When Will Hotel Revenue Management and Hotel Marketing Finally Merge?
While Revenue Management and Hotel Marketing are both charged with maximizing revenue and profit for a supplier or distributor, their approaches are fundamentally different. Both organizations house some of the brightest, hardest working and passionate associates in the enterprise. They also share a perception challenge: most everyone else in the company doesn’t really understand what they do, much less how they do it.
As the travel distribution landscape continues to change, the day of alignment between Hotel Marketing and Revenue Management is coming. The ways to accelerate this change lie in the fundamental differences present today.
Difference #1: Separate Planning Processes
Revenue management builds revenue forecasts based on channels and segments. There is an emphasis on projected growth over historic averages guided by macro inputs like RevPar and supply change projections. Hotel Marketing plans are centered on the customer and are geared toward acquisition and retention (getting more from the best customers and finding new ones who look like what a current good customer looks like). Revenue forecasting is about the art of mixing channels, each with distinct characteristics. While for marketing it’s about achieving the perfect mix of customers.
Channels and segments to a Revenue Manager are an odd grouping. It can refer to a distribution channel (Branded web, OTA, Consortia, etc.) or a rate segment (BT, FIT, Negotiated, etc.). And customer profiling to a marketer similarly involves disparate inputs – the source market where a customer lives (drives media planning) or the demographic and behavioral profile of a customer (drives segmentation).
Difference #2: Separate Reward Systems
We all know that behavior is strongly correlated to performance measurement and compensation. Simply put: people inside companies do what they need to do in order to get a bonus, raise or a promotion. How are Revenue Managers measured? Generally it is through RevPar penetration (market share) and other variables such as forecast accuracy or segment mix goals. And most often a company-wide revenue and/or EBITDA goal in some way compliments the department-specific measures.
How are marketers measured? Again, this varies, but most often through a revenue target with complimentary components which include customer acquisition and retention objectives or even a service goal (since marketing is a functional organization).
What happens when you have some of a companies’ brightest, most creative resources who should be working in unison toward common objectives, but, instead, lack true alignment? Sub-optimization. In the end, the overall organization itself suffers by missing opportunities to drive more profitable revenue.
The Fix: Promote Alignment By Addressing the Differences
Putting Revenue Management and Marketing within the same organizational structure may not be enough. Changing the way both groups plan and how they are rewarded is the only way to ensure alignment. To achieve this, strategies must include: Linking revenue management segments with customer segments.
Traditionally, revenue managers create segments based on industry classifications (Group, Transient, Business Transient, FIT, Wholesale, Negotiated, Consortia, etc.). While marketing derives customer segmentation based on transactional data models (propensity, “RFM” models, etc.) and overlays those segments with demographic and behavioral clusters.
But the two rarely link. In additional to a score based on worth, it’s important to understand what revenue management segment a customer fits into (FIT, BT, etc.). This clarifies the job that marketing must do to deliver revenue targets, while at the same time providing revenue management with another critical forecasting input.
Using Common Ways to Assess Performance
The performance of revenue managers and marketers should be measured with the same metrics. It’s less important what the metrics are – just that they are the same. Assuming the competitive set is properly defined, I’m a fan of RevPar penetration as a common goal. Gaining market share against the competition is what revenue managers and marketers get paid to do so they should be measured accordingly.
In fact, the sole act of rewarding Marketing and Revenue management using something like the RevPar growth they can achieve over historic “fair share” will effectively force alignment. Most other differences (big and small) that plague the organizations today will go away. There is so much intellectual and creative energy housed in Revenue Management and Marketing. Optimizing these resources through more effective alignment will propel a hotel, cruise, air, or agency travel business to much higher levels of share and profit growth.
In this day and age where we are all trying to make data driven decisions to enhance our customers experience and drive more bottom line growth, we need to align around common goals and metrics. Data is powerful, but being intelligent with the data is the differentiator that drives revenue growth. There is just too much going on in travel. The day when Revenue Management and Hotel Marketing must merge is coming. Isn’t it better to lead instead of follow this trend?