hotel likely to sell out and therefore potentially displace with the comp rooms? If so, the cost assigned to the comps needs to reflect the forecasted ADR of the rooms being displaced. If not, the cost for the comps is simply the cost per occupied room. There is obviously a significant difference. A general displacement ADR should be assigned for each future year, or even each season in the year, allowing an accurate cost calculation of the comp allotment. This is an important calculation because the value of the comps to the client is the same regardless of the hotel’s occupancy, whereas the cost to the hotel varies significantly. Another consideration when negotiating is whether the comps are assigned per night or cumulative. Per night is preferable to the hotel and generally results in a lower number of comps awarded.

2. Upgrades:  Here’s an underappreciated opportunity. Many premium room categories have the same cost per occupied room as the standard categories. In addition, every hotel has different premium rooms, allowing a point of difference to the competition. If the group is for dates when the market is unlikely to be compressed, upgrading into premium rooms has literally zero cost to the hotel, yet many sales teams are surprisingly reluctant to “give it away” and instead lean towards concessions that have associated costs. Itemize a list of every room category in the hotel, the rate premium each holds over the standard category, and the difference in cost per occupied room, if any. If suites consist of more than one unit, reflect the increased cost accordingly. Putting this into the concession calculator can assist the sales team in pumping up the concession value for the client with no cost to the property.

3. Meeting Room Rental:  Also known as pure profit, yet one of the first things to hit the pavement when concessions are being assigned. If room rental is waived immediately, it can’t be used when the negotiating gets down to brass tacks. If the RFP indicates bids won’t be accepted if rental is included, ensure that lost revenue is tacked on in other areas to compensate. Even a heavily discounted room rental can provide significant profit to the hotel vs waiving rental entirely.  As one function space manager once said, “just because it’s freesale doesn’t mean it’s free!”

4. F&B Discounts:  Deadly. Yet I frequently speak to sales people who interpret $100,000 in room revenue to equate to $100,000 in F&B revenue. A quick demonstration of profit ratios from the two departments and how much makes it to the bottom line will effectively adjust that thinking. Ensure your sale people clearly understand your rooms vs F&B profit margins. I recall the jaw-dropping reaction of a very savvy sales manager when I did the math and informed him we would be better off dropping the room rate $10 and assigning a 1 per 20 comp allotment than giving a 30% F&B discount to a group requesting it. The math is often surprising, make sure it’s being done.

5. Parking and Internet:  Is there a hard cost to the hotel for either or both? Or is it “just” a matter of lost profit? High speed Internet access is generally considered a given these days, but if your property does charge for Internet access this is an important concession to consider given the likelihood of usage. Presenting an option of with or without Internet, each with a different room rate, is effective, particularly since some groups are responsible only for the room rate and may give an unexpected response. Don’t throw Internet in without a quick glance to ensure there aren’t other values you can give the client that would have less impact on the revenue stream.

Lastly, the RM Three: Three concessions that rarely receive the attention they deserve can have an enormous impact on total hotel revenues – attrition allowance, cutoff date, and cancel and replace clauses. Usually only the revenue manager comprehends the value of these items.

6. Attrition Allowance:  The industry’s response to a rooms resold clause, and an agreement should contain one or the other but not both. Essentially, an attrition allowance is the hotel’s estimate of how many rooms it will be able to resell in the event the group does not pick up its entire commitment.  The hotel may turn away other business, particularly other group business, because it is holding a contracted block, therefore attrition allowances should be carefully worded. For many convention properties, if the group doesn’t pick up by the cutoff date, it is far too late to resell the rooms waived in the attrition allowance.  In many instances it is preferable to hand away other concessions like candy before waiving attrition.

7. Cutoff Dates:  Few things have more value to a revenue manager than the length of a cutoff date. The earlier the cutoff date, the more time revenue management has to re-strategize and adjust selling strategies to maximize revenues. The later the cutoff date, the more vulnerable the hotel is to the contracted group. Again, the cost of this concession fluctuates wildly depending on whether the group dates are during high season or low season. If the group is booking a need date, the cutoff date can be as short as necessary because the hotel is unlikely to be turning away business due to holding the group block. However during high season, the lengthier the cutoff date, the more revenues the hotel can generate. Contract accordingly.

8. Cancel and Replace:   The definition of a cutoff date is frequently forgotten in group agreements which can lead to “confusion” that virtually always benefits the client and hurts the hotel. In short, the cutoff date should be just that. After cutoff, any group rooms that cancel are reverted to the hotel for resale to the general public. But if that isn’t clearly defined in the agreement, clients are likely to assume they have the ability to cancel reservations after the cutoff date and replace them with new names. If a group is insisting on having a cancel and replace clause, that is the equivalent of having no cutoff date.  This prevents revenue management from the ability to accurately predict occupancy and set optimal selling strategies for any of the group dates. A large cost should be assigned to adding a cancel and replace clause to a contract, with increases in rate or other areas to offset this hidden revenue killer.

It may seem confusing, but developing a concession calculator based upon the above considerations can add tens of thousands (or more) to a convention hotel’s bottom line on an annual basis. Lay out the cost to the hotel and the value to the client of each, and prioritize concessions so the sales team knows which are preferred and which are to be avoided.

It doesn’t matter how much revenue lies in the first two pages of a group agreement. Concessions determine how much profit materializes by the last page.

In past years, I witnessed some cutthroat approaches to revenue management that are so far outside the box they’re in a different area code. Below are detailed scenarios of what can be achieved through innovative and strategic revenue management. To protect the wise and sneaky, all stories are credited to the fictional Hotel QZ. Which are true and which are myth? I’ll leave it to you to decide.

The Case of the Missing Goldfish Bowl:
It was the beginning of RFP season and a major downturn in the economy was just around the corner. The Business Travel Sales Manager and Revenue Manager at Hotel QZ had just received their marching orders to “put the lights out.” Translation: Pull every account out of the competitor across the street. The job isn’t done until the lights are all out in the windows of that competitor.

The challenge was finding the right accounts to solicit. The competitor’s top accounts were all shared with Hotel QZ, and increasing share from those was one task. But how to identify the accounts that competitor had hidden away? Travelclick reports were sifted through but only provided part of the story, including many accounts that were scattered across the comp set due to location or other reasons that could not be overcome. What Hotel QZ needed was a specific list of the corporate travel staying across the street.

One morning during the busy breakfast rush in the restaurant of the competitor hotel, a young woman dressed in business attire walked up to the hostess podium and removed the fish bowl. You know the bowl. Patrons throw in their business cards to participate in a monthly draw for a free stay or dinner or whatever. The woman walked away confidently. Had she been approached by restaurant staff, she would have explained she was a sales intern, taking the bowl to the Director of Sales in order to conduct the draw and it would be returned shortly. But she wasn’t approached.

The woman walked the fishbowl straight over to Hotel QZ (which happened to be her employer), where all the business cards were quickly photocopied, then just as casually marched it back and returned it to its rightful place on the hostess podium. No harm, no foul, no one noticed.

And that is how Hotel QZ identified eight accounts staying at the competition to target for new business.

The Case of the Mysterious Climbing ADR:
This one may (or may not) have occurred way back in the days when the dot com bubble was still expanding and markets on the eastern seaboard were compressed to the point of explosion. The spring had been insanely busy, and all eyes were pointed toward the fall and how to make the most of what was shaping up to be unprecedented demand.

Beginning in May the corporate office of Hotel QZ issued a directive to all properties to raise their rates for the fall. Regardless of what the rates were, they weren’t high enough. They had to be the highest. Eventually the head office advised all hotels they would be shopped every week for Tuesdays in October, with their rates compared to those of their competitors. The message was not subtle.

Hotel QZ headed off in a different direction entirely. Understanding that the real message was not about charging the highest rate but instead achieving the highest ADR, Hotel QZ priced itself below its competition for the fall season. All summer long, while the competition was priced well over $300/night, Hotel QZ was rapidly selling off rooms at rates from $299. The Tuesday reporting issue was easily addressed by placing a minimum two night stay on every Tuesday from Labor Day to Thanksgiving. Therefore when the competition’s rates were pulled by head office, there was no rate available for Hotel QZ for comparison.

By the time Labor Day arrived, Hotel QZ had very few available rooms remaining for the fall, and a transient rate on the books of $340. The day after Labor Day, Hotel QZ raised its rates to over $400/night.

Knowing it had numerous corporate accounts with last room availability and negotiated rates well below what Joe Public was prepared to pay, the hotel’s fall strategy had been simply to sell as many rooms as possible before hitting the corporate booking window. The few remaining rooms available in the fall were booked primarily by these accounts, with each booking pulling down the hotel’s transient ADR. The fewer available rooms, the better. By the end of October, with the entire market reporting occupancies in the high 90% range and ADR the only distinguishing factor, Hotel QZ’s ADR was $40 ahead of the nearest competitor. Highest ADR achieved by charging the lowest rate. Mission accomplished.

Only On Sundays:
During good times, short-sighted hotels try to play games with their loyal corporate accounts and limit the amount of “last room available” availability. When they get caught, they create ill will with the same clients they will be desperately trying to win back during the down side of the cycle a few years down the line.

When business is that good and ADR is the only way to get a leg up on the competition, there are ways to limit lower negotiated rate sales without damaging relations with loyal accounts. Hotel QZ took an interesting approach. With the entire market compressed, only around 20 rooms available on many nights, and ten times more demand than available supply, Hotel QZ simply closed the hotel. With all rates closed, there was no challenge with last room availability, as bookers assumed the last rooms were already sold.

To sell off those remaining few rooms each night, the hotel opened inventory and rates on Sunday mornings and closed them again on Sunday evenings. Since the travel managers weren’t booking rooms on Sundays, the hotel picked up its sales only at high retail rates. By the time the travel managers returned to work on Monday morning, the hotel was once again closed and no one was the wiser.

Conversely, during those dates of major events (Superbowl in town, etc) that every competitor has listed as blackout dates on its RFPs, Hotel QZ contacted its top producing accounts and told them that rooms had been set aside for their use. Even when the hotel was completely closed in the GDS, its top accounts were aware they could count on Hotel QZ to bail them out when everyone else had closed their doors. The biggest events in the marketplace are often the best time to secure loyal business for years to come.

The Case of the Vacant Parking Lot:
It was not going to be a good weekend for convention hotels. The convention center had booked a huge trade show with local attendees, so while parking would be at a premium, there was no group base to be had.

An interesting dilemma arose during the board of operations meeting at Hotel QZ. The hotel was hosting the chamber of commerce breakfast on Friday morning, with 500 attendees from 7:00 – 9:00 a.m. The trade show at the nearby convention center began at 8:00 a.m. and ran all day until 6:00 p.m. This was shaping up to be a fiasco for parking revenues. By the time the trade show attendees arrived, the hotel’s parking lot would be full with breakfast attendees requiring only two hours of parking. By the time the breakfast ended, the trade show attendees would all be parked elsewhere for the full day.

At 6:00 a.m. Friday morning, the “Lot Full” sign popped up outside the parking lot of Hotel QZ. The lot was empty but underground so no one was the wiser. Plenty of door staff was on hand to direct breakfast attendees to the competitor hotel’s lot across the street. At 7:00 a.m., with everyone enjoying a lovely breakfast in the ballroom, the “Lot Full” sign came down and Hotel QZ began welcoming parkers for the trade show. By 8:00 a.m., the lot really was full, this time with vehicles paying for the entire day. The breakfast ended, the lot at the hotel across the street emptied out, and revenue management had scored another victory.

Every hotel culture contains an understanding of acceptable business practices. Some focus on morality, some focus on legality, and some don’t even stop there. But while the above scenarios may not be everyone’s cup of tea, they do highlight the fun part of revenue management. Hopefully they will inspire you to try something slightly naughty (but legal, please) soon.

Translation:  We need to drop the transient rate, the one already identified as being the optimal price point for demand conditions that week, to compensate for a lack of group base. 

A host of questions spring to mind.  If the transient rate currently in place is the one we believe will generate optimal transient revenues from the projected transient demand, and it should be, why would we want to lower the rate to make it not optimal?  Misery loves company, but just because group has tanked that week, we’re supposed to take transient down with it?

This person may also believe hotels need to increase their transient rates on nights when they do have a group base, regardless of whether or not they are projecting to sell out or what conditions are in the marketplace.  This line of thinking is not unusual, just annoying.  I’ve heard the same comment in many markets from many different people over the past 10+ years. 

Here are three selling strategies to take to the bank.  Literally.

Conditions:  A large event is taking place in the market that will fill several properties (external compression).  This is the one that justifies a transient price increase.  Even if your hotel isn’t projecting to sell out, it can often maximize revenues by raising rates if the other properties in the market have done so due to their high demand.

Condition:  Your hotel is projecting to sell out because it has a group base, but demand for the market overall is not unusually busy (internal compression).  Don’t trip up and raise your transient rates, no matter how sorely tempted you may be.  If you believe charging a higher transient rate will generate higher transient revenues, why aren’t you always charging that rate?  Your transient pricing should be separate from the size of your group base, because the transient buyer does not know or care what your group base is.  That buyer is not willing to pay more or less as your group base goes up and down.  Stick with your usual price point and weed out the excess demand using other means like stay restrictions on peak nights and closing discounts.  Closing discounted rates can get you the higher ADR you dream of on these busy dates.  Raising your transient rate, and possibly overpricing, can actually get you a lower ADR from a poor mix of business, not to mention prevent you from achieving that projected sell out.

Condition:  The hotel is not projecting to sell out and there is nothing unusual occurring in the marketplace:  This one is where seasoned hoteliers still get tripped up.  It doesn’t matter if the hotel has a group base or not, the transient price point should be the one estimated to generate the maximum transient revenues.  If you believe the transient rate needs to be dropped on dates when you have no group base, what you really believe is that the transient rate needs to be dropped, period.  You are suggesting you will gain more transient revenues with a lower rate.  You want to do that on all dates, not just the ones that don’t have a group base.

Too often hotels unintentionally suppress their room revenues by tying their transient pricing strategy to the size of their group base.  Size doesn’t matter.  Put yourselves in the shoes of the individual traveler and you will quickly realize this.  Your hotel rooms provide the exact same value at 50% occupancy than they provide at 90% occupancy.  And that’s assuming travelers even know your occupancy, which of course they do not.  If your property has this bad habit, it’s time for a new strategy.

P.S.  In follow up to the comment made by that Director of Sales, it turns out the hotel actually wasn’t past its group booking window and picked up a few small groups.  The transient price point wasn’t dropped, and the hotel sold out every night of that week.  All weeks should do so poorly.

I am referring to our friends at Expedia.  I’m not being facetious, the market managers I work with are great people.  But it’s time to get real.  I don’t know what your agreement says, but the ones I’ve seen lately are ridiculous.  Demands for 10% block space AND last room availability.  In other words, “we have rooms as long as you have rooms, and then we still have rooms after you don’t!”

There’s also Expedia’s fascist regime that monitors your every promotion and hauls you onto the carpet whenever you have the audacity to give a rate to anyone else.  This week, they crossed the line as far as I’m concerned.

I’m working with a hotel that ran a private sale.  By private sale, I mean just that.  The hotel’s offer appears nowhere on any publicly available website.  Even the website of the sale itself does not reveal the hotel offer until after you have logged in with your membership.  And you can’t just sign up and become a member in seconds like you can with something like Travelzoo.  You have to request membership, then wait for days to be accepted.  My request took five days.  After you are accepted as a member (presuming they didn’t find out about that questionable overseas trip you took back in ‘84), you can sign into the website and view the sale offer.  Which, by the way, requires full prepayment and is non-refundable.  And has probably already expired since the sale itself only ran for five days during which you were waiting for membership approval.

What part of the above would indicate to Expedia that this is a public rate?  Who knows.  But within an hour of the sale being launched, Expedia notified the hotel it would be pulled from their site for the duration of the sale if they didn’t receive the same sale rate given to the private website.  Which Expedia would of course immediately blast publicly to every person on the planet, since Expedia has no membership requirements.

Most mysteriously, I know of other hotels who ran the same sale on the same private website and heard nothing from Expedia.  Apparently interpretation of the law is not an exact science over in Bellevue, WA.

While chatting (okay, venting) with another revenue management consultant about this, he told me of an experience he’s having with one of his current clients.  He calls it “WWED”.  What Would Expedia Do?  That is the first question this particular hotel asks before making any pricing decision.  Are you kidding me?  This is what it’s come to? 

Let’s do the math.

Unless your property belongs to a massive chain with considerable clout, you’re probably living with an Expedia agreement with a margin of around 25%.  Now, the mathematicians among us can quickly ascertain that means Expedia receives $1 for every $3 they send us.  But I’m not that swift, so I did the whole spread using one hotel’s data, calculating Expedia revenues per annum, total transient revenues per annum, ADRs, Expedia’s cut, etc.  No big surprise, Expedia’s ADR was 75% of the total transient ADR.  Even I could have figured that out based on a 25% margin.  But that 1 to 3 ratio thing really jumped off the page.  Expedia earns just over $100,000 annually in margins from business sent to the hotel, for which the hotel pockets just over $300,000 in bookings annually.

That’s a payoff to the hotel of $3 for every $1 sacrificed.  In other words, a very low return on investment.  I have to believe we could use that $100,000 Expedia is making off the hotel each year to generate far more than $300,000 in revenue if it was invested in other marketing efforts. 

Right off the bat, what would the other OTAs provide in exchange for pulling out of Expedia?  Show me the positioning!  Since other OTAs don’t require both block space and last room availability, nor do they demand parity with non-public rates, I’m thinking we can work together to recoup some of those lost Expedia revenues.  Toss into that all the promotions and pricing strategies we could employ if we weren’t under Expedia’s oppressive thumb, and the ADR lift we could get by reducing the number of rooms sold at a 25% margin, which would mean we don’t even have to recoup the same number of room nights we get from Expedia in order to recoup the same profit….

If your property is suffering from WWED, may I suggest a new approach?  WWUD with all the money you are currently paying in margins to Expedia?  A marketing payoff of a minimum $5 for every $1 spent is generally considered a conservative expectation.

Now, this is not a call to cut Expedia off at the knees.   If you can negotiate a deal with Expedia that clearly defines parity and what constitutes a publicly available rate, and includes either block space or last room availability but not both, you might want to keep playing.  Expedia, and all OTAs, for that matter, are a good short term solution when times are bad.  But times are not going to get better if you’re sacrificing marketing dollars to Expedia that need to be deployed towards the segments that will determine your future success.  Put some thought into it, now is the time to plan for your 2011 – 2013 transient mix.

WWUD?

This isn’t for lack of marketing efforts from the destinations and cruise companies.  I’m blasted with email and even snail mail solicitations daily, all with genuinely fantastic deals if I’d just pick up the phone or click the “commit” button online.  There was a time when I would have been all over these, but like most of us, I’m more cautious with the indulgences today.  I may occasionally see an offer I can’t refuse and jump on it, but I no longer make the effort to search for specific dates or a destination.  If you want my business, you’re going to have to come and find me for it.

Based on what I’ve witnessed in the hotel industry, my change in leisure buying habits reflects that of the general population.  It isn’t enough to put together a great offer and trust that it will be found on the hotel’s website.  To attract today’s leisure traveler, you have to put together compelling offers (note the plural), and spoon feed them to prospective buyers using any and all means necessary.   You can have by far the best deal in your marketplace.  It won’t do anything if you expect the buyers to find it on their own.   They no longer have to bother actively searching for the deals.

If your hotel has found itself struggling in the war for leisure business, consider the following strategies organized by timeframe of impact.

Always and Forever:  It doesn’t matter what the market conditions are, independent hotels must remain focused on the following at all times.

• Search Engine Optimization (SEO):  Independent hotels need to have their marketing teams all over this.  There is a wide array of services available to assist and if starting from zero, any number of online classes to get you going.  Attracting leisure travel is a wired game, print ads and promotions with a limited audience will get you limited results.
• Website Optimization:  Where are your compelling offers so enticing I absolutely must check into them?  Maximizing SEO may get buyers to your site, but you have only seconds to grab their attention and keep them there.  If your marketing platform has been built on understated elegance, you may want to consider an overhaul.  Spoon feed your audience.  Make it as easy as possible for leisure travel to see the offers you have available.
• Direct Booking Incentives:  Wish your leisure business would book directly with the hotel instead of through expensive OTAs or other channels?  Of course!  Have an offer in place to incent buyers to book directly on your website?  Maybe.  Telling anyone about it?  Something front and center on your website highlighting why buyers should book directly on your site rather than checking other channels is critical to reducing your distribution costs over time and building customer loyalty.  At the very least, if the rates on your website are as good or better than you are offering through any other public channel, say so!  Just because you know you guarantee the best rates doesn’t mean Joe Vacationer is aware he doesn’t need to waste time checking around.  If you are able to toss in an added perk that can’t be attained through booking the same rate on another website, do so.  Hotels may not have the marketing dollars of the big OTAs, but you can still educate the customers that they can’t go wrong by booking directly on your site.
• Take Another Look:  Is your hotel pet friendly?  Check out participation on the major pet friendly hotel websites.  And don’t forget to include any relevant information (e.g. required deposits) on your HOD and all OTA descriptions.  Are you targeting gay travel?  Try joining the International Gay and Lesbian Travel Association (IGLTA) which not only gives you marketing opportunities but also exposure on the gay destination pages of major OTAs.  Also take the time to ensure you’re a TAG Approved property, the only way to gain exposure on sites such as gaytravelocity.com.   In short, keeping your hotel information up to date through existing channels is just as critical as locating new ones.

Budgeting Timeframe:  If your market is expecting big gains within the next 12 – 18 months, skip this section.  It will take up to six months before you see measurable returns and by that time you may not need it.

• Wholesale:  They’re baaaack.  They never actually left, but you may have forgotten about them during the good times or decided they weren’t the effort.  This channel is not limited to senior travellers, and moreover has specialized to the point where you can target specific markets and find wholesalers that can help you gain share in a hurry.  There are still the drawbacks of block allocations and largely manual reservations processes, but the big wholesalers that dominate the majority of the share are well worth talking to.
• Consortia:  In the past ten years many hotels opted out of giving discounted rates to consortia, but you may want to snoop around within your comp set to see if anyone has begun wooing back consortia business.  An easy place to start is the Radius Travel website.  Go to http://www.radiushotels.com/DVLogin.asp, enter any company name you like, enter your location and you will find a list of all hotels in the marketplace participating in Radius’ Global Hotel Program along with the rates they contracted for the current year.  Bear in mind your competitors may revise their offers within the year to come in below their contracted agreement.  If you subscribe to Travelclick’s Hotelligence report, you can get a quick idea of how much business the various consortia are putting into your market. 
• Loyalty Rewards Program:  If your branded competitors are buying your business with their popular loyalty rewards programs, you may now be able to fight back.  Stash Hotel Rewards was launched in May and is quickly enrolling an impressive portfolio of luxury independent hotels who are working together to provide independent travelers with a competitive points program.   Developed by self-described “OTA refugees”, Stash’s objective is to steal share back from OTAs by issuing loyalty rewards in a manner similar to the big brands, but those points aren’t available if the room is purchased through an OTA. Check out www.stashrewards.com for more info.
• Premium Room Types:  I know, I know, your front desk is all over it and you’ve never lost the opportunity to upsell at check-in.  But have you done the analysis to ensure your premium room categories are achieving the same or higher RevPAR than your base categories?  Often they aren’t, because they run at significantly lower occupancy or frequently end up being used for free upgrades instead of revenue generating upsells.  One solution is NOR1 and its E-standby Upgrade Program (http://www.nor1.com/?page=upgrade) that offers guests the option to pre-purchase an upgrade at a discounted rate if the room category is available at check in.  Similar products are in development, check with your distribution provider to see if they have a standby upgrade program in the works before making any commitments.

Short Term Fixes:  These may boost revenues for the immediate future but should not be tackled without long term plans in place to ensure you don’t become dependent on them forever.   These are “give a man a fish” strategies.  They can definitely help but are not going to be your long term solution.

• Private Sales:  Checked out jetsetter.com or vacationist.com lately?  I have.  And so have millions of other buyers in that demographic we all drool over.  Just because they’re high income doesn’t mean they’ll buy your rack rate without a thought.  The best way to introduce your product to a huge base of wealthy travelers in a hurry is participation in a private sale. 
• OTAs:  Discussed to death?  Sure.  But when it comes to marketing, they have it all over their product suppliers.  Because of their costly margins and high maintenance requirements, they shouldn’t be your first choice but they are certainly the fastest fix if emergency measures are required to increase share.  You may want to work with your OTA market managers to maximize sales through promotions while working on your longer term solutions.  Once you’re firing on all cylinders, you’ll be able to trim back the promos and get the majority of your share gains from other sources.

Bottom Line:  The days of building it and they will come are over, at least for now.  Although leisure travel is beginning to rebound, the buying habits have changed.  Focus at least as much attention to how you’re going to get the offer in front of the buyer as to what you’re putting in it.

The exercise was a simple one.  I listed each distribution channel and the costs associated with a reservation through that channel.  Then we applied the same reservation to each channel and as a group calculated the net profit received by the hotel.  The lesson?  Reservations that look the same are definitely not created equal.

By prioritizing the hotel’s preference for reservation booking channels, from on site reservation calls to branded website and on down through the GDS and their associated fees to the OTAs and their commissions of anywhere from 17% – 30%, we gave the front lines the knowledge they needed to guide customers to the property’s preferred channels. 

After that epiphany, the focus quickly turned to the OTAs (or IMMs, or TPIs, or whatever they’re being called this week.)  Unlike many hoteliers, I have no issue with OTAs.  They have a role to play in many markets.  When I hear complaints from hotels about OTAs and drill down on the issue, more often than not the problem lies with the hotel’s handling of the OTAs, not the channels themselves.

I recommend a simple exercise to resolve OTA angst.

Consider both current and future market conditions, and identify the OTAs’ importance to the overall success of your property.  As they are usually one of the lowest profit channels, they should be pretty low on your totem pole, accepted only after the room night needs of your more profitable segments have been addressed.  Calculate how much demand you anticipate from your more valuable (less expensive) channels, then any remaining rooms can be allocated toward OTAs.  Does that allocation end up at less than 20% of hotel room revenues?  Less than 10%?  In markets running extremely low occupancy, they may represent 50% or more of your revenue opportunity, but most urban markets have a base of corporate and group travel, and perhaps still some loyal leisure, that make the OTAs a lower priority.

Now we come to the part where many hotels make their mistake.  Effort versus impact.  If the OTAs ideally provide only 10% of your room revenues, they should be receiving no more than 10% of your revenue management efforts.  Do not allocate your attention to OTAs based on how much attention they demand, because this channel has market managers dedicated to being “in your face” 365 days a year.  They barrage you with emails about parity issues or lack of inventory.  They have hundreds of special “sale opportunities” for you to participate in if you respond immediately.  They will demand all of the time your revenue team has, and it is the hotel’s responsibility to ensure they don’t receive it.

This week I received an email from an OTA market manager requesting a call with me.  I knew what she was calling about and responded by email with a short story on her concern.  I completed the email with a polite decline of the call, explaining that I adhere to a strict 80/20 rule and her business falls into the latter category.  I can generate far more revenue focusing on my volume corporate and group business, even though they don’t harass me on a daily basis, than I can attain responding to every request for attention from an OTA.

She was good enough to admit she agreed with me and there will be no phone call.

So far this year I’ve pulled properties out of four OTAs that sent threatening notes if we didn’t pay more attention to them.  The revenue we’ll receive from adding focus to our most valuable channels will more than offset any losses from pulling out of those low-producing, high maintenance OTAs.  But I’ve also increased focus on specific OTAs in specific markets with great success.  Your market managers are there when you need them.  It’s your job to remember when you don’t.

If your hotel team spends any time complaining about OTAs, it is likely doing something wrong.  If the complaint is about the high commission of OTAs, they aren’t being managed to provide incremental revenue rather than deliver existing business to you at a high cost.   If the complaint is about how much time they require, stop giving it to them.

Once completed, I’d make up new terms and begin the process over again.  Did I say yield index?  I meant RevPAR index.  Did I say market share?  I meant occupancy penetration.  Who cares about RevPAR, what we need to work on is ProPAR!

To further solidify my position as the master of mystery, I began training associates on how to read the STR report.  It was a heartless move, I know, but it provided hours of entertainment for me.  It takes only seconds to play with someone’s mind when they’re trying to discern whether or not we had a good month.  Sure we were ranked first, but look at our change in ADR vs the comp set!  Sure our RevPAR growth outpaced the competition, but our Monday transient occupancy penetration was a disaster!

Then I made the move to a big corporate-managed hotel and received a healthy dose of my own medicine.  Suddenly I was to maximize TADR because group was pacing ahead on the PSA and the wash was going to leave room for BAR, no need to build in reach.   Ummmm….what?  Every time I talked to a cohort at a sister property I heard five new words that eventually turned out to be synonyms for perfectly good words already in existence.  During the latter half of the 1990’s, every revenue manager got to come up with their own terminology and sell it with confidence, no questions asked.

Over the years I got the lingo down pat and I no longer have issues discussing TRE (transient rate efficiency), GCRGRN (group catering revenue per group room night), or ISRN (incidental spend per room night.)  Now the only problem is, I have no one to discuss them with.

Ever attend a meeting with a room full of revenue managers?  Everyone’s talking at once and gesticulating wildly; the least excitable individuals imaginable suddenly turn into twelve year old girls at a slumber party.   All because, for a short time, we are surrounded by people who understand us.   Someone can throw out any acronym he likes and even if I haven’t heard it, I’ll instantly be able to translate it into my own terminology and fire something even more incoherent back at him.  It’s geek nirvana.

Revenue managers have a language unto themselves.  I empathize with General Managers who ask me for a cheat sheet of terminology so they can try to understand what’s going on in a revenue strategy meeting, but I have yet to provide one.  It would be pointless, given that my lexicon (much of which was invented by me) won’t marry up with anyone else’s, and will be hopelessly out of date within a few months.  Furthermore, just because revenue people use fancy fabricated words doesn’t mean they know what they’re doing.  I’ve found that a lot of them are skimming by on the wow factor of their vocabulary alone, so be cynical.

If you find yourself baffled by nonsensical words being recited by your revenue manager, stop the discussion cold and request an explanation for the word as soon as you hear it.  And not just the definition, but the reason it’s of any value to the issue at hand.   Doing that once or twice should immediately reduce the amount of garble by half.  If you find the term useful, ensure the definition is clear to everyone and mandate that no other word(s) be introduced for the same concept.   That’ll clamp down on the creative license we geeks like to take to keep ourselves necessary.  Translation services shouldn’t be a necessary component of the revenue manager’s job description.

Gotta run.  I’ve just realized I need a 6/2 on 12/10 with the back door closed or my TADR’s going to tank.