It is hard to argue with the notion that Revenue Management is now the most “mission critical” function in the hotel business. RM sits at the crossroads of the strategic and tactical decision making process for every single department in a hotel. Of course, I am talking about Strategic Revenue Management, where the RM charts a course for the property to grow its revenue and profits, not Clerical Revenue Management where the RM spends all day loading rates, populating reports, and changing rates by a few dollars when the hotel is selling out. In the more sophisticated hotel management environments, Sales and Marketing depend on RM for guidance on rates, discounts, promotions, packages, etc. In fact, it is fair to say that RM now leads most of the strategy that is developed in Sales and Marketing. So why is it that many hotel companies are still holding on to the old org chart where RM reports to the head of Sales and/or Marketing. Should it not be the other way around? I believe it is now time for that hierarchy to be inverted so that Sales and Marketing report to RM. Here are five reasons why.
Pricing has the largest impact on profit. Regardless of how creative your Marketing strategy is or how large your Sales infrastructure has become, neither can affect the bottom line as much as correct pricing. That is not only true for the hotel industry but for just about every industry as well. It is irrefutable that the myopic nature of the computer screen has shrouded the hotel industry in a commoditization conundrum – on one hand we need the business that the OTAs have taken from other channels and on the other hand they are killing the value of the effort and resources that are being spent on making properties unique. Regardless, technology has made price the center of the conversation. That is why Revenue Managers now sit at the head of the table because they can produce more profit with one correct rate change than any other department can with weeks of effort.
Revenue Management sees the “total”. I have not heard anyone talk about “Total Group Sales” or “Total Hotel Marketing.” There is, however, an over abundance of conversation about “Total Revenue Management.” When it comes to worrying about the whole, there is only RM and Finance to rely on. However, Finance can get away with evaluating performance only in hindsight whereas RM is responsible for the P&L as it develops into actuals. It’s almost as if RM babysits the P&L until it is time to hand it over to Finance. Only RM takes the effects on the entire property into consideration when making decisions. No other department can claim that burden.
Sales has a conflict of interest. This is somewhat a continuation of the previous reason. Show me one sales person that, if given the green light, would not sell as many rooms as possible to groups on peak days without consideration for total revenue. Show me one sales person that, if given the green light, would not give their groups run-of-the-house in room and bed types without consideration to how it may impact transient bookings. Actually, if you found me that person I would question their quality because most sales people are incentivized to think only of their own revenue line so it follows that they should act to maximize their own performance not the property’s. Leaving rate decisions and revenue strategy to the sales department is like leaving a fox in charge of a chicken coop. At many smart properties, sales people completely defer to Revenue Management for guidance on rates and allocation limits so that the there is no chance of overselling to groups.
Marketing has been redefined. How many times have you heard the Marketing department explain that they have created a package or promotion, not because they expect it to generate many bookings, but because it allows them to create a conversation about the hotel. It seems counter intuitive but they are right. Over the last decade, technology has obliterated “Ye olde bag of Marketing tricks.” Like I said earlier, price is now the center of the conversation. Today, Hotel Marketing has been tasked with trying to move the conversation away from pricing. To fight that battle, Marketing always needs to be aligned with the Revenue Management tactics. Therefore, it is really RM that leads the Marketing strategy. It is interesting that only a few decades ago Marketing would feed the hotel’s RM seasonal prices, but now that dependency has been flipped on its head.
Revenue Management has all the data. Only a decade ago the data center of a hotel was the Finance department. That is no longer the case. Today, at many hotel companies, RM is responsible for the most valuable, forward looking data. The exact opposite is true for Sales and Marketing. Unless your hotel has a very specific CRM strategy, it is probably the case that your Sales and Marketing department depend on data which is suppied to them by RM. Again, because RM leads the overall startegy to “make more money”, it has become, by default, the custodian of most decision driving data.
The expansion of the Revenue Management function in the hotel industry has redefined the way decisions are now made. Revenue Management is now the department that leads the conversation on growing revenue and profits and as such it should lead most other departments, specially Sales and Marketing whose tactics are wholly dependent on the RM strategy. It is more efficient and effective if Sales and Marketing report to RM. The old reporting structure is meaningless at best and seriously counterproductive at worst.
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Robert Hernandez, Statistical Analysis and Data Mining for Revenue Growth Robert is an expert in the field of mathematical Hotel Optimization and Analytics. He has spent the last 17 years building data-driven forecasting and optimization models for companies in over 20 different industries, from tech to tourism. Robert possesses a very unique skill set including cross-disciplinary experience, advanced mathematical and analytics skills, data transformation, industry-specific knowledge and business-process improvement expertise. Robert began his career at the Walt Disney Company in Revenue Planning. Read More+