Hotel Demand Management - What and Why?
Hotel demand management is a holistic merger of main commercial departments of the hotel organization with prime focus being on the profit optimization that further helps in increased asset value in long term.
As David McCandless quotes, “Data is the new soil”, data holds great value in hotel industry more than anything.
As it helps us to achieve efficient demand management linking us with our customers, assisting in smooth operations and lastly to be able make profits with customer satisfaction which is the key to success of any good hotel business. A good demand management can be done through a good demand generation which means focused sales distribution and marketing activities that drive interests and awareness through a company’s service or product.
How do we collect this data and how do we draw statistics for demand generation? Let’s start by jotting down these pointers stated below:
Now explaining ABCs of product that we wish to sell, we start with initially emphasizing upon the guest feedback about travel experience, be it long vacation or a staycation. It is the underlying unique experience which the guest remembers and this is the reason why top tier hotel brands and companies like IHCL started their own program known as Tajness. It focuses on giving the best experience to the guests, so as Marriott who have restructured their check-in process for better customer experience.
Meanwhile we also have to understand that not all guests desire monotonous experience, so it becomes difficult to speculate guest demand. The surge in the number of Bleisure travelers (which combines two different segments that is business with leisure) also plays a crucial role as the guest wishes to choose a hotel which includes both the proximity to his/her workplace and also access to the local experience like restaurants and local sightseeing.
We as a hotel can’t provide all the experiences to a guest, so the next question is that so what are the experiences we want to deliver to our guests and how can we do that by integrating it with our products and branding.
Experience = Value = Product that has to be offered
This brings us to the next point that elaborates how can we determine the value of the product, which is the price-value theory.
As the above illustration explains itself, a customer buys a product for a price only if he/she finds it worth its value. Hence, price and value go hand in hand. For example, people buy a Starbucks coffee at INR300 and the same coffee at a road side stall at INR10 or at a Café coffee day at INR 180 or simply make it at home at minimal cost of INR40. Based on cost effectiveness, homemade coffee and the road side stall coffee are the viable alternatives. But the question is why does crowd fancy Starbucks or CCD? The reason is value for some people where they like the ambience, free Wi-Fi or the comfortable seating arrangement. Similarly, people choose hotel brands based on their convenience and expected values for the money they pay.
With the above example it becomes essential to categorize demand into buckets but it also helps in the following points:
· To focus on finding the right customers for our hotel
· Maximum revenue through different pricing per segments
· Important for the market mix of the business
· Increase the accuracy of our long-term and short-term forecasting
Let’s understand the above points in detail through the following illustration
If a hotel prices itself like above, it will most likely fail due to the fluctuations in occupancy is high for a hotel and the revenue manager, if follows the above strategy, will not be maximize profits for the day i.e. why we have a concept that helps us here to maximize the profit or revenue for the day, which is called differential pricing, which can be explained in three instances, for example:
1. BAR (best available rate) or the negotiated rate that we follow for every day.
2. Advance purchase rate (Price-sensitive leisure travelers and who cannot modify or cancel their reservations)
3. Last minute bookings, which we can cap at a higher rate.
This will ideally fetch us extra revenue generations for the day and help us create different experiences imbibed with varied values for guests.
Value proposition is important to price-value proposition as
· We understand the needs of a customer
· What product will reciprocate to their needs
· Positive guest feedback
We understood the price-value theory so far. Now we need to comprehend our target audience and for this we need to segment as explained according to different people, with different needs and pricing:
Out of the above stated, most important is the behavioral as the rest can only be known once the guest checks in. Most of the guests tend to book through OTA channels who provide the least amount of data before check-in or in fact fail to provide relevant data. Behavioral aspect consists of how the guest has booked the room, what room type, his/her preferences, etc.
There is a principle that as a hotel we should primarily focus upon known as MAAS principle which means:
Measurable (which is measurable- like the number of times guests revisited)
Actionable (demand generation stats)
Accessible (reaching them through a channel so as to be able to advertise your service)
Sustainable (cost of reaching them vs the price they pay for our service)
After having a segment which has to be targeted, we need to analyze pricing of the product that we offer to them. The inputs of pricing that helps in deciding the pricing of the product-
· Physical hotel value
· Market forces (Supply/ Demand)
· Price elasticity (By segment)
· The ability to generate the demand (Sales and marketing)
· Guest satisfaction
· Ability to turn a profit margin
The micro-pricing decision that helps us in pricing the product-
Through the above micro pricing, which is not accepted by majority of hotel brands yet, and maintaining reputation and recognition on OTA platforms, hotels can manage their demand and put emphasis on their profits. For example, a hotel can increase their conversion by increasing the commission which will help increasing paid rank and visibility along with online bookers. In otherwise cases, should a hotel reduce the pricing because of negative reviews that might impact on the guest booking decision or raise prices due to all the positive reviews being in the top 10 on travel booking websites like trip advisor. This could work for your brand for all channels like GDS, etc.
Pricing by segments is also something many hotels follows- BAR pricing, negotiated rates (specific time, specific groups, also RFP process), Tour operator rates and LRA (Last room available). Pricing can be done account wise as well, for example, if an account is liable to be accepted.
We need to categorize these accounts and keep our best friends close always.
We should be considerate of the food and beverage service induced revenue generation as it helps in drawing additional revenue flows to the hotel. Keeping in mind the segments stated below prior to pricing,
1. Day of the week
2. Length of stay and;
3. Advance payments
Business mix segmentation is also crucial for a hotel to price itself as it helps in understanding the guest behavior and patterns effectively.
The channel manager here acts as a medium which connects the hotel to the potential customers through OTA channels and search engines where the guest can compare and book accordingly. The booking flows into the hotels PMS system where the FO, reservations can view the number of bookings. Nowadays the Meta search integrates multiple products and rewards on one site which makes it easy for guests to view, compare and book rooms.
Now to establish digital presence on such OTA sites we obviously have to take up some costs in the form of Commission, transaction fees and listing fee. This should be managed without affecting generated profits and keeping the RevPAR in check. Being available on all OTA channels is advisable and so is a proper check on Net RevPAR. Net RevPAR= (Room revenue- Cost of distribution) / ( Total rooms available for sale )
Keeping all the points in mind can help us in maximizing profits, keeping our guest satisfaction ratio high, categorize guest demands and using correct marketing techniques. Summarizing all this, hotel demand management can be carried out without any failure.
Written and Illustrated by Varuna Thapar