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Top Ten Revenue Management
Mistakes Hotels Can Make
by Dr. Gabor Forgacs 
June 2004

10)  To recognize Revenue Management as a job done only by the Front Office of a hotel.

9) To allow an internet discounting agency to sell our rooms at prices of their choosing, then complain about the erosion of rate integrity.

8)  As a revenue maximization strategy, to claim differentiating our hotel on service excellence and then promote discounts, "value package" offerings, free frequent guest points and other freebies.

7)  To think that weekday strategy and weekend strategy can be the same.

6)  To expect that the "flag" (brand) will fill the hotel without us lifting a finger.

5)  To count revenue dollars as equal, regardless of the distribution channel they came through.

4)  To think that short term goals must always have priority over long term goals.

3)  To be convinced that artificial intelligence (our RM software) is superior to human intelligence.

2)  To believe that the right price to charge for a room night is established on our costs and ROI expectations.

1)  To believe that discounting is an effective way of increasing revenue. 

Notes

Re. 10) A husband helps his wife to do parallel parking: “More to the right! Now backward! A lot more to the left! All the way! Forward! Now backward! A bit more! Oh my… Now get out and see the damage you’ve done.”

Re. 9) Simple math: the Manager to the Merchant: “Two plus two equals four, doesn’t it?” To which the Merchant replies: “Not so fast. Am I buying or selling?”

Re. 8)  An incoming call to Excellent Service Hotel is put on hold. “Your call is important to us. Please, wait until the next available operator.” And it goes on for five more minutes in a loop. When the call is finally taken, AAA discount of 10% is offered from the room rate without even verifying AAA membership. Go figure.

Re. 7) Could we have a Sunday Brunch let’s say, Wednesday evening?

Re. 6) In the long run we always tend to get what we’ve paid for.

Re. 5) “Each animal is equal but some animals are more equal than others.” George Orwell, wrote this or something very similar in his book “Animal Farm.” Do we know what costs are associated with selling a room night through our own corporate call centre? Our own hotel’s website? A GDS? An e-merchant? A travel agent? A direct call from a return guest? An association? 

Re. 4) Don’t even think about it…

Re. 3) Murphy’s Law: “To err is human but to really fool things up you need a computer.” Computers are great tools in the decision making progress. They work faster and more accurately with extensive databases and can crunch a lot of variables. Sensible managers should always make a sanity check on any results and override even optimum outputs if they believe that that is the right thing to do. The system is not the solution and media is not the message. We, humans should know better.

Re. 2)  There was a time when metal room keys were considered safe. Today we have swipe card operated recodable locks with a memory. We also got smarter just like our door locks did and know that the right price is established by the market. We should charge exactly what the market is able and willing to pay, not a dollar less. Can we try to go for a little higher price than this? The consumer today will find this out in a heartbeat and may go after a better deal for a comparable product.

Re. 1) Smart operators, selling an experience-based, intangible product do not discount. (The oldest profession comes to mind: they offer a variety of things but discount is not one of them. They understand: how can the full fee ever be collected if the same experience is available at a discount?)
A study on hotel discounts by Cornell University concluded that discounts only generate partial results and it is only the leisure segment which may react favourably. A fact: if downward pressures on room rates force hoteliers to discount heavily (examples: markets impacted by 9-11, by SARS, etc.) it takes several years to reach same ADR than before the price limbo started.

The bottom line.

If you don’t know where you’re going, you are never going to get there. In revenue management it is the same: if a hotel has no clear strategy, has no thorough understanding of its customers current needs and wants, it can’t anticipate market trends and it can’t tell how it measures up to its comp set, it is impossible to deploy the right revenue management tactics.
 
 

Dr. Gabor Forgacs, Assistant Director of the School of Hospitality and Tourism Management, Ryerson University in Toronto, Canada, teaches Revenue Management. He may be reached at gforgacs@ryerson.ca

Contact:

 Dr. Gabor Forgacs
School of Hospitality and Tourism Management
Ryerson University
240 Jarvis Street
Toronto, Ontario M5B 2L1
tel: (416) 979-5041 
gforgacs@ryerson.ca

 
Also See: Revenue Management in Challenging Times / Dr. Gabor Forgacs / July 2002
2004 the Year of Direct Online Distribution; Now is the Time to Fight Back with a Smart Direct-to-Consumer Internet Strategy / Max Starkov & Jason Price / February 2004
PricewaterhouseCoopers Estimates the Net Internet Effect on the US Lodging Industry in 2003 as a Minus $1.27 billion; 75% of Online Reservations in 2003 Made by 'Discount Seekers' / April 2004
How Often Have You Heard, 'I could have gotten a better rate but the client saw our rates on the Internet' ? It’s Time To Get Back To Selling Location, Facilities, and Services / Neil L. Salerno / August 2003
Online Travel Agencies' Collection of Fees and Taxes Scrutinized by Taxing Authorities with a Substantial Hotel Base / November 2003
Hotel Room Discounting Doesn’t Increase Hotel Revenues or Drive Business / Cornell Study / April 2003
Revenue Management: Mission Critical in Today’s Market / October 2001
Revenue Management Systems “Must-Have” or Luxury? / Jon Inge / Nov 1998


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