News for the Hospitality Executive
by Marco Benvenuti
Co-Founder/Chief Analytics & Product Officer
May 30, 2013
For many hotel general managers, knowing their hotel is sold out means they’re finally able to get a good night’s sleep. But if the hotel is sold out a week or even days in advance, they should instead be up at night wondering how it happened - and maybe being worried about lost revenue.
It may go contrary to the way the hospitality industry has operated for decades, but a hotel completely booked more than a day or two in advance is a costly mistake.
The general manager in that instance has almost certainly filled the hotel with the wrong customers, paying the wrong rates. In general revenue management theory, the absolutely ideal scenario would be selling your last room to a guest walking in at midnight, who’d be willing to pay almost any price for a place to sleep.
That’s extreme, but the idea is spot on.
The closer a hotel sells out to the day of arrival, the better job the general manager has done. Think about it, especially with the airlines, which are still flying ahead of the hotel industry in revenue management savvy. Leisure travelers book vacations well in advance to get the best deals, but business travelers aren’t as price sensitive. We’ve all been there. An important meeting pops up in New York tomorrow, and I’m online booking a ticket. I expect to pay a higher price, because I’m just happy to find a seat and at the most convenient times for me.
I, the business traveler, should pay a higher rate 48 hours before the trip, than should the leisure traveler who booked six months in advance. The idea should be the same in the hotel industry, and properties with sophisticated management or revenue management systems are selling rooms in the same fashion. But many aren’t.
I know there’s an argument easy and safe money by selling out as soon as you can, but there are compelling reasons why you shouldn’t.
First, if you’re a GM or owner, think about your last high-demand period. When did you sell out?
If it was the day of or the day before, job well done. If it was three or five days ahead, or a week or two out, you left a lot of money on the table. You not only closed the book on several customers who would have been willing to pay a higher rate those last days, but you also missed yielding up rates 30, 60 and maybe even 90 days out, when you were seeing higher than normal pick up.
You should have never gotten to that point. If you have that much demand that early, if the velocity of bookings is that fast, prices should have been increased long before your inventory went down to 10 rooms 14 days out.
That’s the beauty of a sophisticated revenue management system -- like Duetto Edge (www.duettoedge.com). A dynamic RMS can spot this trend long before a human would, and then alert you to start yielding up rates, so you can maximize revenue.
The tendency may be to go for the “fast money.” But as in most endeavors, that’s a losing strategy in the long run. And it’s why revenue managers need to be armed with the right tools and data, so they can be confident in their decisions.
Indeed, there may be a time or two when you don’t sell out in the end -- but I’d rather just miss a sellout by being too bullish, and max out revenue all those other times.
If you’re still not convinced, here are a few more reasons why selling out early can cost you money.
Try using Duetto Edge. Our unique web regrets and denial data will show you how many people are shopping for rooms on your site, and also trying to book after you’ve sold out. So if you’ve sold out a week in advance, keep an eye on Edge to see how many people tried booking rooms that last week, and imagine the higher rates they’d have been willing to pay.
There’s no magic formula that says you should have X amount of rooms left with X amount of days before arrival. It all depends on the market, property and demand, which is exactly why dynamic revenue management software is critical today.
If you’re afraid of charging rates higher than you’ve ever charged before, take a deep breath, and ease into it. If Edge recommends $350, because you’re down to just a handful of rooms left, and you’ve never charged more than $250 in your market, try $270. If that works, next time try $280. Work your way up from there.
Today’s consumers understand this concept, and those business travelers who need to be in your city tomorrow are happy to pay almost any price for the convenience of finding a room at your hotel. Do them the favor, and take their money. Don’t tell them you’re already sold out.
About Duetto Research
Duetto Research (www.deuttoresearch.com) provides hotel executives with cutting-edge solutions to optimize demand, maximize rates, and minimize costs. Leveraging travel industry ‘big data’, Duetto highlights opportunities to raise rates or shift mix, monitor competitors, identify parity problems, reduce technology costs and eliminate the need for tedious data entry. Powered by leading Silicon Valley technologists and hospitality industry veterans, Duetto is where innovation and insight meet – to help the hotel industry create new standards of efficiency and profitability, and re-think how revenue management is done. Duetto has attracted many of the highest regarded investors and advisors from the hospitality and technology industries, including, among others, Thayer Ventures, Battery Ventures, Trinity Ventures, Altimeter Capital, Lee Pillsbury, founder and Chairman of Thayer Lodging, and Marc Benioff, founder, Chairman and CEO of Salesforce.com.
Michael Frenkel, MFC PR – New York
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