Lily Mockerman is a seasoned revenue optimization veteran and recently launched her own revenue management podcast. In this episode, we tap into her wisdom and discuss 5 revenue management tips that will help you navigate the uncertainty of recovery.
Check out Lily’s brand new podcast.
1. Dropping rates does not create demand!
It’s a point we continue to hear from hospitality thought leaders across the board – dropping rates does not create demand! Despite how desperate hoteliers may feel to gain a share of any returning or lingering travel business in a potentially highly competitive arena, travel demand that is dropping for reasons related to Coronavirus simply won’t return for a good deal, as that doesn’t address the underlying need for safety. In an MMGY study, 60% of respondents said that they would not take a leisure trip until there was a slowdown of COVID-19 worldwide, and another 40% said their concern for their personal financial situation based on the economic impacts of the virus would affect their leisure travel.
2. Point #1 is a myth and sits on a throne of lies. Here’s why…
While we all like to jump on the bandwagon about not dropping rates, it’s also true that hoteliers may be in a situation where their market is declining in rate regardless, and they are forced to react. Additionally, great airline rates or lower gas prices have clearly encouraged more travel from those who see the value compared to normal prices, which in the short term can indeed increase demand, and a well-positioned sale, just like launching a Travelzoo or Groupon, can increase demand for those who have money to travel. In fact, in the same MMGY survey, 36% of respondents said that a great travel deal would have an impact on taking a trip. The trouble here is that sales can also encourage a “race to the bottom”, and continue sales simply aren’t sustainable. That being said, hotels can capitalize on this with a well-placed LTO with limited availability on any given day with an allotment, making sure to do this as a specialized offer or package, and NOT decreasing BAR rates overall, to keep the reference price intact.
3. Creating truly unique, value-focused vs price-focused offers
Moving forward, sending an e-blast to your past guest database about your latest 20% off sale simply won’t be enough to set you apart from the crowd as everyone competes for demand. For now, guests are much more interested in travel that inspires them, hotels that offer stronger cleanliness and safety, and those that can connect with them on an emotional level. There is nothing emotional about 20%! I think as markets were good, we maybe got a bit lazy with our marketing and began to commoditize our hospitality offerings. We need to get back to the Why in what we do, and go back to being a customer-centric industry that connects people, not just a company that is a series of transactions. Those who can capitalize on this type of marketing likely won’t even have a need for discounts, because customers will naturally gravitate to companies that create that emotional connection.
4. Recreating your budget and marketing plan with profitability in mind
Obviously, budgets and marketing plans that were originally created for 2020 could never have accounted for the impact of COVID-19, and anyone who thinks that when business returns they can just pick up where they left off is honestly kidding themselves. But also, we shouldn’t just be recreating the plan with a percentage change in business but using all the same tactics. Just as we mentioned how marketing needs to be truly unique and value-focused, budget and marketing plans need to be re-worked with not just top-line revenue, but profitability in mind. Offers and tactics should be tied to expected revenue, less related expenses, and be able to pass a profitability test before they are adopted by the hotel. Now is the perfect time to do this exercise while we are slower with guest involvement, rather than waiting to just see what sticks moving forward. No one at this point has an excuse for not being aware of their profit margin for every channel coming out of this.
5. “Recession-proofing” your hotel is a myth
We’ve heard a lot of buzz around recession-proofing your hotel over the past years, with many vendors claiming they can create that plan for you. And perhaps in a standard recession that might have worked for them, but the speed and intensity with which the bottom dropped out around COVID-19 emphasizes that we have to learn how to manage for the unknown. Having a strategy for dealing with a revenue crisis like this is important, and hotels should be noting the things they are learning from this crisis and how they can use it for the future. Just like on the operational side we prepare for unknown and unexpected threats like a fire or bomb threat, we should also be preparing those plans for a financial crisis. While recession-proofing may be a misnomer, there are steps hotels can take to create a more sustainable path to progress. Ensuring that staffing levels, customer offers, and all other initiatives are tied back to revenue and profitability, along with a clear understanding of your cash runway, are all very important to creating that sustainability. Hotels should be considering how many months of expenses they want to keep on hand in reserves, beyond things like FF&E or capital expense, and under what circumstances they can tap into those reserves. Overall, by taking lessons from what we are experiencing now and our wishlist of the resources we might have wanted to have in place to meet our current needs, we can be better prepared for the unknown in the future.
In The Newsaroos:
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