07Aug

Rethink Last Room Availability with Multi-Channel Strategy

Author: Kristi White

Recently, we released five revenue management hacks. In the coming weeks, we will take a deeper dive into each of these. These hacks are designed to be simple things you can put into place whether you are using automated tools or working in a manual environment. This post delves into the topic of multi-channel strategy and how it might be impacting your profitability.

Revenue managers bemoan the plethora of sites available for consumers book. We want to believe this wealth of choice is creating unpredictable behavior from consumers. As a result, it is making it harder for revenue managers to do their jobs.

It’s an interesting theory but in reality; it’s a myth. Yes, there are more places than ever for consumers to book. And, yes, this potentially creates more fickle customers. However, this isn’t the real problem. The reality is revenue managers can’t control the flow of business through the multitude of channels.

Over the years, we have given up our ability to control where and when we sell our rooms. This practice, Last Room Availability (LRA), is the ultimate problem. Without the ability to control which channels to open, close, or restrict, you can’t really control your mix of business. Which means you can’t really control your revenues.

For each reservation a hotel receives, there is a cost associated to acquire the reservation by channel. Additionally, this cost is incurred before the guest ever checks into the hotel, before the room is cleaned, the lights turned on, any debt serviced. The ability to manage this mix directly impacts top-line profitability. As an example, let’s look at revenues from a net perspective (what the guest paid minus the acquisition cost).

 

Hotel Website

GDS

Voice

OTA

Hotel Direct

Guest Paid

$200

$200

$200

$200

$200

Acquisition Cost

11%

15%

17%

25%

11%

Net Revenue

$178

$170

$166

$150

$178

 

Expanding on this example how is net revenue impacted if the hotel can manage the mix? Using the metrics above, a 200-room hotel running 100% on a single night would increase net revenues simply by shifting mix.

In the original scenario, because of LRA agreements, the hotel is unable to manage mix and OTA contributes 27.2% of the mix. In the second scenario, the hotel is able to manage mix and suppress higher cost channels. This resulted in $529 more in net revenue for a single night, extrapolate this across 365 days and the same hotel could generate hundreds of thousands of additional net revenue in the course of a single year.

 

Mix %

Net Revenue

Managed Mix %

Managed Net Revenue

Variance in Net Revenue

Hotel Website

16.8%

$5,965.53

22.5%

$8,010.00

$2,044.47

GDS

5.6%

$1,920.54

5.6%

$1,920.54

$0.00

Voice

16.8%

$5,563.36

16.8%

$5,577.60

$14.24

OTA

27.2%

$8,149.22

18.0%

$5,400.00

($2,749.22)

Hotel Direct

33.7%

$11,987.62

37.1%

$13,207.60

$1,219.98

 

 

 

 

 

 

Total

100.0%

$33,586.26

100.0%

$34,115.74

$529.47

So, as a hotelier, what can you do? There are three things you need to do today:

  1. Know Your Channel Costs – What does each channel cost to acquire a reservation? Revenue management and marketing must work together to create an understanding of the fees associated with each channel (e.g. CRS fees, GDS pass through fees, commissions, margins, etc.). This exercise can be extremely detailed or cover the broader strokes. Either effort will get you closer to understanding how your channel mix impacts profitability.
  2. Understand Your Channel Mix – This is not just about measuring historical performance. Of course, knowing where you have been will help you understand what you want to change and how that change will impact your profits. It will also allow you to create action plans for change. But beyond that, you need to be able to measure on the business books vs. prior year as well. A good business intelligence tool will allow you to monitor channel pace easily. Tracking forward looking channel performance will allow you to monitor the efficacy of your action plans and how they are impacting forward looking net revenue.
  3. Re-evaluate LRA Agreements – Should you really be offering LRA everywhere and to everyone. Not offering LRA doesn’t mean you can’t keep channels open. It simply gives you back the flexibility to choose where and when you sell your inventory. There will be times when you need to have the flood gates open and take business from anywhere. But without LRA in place, you have a greater ability to manage the flow of business in both peak and non-peak times.

The power to impact your net revenues is in your hands. But first, you have to take control of your own inventory. This will allow you to step into the fray and better manage revenues before and after acquisition costs. What better way to manage profitability?

For more Revenue Management Hacks Every Hotelier Should Know, including Total Guest Value, Understand Future Demand, Optimization Opportunities, and Meetings & Events, click here download the Hacks.

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