Optimising revenues via apt integration of revenue management and marketing

IN-DEPTH: The ultimate goal for hotels should not be about just filling the rooms, or to charge the “best rate” but to incentivise exactly the right amount of demand to fill the hotel every night, such that profitability across the property is achieved.

This vision cannot happen if the analytical, tactical and strategic decisions of CRM and RM are not synchronised, says Kelly McGuire, Executive Director, Hospitality and Travel Global Practice, SAS.

By Ritesh Gupta

When it comes to optimising revenues from CRM, for long it has been mentioned that CRM must establish similar credibility within organisations that its evaluation methodologies can incrementally improve the incumbent RM practices.

Furthermore, CRM needs to be viewed as an additional analytical mechanism that is considered as one more execution layer of RM.  

Agreeing with this and assessing the situation, Kelly McGuire, Executive Director, Hospitality and Travel Global Practice, SAS, says the hotel industry has been slow to adopt new analytical processes and disciplines. Given tight margins and high risk, the industry has waited for “new” capabilities or disciplines, so it is not surprising that they have yet to fully leverage opportunities within the CRM space.

Now CRM technology has evolved to the point that it is powerful enough to handle the data volume and processing power to solve large and complex CRM problems, and it is becoming more accessible to the hotel industry from a price perspective as well, points out McGuire.

“This represents a huge opportunity for hotel companies, but CRM still needs to “prove” themselves to a certain extent. I always advocate incremental progress with quickly demonstrated success as the best way to establish credibility. Instead of trying to “boil the ocean” CRM needs to bite off small project – reducing churn, improving response rates for a small set of promotions or properties, building up the loyalty database for example, and then advertise their success,” McGuire told EyeforTravel.com’s Ritesh Gupta in an interview.  

“The ultimate goal for the hotel should be not just to fill the rooms, or to charge the “best rate” but to incentivise exactly the right amount of demand to fill the hotel every night, such that profitability across the property (not just from the rooms) is achieved. This vision cannot happen if the analytical, tactical and strategic decisions of CRM and RM are not synchronised. RM has learned many lessons in their efforts to gain credibility and get a seat at the table, and so RM must be an evangelist for CRM as well, and help to shepherd this additional analytic capability into the organisation,” added McGuire.  

McGuire also spoke about the topic in detail.

Last year you mentioned that even though in hotels, revenue management and marketing are two sides of the same coin, instead of working well together, problems inevitably flare up between these departments and instead conflicting activities damage revenue performance and guest relationships. How do you assess the situation today?

Kelly McGuire:

Progress is definitely being made in this area, but we still have a long way to go. The turbulent economic times - that still continue today - have forced revenue management and marketing to stay in closer communication than ever before, which is a really positive step. However, there are opportunities to streamline communication and synchronise activities even further. Monthly or weekly meetings are an important start, but the pace of business requires that these two functions have access to information from the other function when decisions are made and they need to access that information in the systems they use every day, rather than waiting for an email or a printout. Even though revenue managers and marketers have started working together more often, I still talk to folks from both departments who really don’t have a good understanding of the kinds of decisions that the other makes, and how complimentary their activities really could be. I think every hotel revenue manager and marketer should make a New Year’s Resolution to spend some time in 2012 in the other one’s shoes!

Over the past few several years hotels have worked hard to collect data on each guest that can be acted upon. For example, targeting messages to a specific guest type based on a set of factors. The ideal way to market to guests is target the message to meet their preferences. What sort of progress has been made in this arena?

Kelly McGuire:

There are huge opportunities in this area, and it is becoming clear to hotels that if they aren’t delivering the right messages, guests will simply ignore them, or in the worst case scenario, opt out of future communications.

With all the discounting, flash sales and OTA hype over the past few years, it’s easy to forget that loyal guests, not the incremental visits you pick up from these third party channels, are really a hotel’s bread and butter. I’ve seen many hotel companies, particularly in the past year, really prioritise initiatives around this issue. Many hotel companies have taken hard looks at their loyalty programmes, and are developing better incentives for guests not only to consolidate their stays, but equally importantly, provide crucial information about their needs, preferences and behaviors. Efforts have been made to build guest data warehouses and there has been some good strategic planning around developing the analytics to support more intelligent guest targeting. A clean and accurate guest database is the foundation for intelligent marketing communications, but advanced analytics are also crucial to achieving the vision of better use of guest data, including improved targeting. Most hotels understand that predictive analytics will help them more intelligently segment guests, predict cross-sell and up-sell opportunities, understand response rates and improve retention and acquisition. There is an opportunity to take this analysis one step further, using marketing optimisation techniques to improve campaign response rates, reduce marketing costs and decrease opt out rates. Marketing optimisation takes inputs from promotional plans, customer analytics and pricing recommendations, and returns the optimal contact strategies that increase response rates to campaigns while minimising marketing costs, and preventing dilution.

Most importantly, no matter how many offers your guest are qualified for, they will only receive those offers that are most relevant, and that they are most likely to respond to – drastically reducing their likelihood to opt out. I’m really excited about the potential for this to improve campaign performance and ultimately revenues for hotels, and think more and more hotel companies will take advantage of it in the future.

It is said that the mission of both RM and CRM is virtually the same: optimise profitability and, in the process, allow inventory access to the best customers. The differences emerge in both the timeframe in which the optimisation occurs and the tools utilised in this process. Philosophically, RM judges “best customer” in terms of maximising current profitability while CRM philosophy adopts a longer-term view. To what extent the industry has managed to integrate RM and CRM in a mutually beneficial relationship?

Kelly McGuire:

As the role of the revenue manager is evolving from a tactical inventory optimisation role much broader and more strategic role within the organisation, revenue managers are certainly recognising the opportunity to take a longer term view.

One opportunity, as you’ve alluded to in this question, is to incorporate the lifetime value of a guest into the revenue management optimisation, and use that value to determine who to say yes to. I think hotel companies have been inspired somewhat by the casino industry, which has successfully utilised this methodology to ensure that their most profitable players always have access to hotel rooms. However work in this area is really only at the beginning stages.

There are some major challenges that have really slowed progress. First of all, the analytics will need to be adjusted to take this methodology into account, rather than relying on the traditional “inventory optimisation” approach. Secondly, good data needs to be available, and a solid definition of customer lifetime value needs to be developed (not a trivial task, actually). Finally, organisational changes will need to be made to ensure that goals and incentives are aligned along the longer-term profitability horizon – for both CRM and RM. Right now, revenue management is definitely incented to make shorter term revenue maximisation decisions, and marketing is incented to generate room nights, with less of an eye to the profitability of the hotel.

Someone needs to take the lead in helping to coordinate activities across the organisation. I have been encouraged to see more and more hotel companies consolidating revenue management and marketing under the same reporting structure – which definitely eases the communication and goal alignment process. I have also been encouraged to see CRM and analytical marketing playing a larger role in overall marketing strategy and really bringing analytical rigor to the marketing organisation. These changes can happen frustratingly slowly, but I think they are happening, and will continue to gain momentum in the months and years to come.

What new trends do you foresee in integration of RM and marketing in the time to come?

Kelly McGuire:

As we take steps toward better integration, I see each function changing their thinking and processes internally so as to be better prepared to make decisions in a more integrated fashion. This definitely a case of crawl, walk, run being the best approach to the longer-term, intelligent demand management vision.

I always say that this is a really exciting time to be in revenue management! It has become evident over the last few years that a new, fresh approach to revenue management will be required to continue to demonstrate value and maintain competitive advantage.

I think we will very soon see revenue management analytics that can move the industry from relying on inventory optimisation to true price optimisation. This will require more powerful and detailed forecasting techniques, better price-sensitivity measurements, and access to new and different data sources. I think revenue management will start to take advantage of opportunities to become even more strategic and holistic in their decision making, for example by leveraging social media data and channels, as well as other more traditional marketing and CRM data sources.

On the marketing front, there are also some exciting advances in the foreseeable future. I see marketing becoming a much more analytic discipline, as the hotel industry begins to take advantage of advances in data management and customer analytics. I am encouraged to see that marketers are becoming more analytical in their approach to social media. Rather than simply monitoring and responding they are beginning to explore analytics that can help turn all that unstructured data into meaningful, actionable information. Marketing optimisation will help hoteliers to improve response rates and reduce marketing costs - and keep customers from opting out of marketing promotions.

As these foundational technologies are implemented and incorporated, it will be important for revenue management and marketing to keep an eye on the long term integration vision and continually look for opportunities to leverage the data and information produced by their counterparts.

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