Revenue Management in Today’s Online World

Online Revealed – Toronto – May 2007

Introductions

Victoria Edwards Over 25 years travel,

tourism, hospitality Hotelier, entrepreneur University of Victoria,

University of British Columbia, DuBrulle French Culinary Institute

Board of Directors HSMAI Advisory Board AHLA

certification program Co-founder/co-owner

Buckhiester Management Creator of REVRoadMap™

Buckhiester Management…

Founded in 1995 Client base - hotel & resort

companies N. America, Europe, Caribbean Offices - Seattle, Vancouver,

Washington, DC Products: REVRoadMap® &

REVolution® (rooms, F&B, Golf, Spa)

Who is in the room today?

Industry Hotel DMO other

Role Sales/Marketing? Corporate level? Property level? Revenue

Manager?

Objectives

Better understanding of the interdependent nature of demand creation/capture/management

Overview of how evolution of the online world has impacted RM

Provide some suggestion & tips for your RM practice moving forward

Topics

Functional areas & business process

Evolution of Distribution Impact on RM practice First line of defense – your website Measuring Performance If I were in your shoes….

Three Inter-dependent Disciplines

Demand Management

CRM (Demand Capture)Demand Creation

Revenue Management as aBusiness Process

Product Definition

Competitive Benchmarking

Strategic Pricing

DemandForecasting

Distribution Management

BusinessMix

Manipulation

REVRoadMap®

Traditional Reservations

CRS Connect to GDS +

800#

CRS Connect to GDS +

800#

PMSProperty Voice Reservations

PMSProperty Voice Reservations

GDSTravel Agent

GDSTravel Agent

Reservations Manager

Reservations Manager

Distribution Management - Present

CRSCentral Reservation

System

CRSCentral Reservation

System

GDSGlobal Distribution

Systems

GDSGlobal Distribution

Systems

Onward Distribution

Onward Distribution

Proprietary Website

www.yourhotel.com

Proprietary Website

www.yourhotel.com

IDSInternet Distribution

Systems

IDSInternet Distribution

Systems

PMSProperty Management

System

PMSProperty Management

System

DORM Director, Revenue

Management

DORM Director, Revenue

Management

The “Mechanics” of Onward Distribution

Four ways that Internet sites receive hotel information & rates.

Switch

Reservations

Smaller websites

GDS

Extranet

E-Mail

GDS Powered Websites

Travelocity, GetThere, Site59

Trip, Cheaptickets, Lodging, Orbitz, ebookers, Collegetravelnetwork

Hotels.com (retail version) Expedia, Hotwire, Lodging, Priceline

OneTravel, Vacation, opodo

Booking Engine Onward Distribution

Switch or Data Base Powered

Hoteldiscounts, Yahoo, AOL, 180096hotel, Travelnow, Lowestfare

Placestostay, Gotrooms, yahoo,USAhotelguide

TravelWeb, Hotwire, Travelscape, TravelHero, CNNtraveller, Lastminute.com (over 1,200 sites)

Booking Engine Onward Distribution

Technology

“Internal” PMS POS RMS Sales/Catering CRM Hotel website Web booking

engine CMS (channel

management systems)

“External” CRS GDS + connectivity IDS connectivity Group/meeting

websites RFP websites Rate Shopper

systems CGM Customer

Generated Media

Source: HSMAI De-Mystifying Distribution

Reservation Sources – Major Hotel Brands 2006

Internet

GDS TravelAgent

Voice

38.3%+20% ‘05

35.6%+5% ’05

26.1%-1.5% ‘05

Source: TravelCLICK April 2007

Internet Source Breakdown - Major Hotel

Brands 2006

Brand Sites

Retail Sites

Merchant Sites

Opaque Sites81.4%

Source: TravelCLICK April 2007

Hospitality Revenues Generated by the Internet

0%10%20%30%40%

2003 2004 2005 2006* 2008*

Internet Revenues

• In 2006, 27-29% of all revenues in hospitality would be generated from the internet.

• Another ¼ of hotel bookings will be influence by the Internet, but done offline.

Hospitality Revenues Generated by the Internet

(cont’)

• In 2006, 54% of all internet bookings in hospitality are projected to be direct to consumer (B2C) via hotel owned websites.

• By 2008, the direct portion of online bookings is expected to reach 62%.

Are you ready for this dramatic channel shift?

Source: Hospitality eBusiness

Strategies

Evolution

Tech Impact on hotels Seamless /Transparent distribution Rate Integrity Economy – commoditization Education has not kept pace Lack of technology integration and

data integrity Segments begin to blur

Evolution

Tech Impact on Guest Better educated/well traveled Commoditization sets dangerous price

references Poorly defined value prop &

mismanaged fences = lack of rate integrity

Increased use of 3rd party providers Distrust set stage for social networking

Travel 2.0

Evolutionary stage of internet development in tour & travel segment

Shift from supplier-side control, static content to consumer driven/controlled dynamic content

Includes consumer driven content social networking, highly interactive content, interfaces & mash-ups

Travel 2.0

Emphasis is on value & experience rather than price

Seamless combination of content from multiple sources in a single experience

Examples – Gusto.com, Trip Advisor, Travel Zoo, triphub.com

Travel 2.0

Types of T2.0 Sites

Blogs: travel blogs include video and written

Wikis: consumer driven guides or reference info

Reviews: primary purpose is to over marketing unbiased review of hotel, restaurant, attraction

Mashups:combines content from more than one source into integrated experience

Site Sample

Mash-ups: Gusto, Travelbud, Triporama, TripHub

Blogs: YouTube Travel, Travelistics,TheLobby.com

Reviews: tripadvisor

Wikis: wikitravel,turn here, IgoUgo

Groups: groople, meetingsonline

Demand Creation

In 2007, a remarkable 68% of hoteliers will be shifting their budgets from offline to online marketing activities, representing a huge shift from traditional methods.

The top three Internet marketing formats hoteliers believe produce the highest ROIs are website optimization, Search Optimization + Organic Search, and website re-design.

Source: Hospitality eBusiness Strategies December 2006

So why should you care?

Potentially impacts all aspects of RM business cycle

Product definition Competitive benchmarking Pricing Forecasting Mix manipulation

Product definition

Matching User needs to Product Defining Hotels Segmentation Inventory Stratification Product Utilization

Competitive Benchmarking

Market supply & demand Qualitative & Quantitative Positioning by segment Positioning by channel

Pricing

Rational – identify most valuable segments

Shift from traditional models –cost to market and market to value

Drivers of Price reference Consistent application of fences BAR & derivative pricing

Who Determines Price?

#1 Truth: Customers drive prices Price References:

Product line price influences Past price influences Purchase context influences Prices of similar items Cost-based influences

Fair Price (Rate of the Day) Corp Meeting – no rooms

Price

Volume of Sales (duration of day parts & number of covers)

0295

$405

“Retail” Demand – Customers seeking fair

price

“Premium” Demand – Customers willing to pay higher than fair market price e.g. Incentive Group

“Discount” Demand – Customers seeking lower than fair market price

e.g. Association Dinner

The Price Triangle

The Price Triangle

Customers determine where they fall in the price triangle

Based on demand, different every night The fair price for each segment of demand

is the price that yields the maximum revenues from the balance of occupied function space (or outlet seats) per day part and average check for that segment

Why create BAR rates?

Move from opaque to transparent channels

Poor understanding of Rate Parity vs. Rate Integrity

Commoditization of product through poor rate structure management

Blurring of market segments online

Forecasting

Unconstrained rather than constrained Micro-segment Forecast accuracy by day of week Trend analysis Role of history

Forecasting

Free and Accurate Airfare Predictions Find out if you should buy now or wait.  Learn More

Mix Management

Quantify performance Look at Index Balance Leverage opportunities based on

segment demand

Trends in Group Business

Leisure group travel segment – fastest growing segment will be small gatherings of up to 9 rooms

By 2008 total small leisure group segment will grow at twice the rate of other groups

Corp meetings with less than 25 attendees projected to increase by 13% between 2006-2007

Sarbanes-Oxley continues to force companies to tighten controls on travel

Trends in Group Business

Components of large meetings (e.g. RFP, housing management) will continue to move online

New entrants into market as well as intermediaries will push need to consolidate portions of group & meetings lifecycle

Big gap between supplier perceptions of needs of buyer and consumer/planner expectations

Why is Mix Manipulation

So Important?

Asset management versus business management

Diversification of risk Managing yield from the bottom up Return cycle to equal levels of profitability

much easier

Distribution

Distributed work force & Travel 2.0 continue morph the distribution landscape

3rd parties intermediaries & new entrants such as groople getting into group game

Lowering distribution costs & capturing demographic data

Hotel Website

Purpose

Attract – targeted traffic to your web site.

Retain – keep traffic on your site & returning to your site. Eliminate opportunities for “disconnect.”

Convert – succeed in having visitors take a desired action.

Proprietary Website

Key Considerations

User experience/design – especially w/ booking engine

User needs vs. Site objectivesNavigation and architectureSearch engine optimizationLink popularity Meta tag review Content review Web traffic analysis

User Experience & Design

When reviewing your site’s “look and feel” consider visual application of text, graphic page elements and navigational components.

In a website, user experience is governed by the user’s interaction within the website.

How successful is a user in fulfilling his/her goals? Is the experience difficult? Or is it smooth?

User Needs vs. Site Objectives

Ensure that the user’s needs and the site’s objectives correspond

Externally derived goals for the site usually determined via user/demographic market research are not in conflict with the business, creative and other internally driven goals for the site.

Search Engine Optimization

A web site efforts to be ranked high on a listing by virtue of appropriate copy writing and links to & from other complimentary links

Search engines such as Google & yahoo! Use spiders to look for site based on the keywords used by an individual

SEO Tools Google PageRank - Page rank is an indication

of a page’s popularity and relevant content. It is established by the number of quality pages with links targeting the site pages.

Link Popularity - indicates how many links are targeting the site. Linking is critical to page rank..

Reciprocal Linking Program - increases the number of links pointing into the site.

Website MetricsMarketing KEI – key word effectiveness index Page Rank Link Popularity Traffic AnalysisRevenue Management Visitor to Book ratio Visitor to Look ratio Look to Book ratio

Metrics

Then ADR/RevPAR/Occ ADR/RevPAR/Occ

Index GOPPAR EBITDA Comp Rank

Now (all of the Then +) Contribution/segment Contribution/guest RevPASH RevPSF RevPACV Look to book Key word density Page Rank Forecast accuracy

per segment per day

Strategic Mistakes

No clear eDistribution strategy No trained distribution expert (viewed

as clerical work) Lack of knowledge of connectivity

(how CRS “talks” to GDS, how GDS “talks” to Internet)

Lack of knowledge of functionality

Strategic Mistakes

Senior management underestimates complexity, labor intensity of managing sources (“just do it” mentality)

Underestimating impact of staff turnover

Unaware of distribution options Rev. Mgr. tactically strong, strategically

weak

Tactical Mistakes

Rate loading errors: loaded but not active, rates not loaded, wrong rates, inappropriate rate display order

Inaccurate property data, not checked (HOD)

Improper use of stay controls turning business away

Contribution reports tossed, source under performing

Tactical Mistakes

Not understanding what travel agents or consumers see

Adding too many sources at once Not completely understanding product

line difference between self and comp set

If I were I GM Today….

1. Ensure that team is working together to obtain balance between demand creation/demand capture and demand management

2. Review current product offering in term of user needs

3. Check for inventory stratification opportunities4. Check “Review sites/Blogs” to see if guest

benchmarking aligns with your comp set

If I were I GM Today….

5. Ensure that team can articulate the difference in value proposition per product compared to comp set

6. MUST fully utilize 3rd party reports – STR, Hotelligence,Future Pace

7. Ensure pricing structure recognizes most valuable segment

If I were I GM Today….

8. Is relationship between BAR rates and derivative pricing understood by team?

9. Chart segment pricing against comp set to ensure reasonable positioning

10. Are forecast based on unconstrained demand? Are they granular enough?

11. Do you measure forecast accuracy & trend by day of week and segment?

If I were I GM Today….

11. Are indexed balanced? If not what shift in mix is required to achieve balance?

12. Make distribution plan part of annual business plan process

13. Ensure team is aware of segment versus source costs

14. Have website audit conducted by outside source to look at design functionality & web optimization

15. SEO – measure look 2 book, KDI, page rank, traffic analysis monthly

Reference Sites

www.websidestory.comwww.alexa.comwww.wordtracker.comwww.hitbox.comwww.seochat

Questions?

Comments?

Thank you for your time