Why stepping up non-room related revenue could be a worthwhile effort
Revenue management executives are diligently evaluating each and every ancillary revenue opportunity. One development is that automated revenue management systems, which primarily forecast demand for rooms, are being enhanced to include algorithms and models for driving ancillary revenue. But what about non-room related revenue?
As far as finding the appropriate metric is concerned, of course one needs to carefully consider revenue per available room (RevPAR). RevPAR isn’t merely the ability to quantify yield but a way to assess efficiencies associated with room revenue generation. But it doesn’t provide complete information. In the Asia Pacific context, where food and beverage and ancillary revenue account for around 40% of the base; it is certainly a partial evaluation from an overall performance stand point. RM teams are gradually moving towards gross operating profit per available room (GOPAR).
Here EyeforTravel’s Ritesh Gupta talks to Dhiraj Trivedi, director - group e-marketing, The Park Hotels, about the significance of non-room related revenue, and what is being done to drive it further.
EFT: What do you make of all the talk about non-room related revenue?
DT: Hotels are slowly moving towards GOPAR or gross operating profit per available room and educating employees to build a culture to learn about return on investment by calculating GOPAR.
In the current market scenario, 40% to 50% of the total revenue is generated through non-room related revenue. Segments like, MICE (meetings, incentives, conferences, exhibitions), SMERF (social, military, education, religious and fraternal meetings) and Events are changing the game plan with the Continental Plan All Inclusive (CPAI), Modified American Plan All Inclusive (MAPAI), American Plan All Inclusive (APAI) and All inclusive packages.
During the past 18 months, corporate and FIT’s (foreign independent travel) have taken a hit, MICE and SMERF have shown results in order to maintain the profitability for a hotel (since it’s a steady business). In MICE and SMERF they occupy rooms, conference rooms, banquet halls for dinner, spa and so on. Overall a residential MICE or SMERF segment gives high profitability. As airlines are also running in losses, and due to increase in supply most of the traditional business has been shifted to mid or budget segment. The same in earlier days use to work at the filler business (to cover base occupancy) in a hotel. So there is definitely a change.
EFT: What factors are driving this?
DT: Constantly increasing competition and intermediary commissions is making hoteliers think ahead for non-room related revenues. Hotels are widening their services which leads to new means to generate revenues. Concept of non room related revenues turn them up for a unique geographical marketing which is hotel’s own local area. Restaurants, night club, salons, bar and banquet and hotel shops are examples of these revenue sources.
A leading hospitality research company claims that hotels providing full service have up to 29% incremental share of total revenue, though hotels focused on accommodation have 7.4% incremental share of revenue. As per the last many year’s business trends, hotel ADR are continually going down and revenue through other service has been increasing. Further in the research, guests spend 65% of their room charges for food and beverages in hotels. Hoteliers are expected to work more on these revenue sources.
EFT: How is the industry gearing up to maximise non-room related revenue?
DT: Consumer loyalty and engagement through different activities. A few initiatives stand out:
1. Using media mix effectively: Branding and marketing on social media and mobile are changing non room-related revenue. Blogging and email marketing should also must a part of customer engagement strategies to earn non-room revenue. There should be a complete virtual tour of hotel’s services on website and other social media channels and live video chat by e-concierge. Plus a complete virtual tour of all add-on services on the website, mobile apps and social media platforms will help potential customers to proactively quest for these services. Branding helps to engage people which can be divided into major factors e.g. CPM, ad banners, social media, editorial coverage, public relation website & micro sites.
2. Sharpening the product offering: In addition, a wide range of services will also increase non room relevant revenues. These new services can be as on-site selling eg.duvet pillows, tempur-pedic mattresses and room lamps as per the guest’s interest.
EFT:How challenging is it to unbundle the service and identify things that most customers may not want but some may be willing to pay for?
DT: Each consumer will become a segment when we study consumer lifetime buying cycle. It’s important to address each request based on the experience, innovation, buying behaviour and so on and bundle the offer.
Right now it is important to classify the service as basic and add on - basic services can be a part of the room charges eg. breakfast and WiFi though our other services must be customised according to the requirements.
Hotels may follow airlines which are adding extra charges for any exclusive service being provided. Here it becomes essential that you display all available services and have constant contact with guest to maximise the opportunities to sell product which are not there in basic services. A independent booking window will help selling products unbundled, on guest requirement.
EFT: How should one work on the booking process, especially online, where add-ons are being offered to the guest?
DT: What is important, is to know what consumers are looking for before an offer is made (online). Based on current trends and lead time one should be very careful while managing the online space. It can go either way if not worked properly. Customer information and history works effectively in this regard. Software must be effective and should offer add ons according to the guest’s past booking trends. Before selling an add on, this is important to determine which add-ons will work in industry. Value-addition and pricing are really critical factors since guests have not come up to buy what you are trying to sell them. For best results, clearly stipulate the add-on before the sale is completed, but after the major purchase decision has been made.