Looking beyond the paying limit of the `right customer’

By Ritesh Gupta

Published: 11 Apr 2011

By Ritesh Gupta

How do luxury brands in the hospitality sector define `the right customer’? And what role such companies expect from their revenue management teams?

One such group belonging to this segment, Fairmont Raffles Hotels International believes that appealing to the right consumer is essential to its positioning and revenue generating strategies.

“The ‘right consumer’ is not limited only to their ability to pay the optimal price. The ‘right consumer’ to us, as luxury brands, are guests who are advocates of our brand and enjoy an affinity to our value propositions and services. This affinity ensures long term brand loyalty, and presents more revenue generating opportunities in the long term,” says Jeannette Ho, VP - Revenue Management and Distribution, Fairmont Raffles Hotels International.

Ho, who is scheduled to speak at the forthcoming Travel Distribution Summit Asia 2011, to be held in Singapore (May 18-19, 2011), spoke to EyeforTravel’s Ritesh Gupta about the current perception and the role of RM. Excerpts:

How do you think the hotel industry has embraced revenue management as part of the organisational culture after all these years especially in a manner that ensures that RM today resonates with employees?

Jeannette Ho:

In the past decade, awareness of revenue management within the hotel industry has grown internationally, to a large extent driven by branded hotel chains. Independent hotels are still lagging in their revenue management practices. Apart from revenue management training for the RM practitioners, many branded hotel companies also have RM exposure and training for non-revenue managers to ensure that the philosophy and knowledge is more entrenched as part of the company-wide culture.

RM specialists have been talking about the introduction of automated systems to give revenue managers more time for strategic thinking. What’s your take on this?

Jeannette Ho:

We definitely believe in the use of automated systems, as one key component in our revenue management practices. Automated systems handle the data crunching in order to derive key trends from which we drive our revenue and marketing decisions. It frees time and allows our revenue managers to focus on the strategic analysis. In the FRHI environment, our automated RM system is seamlessly connected to rate allocators and CRS thus providing efficiencies and speed in effective rate distribution across a wide plethora of electronic channels.

It is being propagated that there is a need for RM professionals to become more risk management focussed – commercial value of contracts now need to be assigned risk grades. Forecasting activity needs to account for these risk grades as does long term business strategy. How do you assess this viewpoint?

Jeannette Ho:

It is imperative that commercial contracts are viewed in terms of both their short and long term value, and the risks associated with the business. Such considerations are presently widely practiced but not within an automated system environment, and possibly with less discipline than traditional revenue management. The challenge lies in quantifying and automating the decision variables surrounding risks. Given the rapid changes in travel patterns and world events recently, linking risk grades to forecasting activity remains a challenge.

The modern RM is no longer the record keeper of the past and instead is far more reactive to market conditions, in tune with sales plans and the RM professionals are being described as decisive forward thinkers who are innovative and creative. How do you think this all is reflecting the approach of RM professionals today as far as forecasting is concerned?

Jeannette Ho:

Revenue Management is not only a science but also an art. Being innovative, creative and anticipatory are key attributes that are important to any RM professional, who increasingly needs to play a strategic forward looking role in support of driving sales and channel decisions.

Revenue Management practices place a lot of emphasis on capacity constraints, time cycles, and price variables. If one were to go by this view alone, any reference to the "right consumer" is limited only to their ability to pay the optimal price. In some ways, this approach may be deemed to be short term, transactional biased and product orientated. What’s your viewpoint regarding the same?

Jeannette Ho:

Fairmont, Raffles and Swissotel hotel products all compete in the luxury segment. For us, ensuring that we appeal to the right consumer is essential to our positioning and revenue generating strategies. The ‘right consumer’ is not limited only to their ability to pay the optimal price. The ‘right consumer’ to us, as luxury brands, are guests who are advocates of our brand and enjoy an affinity to our value propositions and services. This affinity ensures long term brand loyalty, and presents more revenue generating opportunities in the long term. Merely manipulating time cycles, pricing variables within our hotel capacities would greatly commoditise our hotel experiences. There is therefore a movement in revenue management to recognise the life time value of each customer in the decision.

Over-bundling confuses customers, and erodes profitability. It’s a balancing act - if you bundle too much value, your profitability suffers; if you don’t bundle enough value, you find yourself further behind tomorrow and planning your next bundle. What do you think is the key to achieving such balance?

Jeannette Ho:

The key to achieving the balance is to ensure that our technology and services are able to provide customers with the flexibility of self- bundling. For luxury brands, this is important, as it moves the positioning of bundles / packages from a “discounted bundle” to a one where the consumer is creating his/her own perfect experience and is happy to pay the right price.

Fairmont Hotels & Resorts launched the Passions programme this year to cater to the preferences of our guests – from culinary experiences, spa and fitness to culture and adventure, and the idea is to have the guests self-select their bundled experience, and getting great value out of even higher priced packages because it fits their needs exactly.

Can revenue management tools be applied to ancillary revenue streams in a business, such as hotel food and beverage. Can you elaborate on this?

Jeannette Ho:

Revenue management tools can most certainly be applied to any ancillary revenue streams which have the same features of limited inventory, variable demand and pricing. However, the key challenge in other revenue streams lies in the capture and organization of data that is ‘revenue management-friendly’. For example, in restaurant revenue management we need to look at RevPASH as a key performance indicator. In order for that to happen, data needs to be captured in real time for each hour and not only at the end of a meal.

It is being highlighted that price elasticity measurement is something relatively new in RM and will likely find an application in the ancillary revenues. What’s your viewpoint regarding the same?

Jeannette Ho:

Rooms revenue management is still operating by enlarge with competitive pricing and not price elasticity. This is primarily due to the fact that airlines have more opportunity to use price elasticity to influence the size of demand/market, while hotels typically are not able to change the market size, and is more preoccupied with market share.

However, as consumers move towards more luxury and differentiated experiences (eg. only limited to 10 F1 trackside packages), price elasticity becomes a more significant revenue management factor as we want to charge each of the 10 guests the highest that each is willing to pay for these limited edition experiences.

Price elasticity has found much easier usage in restaurant business for example in menu engineering, where the most popular dishes should not be priced as cost plus or competitive, but rather using price elasticity to see what the market can bear.
Travel Distribution Summit Asia 2011

Jeannette Ho, VP - Revenue Management and Distribution, Fairmont Raffles Hotels International is scheduled to speak at the forthcoming Travel Distribution Summit Asia 2011, to be held in Singapore on May 18 and19 this year.

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Marco Saio
Global Events Director, EyeforTravel
E: marco@eyefortravel.com
T: UK +44 (0)207 375 7219

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