16May

BI and All-Inclusives: An Interview with Rainmaker CEO Mike Cowles

Author: Rainmaker

The all-inclusive hotel model is on the rise and evolving. For decades, the segment provided travelers with convenience and value, combining meals, beverages, entertainment, and accommodations into a neat single-price package. Today, these properties bear little resemblance to their predecessors. Competition has increased, and even upscale brands are getting in on the action.

We recently sat down with Rainmaker’s Chief Executive Officer, Mike Cowles, to discuss the role of business intelligence (BI) in revenue management strategy for all-inclusives – covering specific ways to increase profitability in this lucrative hotel niche.

 

Mike Cowles - speaking1. What are some challenges all-inclusives face that differ from traditional hotels?

I think one of the biggest challenges all-inclusive properties face that differs from traditional hotels, at least from a revenue strategy standpoint, is how they optimize and price their rooms. Traditional hotels price by the room, incorporating ancillary spend only when possible. An all-inclusive property incorporates more than just room rates into their price, so they often price per guest – measuring revenue per available guest (RevPAG) instead of revenue per available room (RevPAR).

Another difference comes with regard to total guest value. A high-value guest at a traditional hotel may actually be valued lower at an all-inclusive property. For a traditional hotel, guests that spend more money on property, such as at on-property restaurants and bars, are considered a higher value. But at an all-inclusive resort, where the majority of food, drinks, and activities are included, someone who eats and drinks more than the average person costs the property more money. The ideal customer is someone who maintains average consumption of food and drink, or even better, pays to upgrade from the “included” options available to them.

2. Beyond RevPAR, what key metrics should an all-inclusive resort revenue management strategy include?

With all-inclusives you’re really going beyond RevPAR, to measure RevPAG, which takes into account the total number of guests, regardless of how many are staying in a room. Outside of that, they really need to measure gross operating profit per available room, or GOPPAR. GOPPAR is defined as total gross operating profit (GOP) per available room per day, where GOP is equal to total revenue less the total departmental and operating expenses. GOPPAR takes RevPAR (and RevPAG) a step further, utilizing total room revenue and subtracting total operating expenses, including variable costs. It drills down to the true level of operational profitability, and effectively aligns top-line revenue and bottom-line profits.

Without this information, crucial pieces are missing when trying to optimize revenues and determine overall profitability. Another benefit to measuring GOPPAR, is that it allows all-inclusives to apply the same strategic revenue management principles to all revenue-generating outlets. This lets you move beyond optimizing package rates to optimizing revenue from all ancillary products and services guests use while on your property.

3. What are some important elements to consider when forecasting demand for
all-inclusives? 

Length of Stay (LOS) is a critical piece of the forecast for all-inclusives, even more so than for the traditional hotel model. In general, with an all-inclusive model, the longer a guest stays at your resort, the more likely they are to leave your property, lowering your costs and increasing your profits. LOS is one of many criteria to measure in determining who your most valuable guests are.

Timing is another important element in forecasting for all-inclusives. Because all-inclusives, like traditional resorts, are often booked through contracted tour businesses, they’re associated with longer lead times. And we often hear that “timing” is more important than the forecast. While I agree that timing is very important, it should never replace a forecast. Timing can be used within your forecast to know when periods of higher demand will occur, but the property should have a specific overall volume target they anticipate needing to reach via contracts, that are driven by their forecast. By understanding your need periods from your forecast, the property and tour business (or other third party operator) can agree on more attractive terms in order to drive volume.

4. What role does business intelligence play in creating a revenue management strategy for all-inclusives?

When shared throughout the property, many different departments can utilize business intelligence (BI) data to their advantage – including revenue management, sales, marketing, and operations.

With BI, marketing can measure the effectiveness of current campaigns, identify your most valuable segments, and understand periods of seasonal demand. By understanding this, they’re able to create targeted campaigns to drive demand from your highest-value guests.

Operational gain should also be included among the benefits of BI, but it’s often overlooked. By sharing reports that allow your operations team to understand on-property behavior based on demographics, country of origin, age, and reason for travel, they can make better decisions – adjusting purchasing and staffing accordingly. Using BI data allows you to make both operational and revenue strategy decisions that maximize profit throughout the property.

5. In what ways is it beneficial to switch from a revenue per room focus to a revenue per guest focus?

Problem number one, the RevPAR formula (Rooms Revenue/Rooms Available) represents revenue generated per available room, whether that room is occupied or not. It doesn’t consider how many people are in each room – which is the basis of the all-inclusive pricing model.

Also, and most importantly, RevPAR doesn’t take costs into account. There are different distribution costs depending on how the reservation is booked, and  commissions vary based on channel. For example, a guest who books using a travel agent typically costs the hotel more than a guest who books direct. In addition, higher guest expectations are driving a more competitive market, with all-inclusives now providing an increasing number of ancillaries for purchase beyond initial packages. RevPAR doesn’t consider any non-package income a guest generates from add-on amenities such as spa services, dining upgrades, golf, or access to private beaches.

Calculating RevPAG and/or GOPPAR offer much more reliable and profitable ways for all-inclusives to measure revenue.

6. Why should revenue management partner with marketing?

Revenue management and marketing should closely partner to capitalize on opportunities to bring in high-value guests. They can work together to segment their business by looking at factors such as point of origin, booking channel, lead time, room type, and any other indicator that helps identify their most valuable guests. By analyzing different guest segments, they may discover certain segments tend to book shorter lengths of stay. You can improve revenues by using targeted marketing efforts to entice those segments into booking longer stays. Revenue management should forecast future demand from high-value segments and identify ways to ensure that these guests have access to inventory at any given time. All-inclusive hotels can leverage their high-value demand by aligning amenities and services with guest preferences and spending habits to provide authentic traveler experiences that strengthen relationships with customers, inspire greater loyalty, and help to maximize bottom-line revenue. 

7. How can all-inclusives use analytics to enhance the guest experience?

Today, guest experience is huge, regardless of property type. For an all-inclusive property, examining revenue on a per-guest basis provides a vehicle to better understand guest behavior and preferences. This can have a profound effect on future income streams. As previously mentioned, with the all-inclusive model, the less time a guest spends on property, the higher the profit potential. By analyzing guest spend behaviors, all-inclusive hotel owners can determine which guests will enjoy different off-property experiential activities and excursions. You can then capitalize on the amount of time a guest spends outside the resort gates, creating better guest experiences while simultaneously improving your bottom line.

Capturing and analyzing guest-centric data by measuring total profit per room allows hoteliers to overcome the age-old dilemma between a focus on managing long-term customer relationships and focusing on the immediate gains associated with revenue management. Knowledge gained from total profit per room analysis helps you improve customer relationships, which in turn creates a significant and positive impact on business performance.

8. Are there different reports an all-inclusive resort is looking for that a typical resort may not need?

Reports used are often based on the revenue manager, and who they’re sharing data with. We continue to stress that sharing the data from your BI tool helps you maximize profits even further. That being said, most “standard reports” are the same with any property, with the exception of all-inclusives needing reporting on both a per room and per guest capacity.

As a result, we’ve applied this functionality to our full platform of solutions. Guestrev® and grouprev® can price on the guest level, not just room, and we’ve added over 20+ reports to our BI tool, revintel®. We value the all-inclusive market just as we value traditional and casino hotels. Our job is to grow with them, and help them optimize revenue.

Industry pundits predict that the all-inclusive market will be the fastest growing sector over the next few years – with bookings expected to rise by up to 7 percent. Forward-thinking resort owners who want to make the most of this growth need to up their game by incorporating a state-of-the-art BI tool into their revenue management strategy. By harnessing the analytics and reporting power of BI, all-inclusive resort managers will better optimize performance, enhance marketing tactics, build long-lasting customer relationships, and ensure success now and in the future.

 

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