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How Hotel Owners and GMs can Change
'The Top 10 Reasons Why Hotels Underperform' - Part 2


By Tom Costello
June 2012

In Part I, I covered the first five reasons why hotels underperform in response to what hospitality professionals felt were the top 10 reasons why hotels underperform.

  1. Poor hiring practices
  2. Lack of training
  3. Little to no regard for the customer and their complaints
  4. Management unwilling to empower staff with problem resolution
  5. Hotels don’t understand how to market themselves across all channels

Now let’s look at reasons six through 10

#6 – Poor housekeeping and lack of renovation facilities

I am confident that you understand the impact that TripAdvisor’s Dirtiest Hotels List can have on a hotel. This kind of press will sink your ship and no matter how much the hotels on this list attempt to defend their hotel’s reputation, they’ve suffered certain irreparable damage.

As hotel bookings and prices begin to climb, many hotels are considering renovations they postponed when money was tight. “Next year is going to be crunch time,” said Joel Ross, principal of the hotel investment company Citadel Realty Advisors, because improvement projects “are way past due and people still don’t have money.”

If you can afford to renovate, start with the portion of your hotel that is in dire need of a refurbishment. If your lobby is falling apart, concentrate the first part of your renovation on this section of your hotel. If your guest rooms are tired and worn out, go with this next. However, if no one area stands out as needing a renovation much more than another area, examine the positioning of your hotel, what kind of business you compete for, and where you make your money from on a regular basis.

#7 – Too much time pushing paperwork and not enough time with guests

Hotel GMs are celebrities in their own right whether they like it or not. They are the CEOs of their hotel and guests love to rub elbows with the man or women in charge.

But do hotel GMs feel the same?

One of my divisions brings meeting and conferences to hotels and I typically interact with a Director of Sales and Marketing. That’s a given but I haven’t been introduced to or thanked by a GM for bringing a potential piece of business to his/her hotel since 2010.

When I was a kid I wrote a letter to then President Reagan about a conversation I had with my Dad about the state of the economy. A few weeks later President Reagan (most likely a staffer from communications) sent me a response and that simple gesture ended up in a picture frame that proudly hangs in my office today.

If you want to make a lasting impression on your guests, one that you couldn’t afford to buy, step out of your office when you feel the need to regroup and thank them for their business. Your kind words will generate a mountain of positive word-of-mouth that will only cost you a few minutes of your time.

#8 – Lack of pragmatic revenue goals and misusing budget and P&L

It is a challenge, to say the least, to predict annual revenues precisely but it’s imperative for hotels to maximize hotel revenue and profit in order to create realistic revenue budgets and goals.

According to Patrick Landman with Xotels, hotels should become more business minded. “Too often General Managers still influence the strategic decision making process of hotels based on feeling, market knowledge, and ‘experience’.

This is an excerpt from the article written by Bonnie Buckhiester for HotelNewsNow.

“Bonnie Buckhiester, Principal of Buckhiester Management USA Inc., in her article ‘Optimizing total revenue management’ on HotelNewsNow believes that hotels need to move toward a ‘total revenue management structure’ that includes everything from the job description of a revenue manager to the structure of a financial statement.

Here are some of the characteristics of a Total RM effort and the extent to which hotels are incorporating these practices into their overall revenue management programs:

  • Profitability by market segment: Tracking contribution (profitability) by market segment from a “total spend” perspective is a key element of Total RM. Hoteliers believe they know instinctively what segments produce better flow-through, but often this information is anecdotal in nature and, at best, is confined to the rooms and/or food and beverage divisions, not ancillary revenues. Whereas most hotels track costs per occupied room in aggregate, few typically track costs/profits on a segment basis. And from the F&B perspective, although outlets are tracked separately from catering, aggregated data is typical, not data by segment. While some hoteliers are inventing their own methods to track individual market segment profitability, what a Total RM effort requires is an industry-wide consensus on permanent changes to the Uniform System of Accounts, changes that enable hotels to drill down into accurate market segment contribution. In this regard, annual budgets will be built by manipulating business mix to drive profitability.
  • Expanded role for the revenue manager: Another obvious component of a Total RM program is increased involvement by the revenue manager in optimizing all revenue streams, allowing them to have both tactical and strategic influence on other revenue centers. At present, most revenue managers spend the majority of time on rooms revenue management. Although there’s communication with the F&B division and there’s more technology available to optimize group business, in terms of sheer hours, rooms division takes the lion’s share of most revenue management efforts. For Total RM to become a reality, demand management is needed that manages demand and profitability in tandem for every revenue stream in the hotel.
  • Identify “net-net” rate levels: Another element of Total RM lies in identifying “net-net” rate levels by extracting associated costs unique to that rate. These costs are typically divided into two categories: internal and external. Examples of an external cost would be global distribution system fees and travel agent commissions. An example of an internal cost would be the F&B costs associated with a package or the costs of special benefits associated with a frequent guest program or consortia contract. More often now, hotels focus on “acquisition costs,” identified especially when comparing online-travel agencies bookings to brand.com bookings. But still, internal costs are less likely to be identified by market segment. The obvious advantage of knowing the “net-net” rate is being able to identify the most profitable rates as well as segments, room types, etc. Lower rates often become “second-class citizens” to revenue managers, front-desk teams and sales personnel, whereas higher rates appear better but don’t take into consideration all the associated costs.
  • Track RevPAR by room type: Tracking RevPAR by room type by month to more clearly identify sub-optimal value propositions is another element of a Total RM approach. Although most property management systems provide this data, rarely is it put to good use as reliable business intelligence. It is amazing how much strategic information can be gained by looking at room type RevPARs by month. Lower RevPARs mean either volume or rate is out of alignment to demand realities, and small adjustments can be made to correct this.
  • Drill-down displacement analysis: Another important component of Total RM is a greater reliance on detailed, drill-down displacement analysis to strategically select/deny business, including calculations on spend by revenue center. Hotels are generally taking much more time to conduct proper displacement analysis but not always to the “total spend” and “total profits generated” level. There certainly are good group modules available in some of the revenue management software systems, but for those hotels that operate without an RMS, properties should at least use the profit profile functionality in the sales/catering system or create a spreadsheet that takes all the revenue streams and profit ratios into account.
  • New performance metrics: Another element of a good Total RM program is the systematic use of new metrics. An example is the metric catering revenue per occupied group room. Most hotels already track F&B covers per group room and establish minimum F&B levels in contracts, but creating metrics that track revenue and profit per occupied group room is a good start. Other metrics include: revenue per square foot, profit per square foot and revenue per available seat hour. In a Total RM environment, these metrics would appear on the monthly profit-and-loss statement. And once new performance metrics become a routine part of weekly revenue meetings, there’s typically much more focus on selecting business from a Total RM perspective.
  • Track upgrades: For Total RM, it’s important to track upgrades methodically so that lost revenue opportunities are identified, monitored and mitigated. In most hotels this is not done routinely, and in this case the old adage holds true: You can’t manage what you don’t measure.
  • Dynamic transient baseline: More often than not hotels establish static baselines with exceptions managed manually. A dynamic baseline approach is much more effective in optimizing demand. When the hotel updates the sales/catering system on a daily basis for close-in dates and weekly basis for medium- and longer-term dates, sales managers have the added advantage of selling with the most up-to-date data. This is especially important as booking windows shrink for all market segments.
  • Dynamic pricing of catering menus: This is a trend that is becoming more and more evident in the industry and goes way beyond “holiday” pricing concepts or F&B minimums. Conference planning guides provide price ranges for banquet menus facilitating demand based pricing. Meeting room rental prices also transition from static pricing to demand pricing. For example, if one period of the day is in greater demand than another (either by day of week or month) then the price reflects the demand level accordingly.
  • Unconstrained demand forecasting for catering: This concept is based on tracking pace and turndowns to determine total demand in as detailed a manner as is done for the rooms side of the business (e.g., based on availability, space not released, minimums not met, price resistance, etc.).
  • Advanced menu engineering: In a Total RM environment, advanced menu engineering is conducted whereby price elasticity is tested menu item by menu item.
  • Emerging participation in F&B benchmark reports: Although occupancy, ADR and RevPAR are the primary metrics tracked in benchmark reports, F&B statistics are emerging. This trend may be driven faster than expected due to the impact of Asia/Pacific hotels where F&B revenue and profit levels can exceed rooms division performance. At least for North America, hotels can submit performance data to STR and track metrics such F&B revenue per room sold. As Total RM emerges, this practice will become more widespread, providing hotels with an added measure of performance against the market.

If any hotel is going to move to the very highest level in its revenue management effort, these types of initiatives must be considered. Regardless of the point at which your hotel may be in starting down the road to Total RM, it will take serious commitment to finish the journey and benefit from a more sophisticated approach to profit optimization.

#9 – Little or no involvement in online reputation management

When it comes to building positive awareness about your hotel, it takes a lot of time and effort to build and maintain your online reputation and that starts at the property level.

So what is online reputation management (ORM) and why is it so important? Wikipedia defines online reputation management as “the practice of monitoring the Internet reputation of a person, brand or business, with the goal of suppressing negative mentions entirely, or pushing them lower on search engine results pages to decrease their visibility”.

The days of measuring customer satisfaction via the traditional hotel comment card are long gone. Reviews are now online and there for the public to see, as are quality ratings. Moreover, research demonstrates that travelers are seeking out hotel reviews and consider the online review a vital decision-making component for their future travel plans. Consider the following:

  • 90% of customers read online reviews before booking a hotel room
  • Poor online reviews = lost bookings and lower revenue for your property
  • Good online reviews = greater consumer confidence and more revenue for your property

Adele Gutman, VP of Sales and Marketing with Library Hotel Collection (formerly HK Hotels), shares these online reputation management takeaways:

  • Reputation creates demand.
  • Everything you do is reputation management: from hiring and training staff to the type of linens you order for the guest rooms.
  • Imagine the reviews you want, and then become the hotel that inspires them.

BTW Adele and her staff don’t pay lip service to customer service. Three of Library Collection’s four hotels rank #1, #2, and #5 of hotels located in New York City on TripAdvisor.

Ignoring your online reputation, or responding inappropriately to comments, can have a negative effect on your hotel’s branding, which can then be detrimental to its overall revenue. This is especially true if negative reviews dominate the search engine results. There is, however, an upside to this. Traditionally, happy guests are the best source of new/referral business, and online forums are the new and more powerful word-of-mouth.

So here are just some of the ORM tools currently available that will help you to manage your online reputation effectively.

TrustYou/Review Analyst monitors Online Travel Agencies (OTAs), Review Sites, and major Social Venues such as Twitter, Facebook, YouTube, Flickr, FourSquare, and more.

Revinate is an easy-to-use software service that tames and demystifies the all-important realm of social media, giving employees the chance to both turn individual disappointment into delight and make operational improvements that increase loyalty and drive sales.

ReviewPro offers a web-based, analytical tool that allows hotels to efficiently aggregate, organize and manage their online reputation and presence in leading social media sites and provides analysis, business intelligence, competitive benchmarking and reporting needed to help hoteliers effectively manage their property.

#10 – Inferior superiors in key positions

Where do you start and what’s the solution? Does it go back to poor hiring practices? The need for a hotel to fill a position quickly? Less qualified pool of candidates?

Chris Rickborn, is the COO and co-founder of Unrabble, a cloud-computing hiring software company that helps busy startups make great hires and his five tips may be just the solutions you are looking for.

  • Stop Giving Open Book Tests: Writing lengthy job descriptions loaded with job requirements may keep unqualified candidates from wasting your time, but you’ve also just given every candidate a cheat sheet. Job seekers are taught to break down your job description and weave it into their resume, which will make everyone look equally qualified. Sell your company, your vision and the position, but make job seekers tell you what they can do for you — not what you told them you want.
  • Don’t Confuse Experience With Skills: Job candidates can often blur the line between a previous experience and a skill, which is a trap you need to avoid. Don’t assume that candidates have certain skills just because it’s a keyword on a resume, a previous job title or experience at a similar business. Have an in-depth conversation with your top candidates to discuss what they are best at and learn how they have acquired those skills through experience.
  • Make Sure the Timing Is Right: Where is the candidate in his career? Is he capable of taking a big risk at this point in his life? What kind of adversity has he faced in previous jobs? Does he seem too anxious to hit a home run or does his experience tell you he has the patience it takes to succeed?
  • Skip the Initial Telephone Interview: I’ve never liked doing telephone interviews based on the initial review of a resume — it’s way too time-consuming. But I do like communicating with candidates, because that’s when you learn the most about them. After I’ve looked at a candidate’s background I might send off a short message and say, “Tell me about this experience” or, “What do you know about this skill?” How does he respond? Does he respond? Can he write? Is the exchange comfortable? The ability to communicate articulately in writing is a trait of top talent, regardless of the position. If you engage candidates in a more in-depth and ongoing communication string rather than conducting a one-and-done phone interview, you will quickly learn who stands out from the crowd.
  • Separate the “Can Do” From “Can Get it Done”: In most startups, resources are tight and the timeline is very short. When you’re hiring for a key position, make sure to ask yourself if you need someone who “can do the job” or someone who “can get the job done.” The “can do” is the candidate with the hands-on skills who can accomplish the task without any help. The “can get it done” is the candidate who will deliver but may need other resources to make it happen. Both can be valuable attributes to have, but you need to clearly understand which one you need to avoid a hiring mistake that could set you behind.

As always your comments and questions are welcomed!

About the Author

Tom Costello is the CEO and Managing Director of iGroupAdvisors, a performance improvement consulting firm that specializes in the hospitality and travel verticals. Connect with him on LinkedIn, Facebook, and Twitter or contact him by email.

Contact:

Tom Costello
tom@groupsinternational.com


 
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Also See:
How Hotel Owners and GMs can Change 'The Top 10 Reasons Why Hotels Underperform' - Part 1 / Tom Costello / June 2012


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