IN-DEPTH: How can revenue management help in overcoming the impact of the economic downturn?

Published: 24 May 2010

IN-DEPTH: How can revenue management help in overcoming the impact of the economic downturn?

How can one relate the impact of the economic downturn vis-a-vis the slump witnessed post 9/11? It is believed that today the hotel industry is better positioned, be it for the options available or even in terms of experience.

In order to know more, EyeforTravel’s Ritesh Gupta spoke to Preferred Hotel Group’s director, revenue account management – India, Middle East & Africa, Brij Bhushan Chachra, and Chinmai Sharma, VP, revenue management, Wyndham Hotels and Resorts. Excerpts:

Prices slumped for five years or so post 9/11. What strategies will ensure a lengthy slump doesn’t repeat itself?

Brij : Although I feel the economic downturn has had a bigger impact than 9/11, today’s hotelier is much more agile and informed to come out of this slump. Unlike 9/11 where there was there was only one feeder market today we have other developing source markets which can help us to come out of this slump faster than before. As a hotel professional it is imperative to look at the new developing geographies and emphasis on effective distribution channels. Countries like India & China need to be looked into to add to demand and raise prices.

Another change in strategy over the 9/11 period will be the emphasis on hotel website than third party websites. The engagement of RM professional in search engine marketing and search engine optimisation activities is effectively pushing the higher ADR channel thus helping the hotels to come out of this slump faster than before.

Chinmai: A lot of this obviously depends on supply and demand at comp set and market level. If the demand generators for a particular market dry up or if the supply growth continues to outpace demand growth there will always be a pressure on occupancies and rates.

I think the basics of revenue management always apply irrespective of market conditions. Things like analysing the rate index (both retail and from STR reports), looking at the spread between occupancy and rate indices vs. comp set, checking the market segment mix see to see if we are spread too wide between non-qualified and qualified segments, evaluating the channel mix to understand if some channels are dominating or diluting the rate too much and running periodic room type analysis to ensure the pricing spread between room types is optimal are always helpful exercises to ensure we are optimising any demand situation and not relying only on dropping rates when things slow down a bit.

A senior RM executive last year told me – consumer's reaction to price strategy changes can vary so much depending on the price sensitivity, demand situation and market segment that the only way to answer that question is how to track consumer behaviour changes in relation to demand and include the result of this analysis in the next pricing discussion. What's your viewpoint regarding the same?

Brij: Customer issues that need to be assessed are the price sensitivity of certain market segments and the possible emergence of new segments if new rates are offered. Discounted rates should be targeted at price sensitive market segments and rate fences should be built to prevent less price-sensitive customers from availing themselves of the discounts. In addition, the hotel should identify other potential market segments which might be attracted by a selected discount and determine whether it is a market segment that fits in with the hotel image. Today’s consumer is much more informed and has access to information and tools like never before and he will continue to evolve moving forward. Therefore tracking the consumer behaviour changes are important and help in pricing decisions.

How should one go about tracking the consumer behaviour changes and accordingly, adjusting price –related initiatives?

Chinmai: Understanding consumer behaviour should be an ongoing process. It is important to capture as much customer data as possible (both during pre-arrival / search stage and during stay), in tracking denials and regrets by segment and channel to understand true demand and buying behaviour, in tracking on property spend by customer segment and channel to understand their full value, in understanding online behavior and overall in integrating customer analytics into the revenue management process in order to develop relevant pricing and offers for each customer segment – which will be beneficial for the business at the same time.

It is said that brand loyalty diminishes during a recession. Guests are searching for value, and brand loyalty has always been somewhat disingenuous. Are we at risk of new loyalties being formed with the lowest priced brands only?

Brij : While I agree with the statement of brand loyalty diminishes during recession I would disagree with the new loyalties being formed with the lowest price brands only. Human behaviour is always to strive to get better value and aspire for higher standards. Therefore, although the lowest price products will gain some share in the present day, a consumer who has been exposed to luxury or upscale product will return and as the economy improves there will be a shift in loyalties again. The lower prices may appear to offer better value in an economic slowdown however a cheaper price does not always mean a better deal; quality should always remain of the utmost importance.

Chinmai: I don’t fully agree with this statement. I do understand that in the recent downturn we have seen a growing customer segment that is brand agnostic and driven mainly by the price factor but as of now they are still a small part of the overall hotel revenue stream. One interesting thing that did seem to have happened in this downturn is that consumer behavior has changed and they have learned to spend less which could see some long term share shift between chain scales (luxury to upscale. upscale to midscale etc).

I would still counter the argument at a high level by saying that good hotel brands and effective loyalty programmes are able to provide added value to their customers through varying economic cycles which ultimately results in a long term win-win relationships for both entities (and shifts the focus away from being purely price). At the same time it is more important than ever for brands to be more relevant to their customer base in order to retain and grow their loyal customers.

Travel Distribution Summit North America 2010

EyeforTravel’s Revenue Management & Pricing Strategies Conference will be held as a part of Travel Distribution Summit North America 2010 in Chicago (13-14 October) this year.

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Rosie Akenhead
Global Events Director
Eye For Travel
Email: rosie@eyefortravel.com
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