When we think in Revenue Management (RM) usually we associate with practices related with economic growth and prosperity where demand exceeds supply. Although these techniques of Revenue Management that help to boost the moments of growth, become more effectiveness, relevant and priceless in times of economic downturn.
In those moments, they can be the difference between life and death of a company or represent the difference between negative or positive results at the end of the economic period. Experienced managers know that business restructurings and process reengineering should not be done in times of crisis. These implementations must be done in times of prosperity, where we can take some risk or actions that could take some time to achieve the goals we have set in medium and long-term period.
Now, in a context where other alternative tourism markets rise again from the ashes, this issue seems to be too relevant again for sector companies. It's a certainty that will be a moment of contraction in demand again, sooner or later, it becomes a reality. Markets such as North Africa or even some countries from the emerging Middle East are a strong competition for the national (Portuguese) tourism market in the future.
How can we fight these hard times when supply exceeds demand?
If we assume that hotel managers are doing their homework and implement efficiently revenue management procedures and systems, we could divide these actions into four main categories studied by Sheryl Kimes [1] and Chris Anderson [2].
1. Rate discounts or reductions
2. Rate opacity
3. Marketing
4. Cuts in operating costs
In these groups from analysis we look the most efficient, regarding the increase of revenue and optimization in periods of crisis and we became achieving some surprising results. Usually, we can say that the practices that increase value for customer and capture new market segments are able to resist more effectively in times of economic downturn, obtaining superior key indicators of performance when compared with the average. We can easily conclude that actions associated with group 2) Rate Opacity and 3) Marketing become preponderant in success of business units in those troubled times.
1. Rate discounts or reductions
They consist in discounts concessions or carry out a rate reduction in a decontextualized way, without any prior conditions or barriers. Instead of creating value they create an inverse movement in the market or dumping, contrary to its main objective. This is seen as one of the least efficient resource measures from the point of view of performance indicators. However, this not mean that it is not beneficial when applied with discretion and with useful restrictions.
Example: When we offer a discount on special dates with a condition when booking (birthdays, over 65 in low season, large families), guests loyalty (for 3 repeated visits or more) or when we want to reinforce the OTA’s ranking boosting the " Billboard Effect " by creating a " limited time offer or service " special rate (very useful in competitive urban centers).
Discounts on rates are one of the most used instruments in the industry, however when used erratically and without strategy can be harmful to the KPI’s leading to the decrease of revenue. We recommend using them outside the periods of high demand and with some fences or conditions for their attribution.
2. Rate Opacity:
- Creation of value added packages for the guest
It consists in the simple creation of pack services under a single price and that represent an effective advantage for those who buy it. The purchase of the services together should be more advantageous than the same purchase separately. Most of the time it’s possible to stimulate the use of other outlets such as Spa, Sports facilities, rooms and much more.
- One-night free offer (extra)
Depending on our goal, we give an extra night to those who spend at least X number of nights in our hotel, by this way we can dilute the cost per guest stayover with a smaller impact on the unit image when compared to a direct discount.
- Using opaque rate channels
The use of opaque rates sometimes is being controversial, when well used, they can be a great ally in the fight against the crisis. In this way, we can minimize price pressure on the image and brand while we are able to make effective sales at a lower value. If we use this kind of strategies, we should have a greater control over the costs of distribution, because we know that the probability of their increase could be real.
- Breakfast offer
This already is a common practice within the hotel industry, consisting of the sale of breakfast included in the price of the room. However, its opposite also happens, in moments when we have more freedom we can charge the breakfast separately from accommodation.
- 2 for 1 promotion
This tactic can also be used for the purposes of marketing and to promote the hotel unit for a limited time or in a media stream campaign.
- Pre-paid vouchers with F&B packages
With these pre-purchase F&B vouchers we have been able to increase the revenue of other outlets in addition to the accommodation, taking some advantage in the profitability of these spaces.
- Creation of packages with flights and / or car rental
This is a great and an effective action although for getting some big revenues, this practice requires planning with greater anticipation. It is necessary not to forget that those purchases are made while the customer buys his air ticket. It is more difficult to carry out this option directly, however, there are some OTAs that allow you to make this type of offer, for example as it happens on Expedia.
This category has a high intrinsic value to increase our revenue, many of the practices tested can still be used as an integral part of marketing and promotion activities. These packages with breakfast or F&B, as well as the use of opaque rates and extra night offers are the proven tactics for a more effective contribution to the revenue increase.
3. Marketing:
- New market segments acquisition
Capturing and focusing on new market opportunities is one of the most effective elements in these times of crisis, however, it is up to you be able identify these opportunities through the available information on the hotel through BI and Data Mining techniques.
- Pay Per Click (PPC)
In the worst times, the acquisition of potential customers is crucial, so taking some PPC actions become essential for all strategy, to acquiring new customers and attracting new segments.
- Revenue diversification with other hotel outlets
It’s important to remember that we have other outlets besides accommodation, these kinds of facilities can play a key role in maintaining the hotel alive and for the integration with local community. In Portugal it is not very usual to see hotel units working properly these existing infrastructures to achieve a steady stream of revenues, however this may represent a competitive advantage among competitors.
The category that is directly associated with the marketing effort is the most effective among all the others, so contrary to what normally happens your budgets should be strengthened in times of crisis and not being shortened.
4. Cuts in operating costs:
- Reduction of operating hours
- Facilities Closing or operational cancellation
Regarding this action highly popular among financial managers, they should not call into question the level of quality of service provided, otherwise it would have an adverse effect on what is desired. One of the elements with a perception as being the most effective from the point of view of revenue Kpi’s will be the closing of facilities for some renewal increments. In this way, we have the temporary closure of a certain area for future service improvements and a fiscal impact advantages through investment.
One of the main goals from the strategic balance of all these elements is to be able to draw up a resource plan for a time of low demand. The important is for hotel units is to achieve consistent strategy and integrate these tactics into their structure to minimize the negative impact on revenue on economic downturn.
Some suggestions for the future are summarized below:
- Do not panic and do not fall into temptation to compare good times with worst moments
- Make a strategic repositioning of the business unit (competitive set)
- Review and measure all distribution channels
- Make strategic partnerships
- Compete through quality of service and not price
- Make some contracts renegotiation with distribution intermediaries and reinforce favourable conditions for opaque rates
- Just have greater strategic coherence in all actions taken
- Do not drop prices without conditions only driven by fear of failure
- Be resistant to rate discounts without conditions for their attribution
- Increase your marketing efforts and budgets
- Biggest bet on SEO and SEM actions
- Increase the effort to capture new market segments
- Make a greater investment in PPC
- Greater relationships reinforcement with the customers (CRM techniques)
- Increase cross selling strategies
- Increase marketing efforts at the point of sale
- Further staff internal training for up-selling results
- Commissions allocation by sales made for internal staff
- Consider marketing strategies and actions that generate value
- Implement rate opacity techniques
- To take advantage of the moments of less demand, carry out some renovations and improvements in the existing infrastructures of business units
- Maintain or even increase your quality service levels
- Diversify your revenue sources (other outlets)
Kimes, S. E. (2010). Successful tactics for surviving an economic downturn: Results from an international study [Electronic article]. Cornell Hospitality Reports, 10(7), 6-14. ↩︎
Kimes, S., & Anderson, C. K. (2011). Hotel revenue management in an economic downturn [Electronic version]. Cornell University, School of Hospitality Administration. ↩︎
