NB: This is a viewpoint by Parag Vohra, general manager for hotels at Sojern.
Marketing and revenue management are both vital functions in the hospitality industry - but they often seem to operate in two different worlds.
Both depend on data to improve their performance but they often use and interpret it differently. Although greater integration between these two groups is a topic du jour, early efforts have seen limited success.
Too many hotel companies are hamstrung by legacy structures that keep marketing and revenue management at arm’s length from one another when actually they should be working hand in hand.
Better times ahead
Marketing and revenue management share the same general goal: improving the bottom line. However, their functional responsibilities are distinct.
- Revenue management is focused on getting the best price for rooms based on supply and demand. It’s about marrying short-term demand with effective pricing structures.
- Marketing, on the other hand, is really about branding, building awareness and driving long-term demand. The goal is to effectively feed the funnel – which is then managed by revenue optimization – for maximum impact.
They’re really two sides of the same coin – one focused on demand generation, the other focused on meeting demand at the best possible rate.
Revenue management evolved to optimize short-term demand long before marketers had the data or tools available to do the same.
However, data-driven digital marketing today allows marketing and revenue management to work together to drive short-term demand in markets that truly need help, while perhaps saving the marketing budget in places hotels are performing well above the expected demand curve.
In other words, a deeper integration of marketing and revenue management will put more people in beds and more incremental dollars in the bank.
When the two departments share data and collaborate seamlessly, they can target their most profitable customers and adjust rate offers based on variables like room availability, event-related demand spikes, seasonality and more.
Real world example
The marketing team for a typical multi-brand lodging chain is tasked with driving short-term demand as well as ongoing consumer engagement around the individual brands.
Long-term demand generation is built across multiple media channels over time. Driving short-term demand, on the other hand, usually relies on digital outreach.
With digital media, short-term tactical demand generation can focus on destination-specific supply and demand. The long-term branding efforts function independently of location and regardless of the need to generate demand in any given market.
With closer alignment, revenue management can provide marketing with details such as which destinations are likely to underperform, which hotels have more unsold inventory, and which hotels don’t require short-term demand generation.
Marketing can react to these revenue-driven ebbs and flows with a more flexible cost of revenue (COR) model that is optimized for specific destinations and consumer demand data across brands.
Instead of relying on a static COR model regardless of demand, considering data provided by revenue management allows marketing to focus their efforts in ways most likely to impact the bottom line.
What might this look like?
If a hotel chain runs a fixed COR campaign of 10 percent of revenue per stay and uses an informed target of $500 revenue per stay, they face an average cost per acquisition (CPA) of $50 per reservation.
But if revenue management can provide a destination-based occupancy forecast, the marketing department can adopt a dynamic campaign that better matches the CPA target with actual needs of the hotel in each individual market.
The CPA goal can be adjusted on a per market basis, but it ultimately nets out to an overall goal of $50 per reservation. The bottom line is to market where and when you need to create demand, and spend accordingly.
This will boost incremental revenue and optimize marketing spend.
For this to work, marketers need timely and accurate intent data that reflects current in-market conditions and demand. Much of this data is accessible today.
By working more closely with revenue management, marketers can link customer intent with inventory availability and price data to design campaigns that will deliver the biggest bang for the buck.
Finding customers that are legitimately in-market has traditionally been a tough nut to crack, especially in display advertising, but now there are tools and resources available that make targeted advertising a reality.
NB: This is a viewpoint by Parag Vohra, general manager for hotels at Sojern.
NB2:Two planets image via Shutterstock.