Does this type of revenue management conversation sound familiar?
General manager:
"Thank you for showing us the numbers, but I really believe we have to hold the rates."
Revenue manager:
"But the trends show we are behind in our business on the books."
GM :
"Trust me, I have experience. I know this city, these rates will sell, we will do fine."
RM:
"But ........"
GM :
"That is my final decision. Let’s move on."
In this case, in the end it turns out that the numbers and statistics were showing the truth and the pricing strategy had to be adjusted with aggressive last-minute offers to regain a substantial loss of occupancy.
Unfortunately, too often general managers still influence the strategic decision making process of hotels based on feeling, market knowledge and "experience".
And not to single out GM’s, in the hotel industry in general we have the tendency to base strategic decisions on intuition instead of hard factual data. We are driven by a crystal globe kind of syndrome.
But where does this come from?
Traditionally in the hotel industry many people are promoted from within - which is very good. We all know the stories of the GM who started off as a busboy, bellman, dishwasher or waiter, etc.
Nothing wrong with that in essence, internal promotion is a great stimulation and motivation for the staff.
However, different skill sets are needed for being a food and beverage manager or a general manager, like wise for a sales manager and DOSM.
Unfortunately we see far too little education to give senior management the required for the tasks ahead in the new position.
We highly encourage hotels to invest more in financial, business management and analytical training of their staff. Moreover we advocate to create a clear separation between the strategic departments and operational ones.
For the strategic departments like revenue management and reservations for instance you need much more Beta than Alpha oriented people.
Nor can the person dealing with operational issues truly focus on strategic decisions effectively. Strategies can’t just be done on the fly; it is a process that requires constant study and preparation.
Before taking decisions on price tactics market data, history and trends need to be analyzed in detail, to come to a proper founded conclusion. Moreover it should be done with a full focus and concentration it deserves without any distractions.
It surprises me that in the hotel industry however operations and strategies are still very much intertwined. In which other industry do people on the "factory floor" or production line (without any further training) make such important decisions?
Too often the business side of the industry is being approached using a service mentality. We just want to keep everyone happy, right?.
This simply is not possible if we want to optimize revenues and profits for our hotel. We have to analyze which parts of the business truly add value to the bottom line, and which don't.
Sometimes a corporate account, distributor or group request, simply does not bring us additional profit, but this will cost the hotel money.
It seems that many senior managers in the hotel industry still have problems with saying NO to unprofitable business. They confuse financial strategies with guest service.
It is time for the international hotel industry to take the next leap forward and professionalize by separating the operational and strategic departments.
The chains have started doing this for certain but still have quite a lot of progress to make. Independent hotels need to take a big jump if they want to be able to keep up the fight against their competition.
With the internet the market is developing faster and faster, don’t get left behind. We have to seperate the business from the service side!
NB:More on hotel asset management from Xotels.
NB2:Not listening image via Shutterstock.