Managing Revenue by Market Segment
By Carol Verret
Sunday, 6th September 2009
The recovery challenge for sales and revenue managers -

A lot of mixed signals are being sent to revenue managers and sales departments.  Lower rates --  don't lower rates but increase revenue – offer moderate but not deep discounts but how much and when  -- discount but protect group blocks – the list goes on and on!  

This recession has been a ‘game changer' for revenue management and the game has changed for the foreseeable future. 

PKF predicts soft demand and soft rates through 2013. "We don't see national average room rates getting back to 2008 levels until sometime in 2012 or even 2013," Mark Woodworth, president of PKF Hospitality Research, said in an interview. (Bloomberg, X) 

He goes on to say that "There's a profound disconnect between the property cycle and the business cycle," Woodworth said. "As the economy contracts, (hotel) openings accelerated. It will be 31 months before industry occupancy levels return, which is much longer than the last two downturns." (HotelNewsNow, August 13, 2009)

Despite the forecast there is good news!  The good news is that year over year numbers are almost certainly to be higher next year.  The key will be to maximize and manage rates by market segments – protecting each segment from cannibalizing the other with discounts that are being offered in other segments.   This is delicate balancing act given the rate transparency through the OTAs both merchant and opaque.

Leisure travel is expected to recover first and we have already seen that this summer.  Corporate will follow although will continue to be rate sensitive.  Corporate groups will be the lagging market segment to recover in both demand and rate.  

Here is a short list of how to maximize revenues from all three segments without compromising any of them:

Take Advantage of increased Demand in Leisure.  

Whatever worked this summer – do more of it!  Appeal to senior travel that usually kicks in the fall by doubling or tripling the AARP discount percentage versus lowering the price of a room.  Add value based on what seniors want – first floor rooms, breakfast, etc ( I know everyone including me has been saying to add value versus lowered rate but some people still don't get it).  

Make special offers to targeted segments – don't just throw a number out there to everyone.  Different leisure segments find value in different things.  Cut off the opaques that are lower than the special when occupancy reaches a certain threshold.

Corporate Demand is Firming up. 

According to a recent survey of unmanaged business travelers that compromise the majority of al business travelers according to Henry Harteveldt, vice president and principal analyst of airline and travel research for Forrester that conducted this research. 

In addition, 80 percent plan to travel for business as much or more than they did last fall and 75 percent have not been asked to dramatically reduce business travel spending or provide more justification for trips in the last six months.  (Forrester research for Best Western, Hotel Resource, August 25, 2009) 

Go after these small to medium sized businesses to reduce dependency on the RFP side.  However, protect these higher rated corporate travelers on peak mid week nights – do not have lower rates discounts out on the OTAs, opaque channels or anywhere else.

Groups -- Maximizing Opportunities in a Lagging Segment.  

Scott Berman of PricewaterhouseCoopers predicts that …" Group behavior is the complete inverse of leisure—ADR decreases and modest occupancy decreases—with an occupancy freefall, while rate is relatively unchanged because business in the group segment is largely contractual.

Corporate travel executives are targeting internal meetings for cuts, which can be as much as 40 percent of their travel budgets and 83 percent (of those planners surveyed) have focused on hotels as the most likely source of savings."   (HotelNewsNow, August 31, 2009).

While that appears to be a  grim forecast there are still groups out there meeting – nurturing and treating them well will enhanced the hotel's position when this segments begins coming back.  

Protect group blocks with fences and hurdles – don't offer a discounted leisure rate on nights the group is in house or put a fence around the offer that won't appeal to the group participant.  Put minimum stay requirements and ‘no arrivals' on any other discounted segment that may overlap or ‘bleed' into a group block.   Close off or raise rates commensurate to the group rate on all other channels – especially the opaques.

A simple chart can assist you in graphically seeing what changes in occupancy and rate by market segment can do to assist in maximizing all three indices –occupancy, rate and REVPAR.

The day after Labor Day is the day when everyone comes back refreshed and ready to carry on business after a long summer – maybe it should be called New Year's Day!  The worst is over in terms of the recession – let's get to work!

In response to many requests for resources from revenue managers, CVCT has begun to form Revenue Management Master Mind groups.  These will be facilitated by twice monthly collaborative teleconference calls and web based programs, featuring best practices and guest experts.  Space is limited in each group and also defined by not having competitors or revenue managers from companies that have competing hotels in a member's market in the same group.  For more info contact Carol Verret at carol@carolverret.com

Carol Verret and Associates Consulting and Training offers training services and consulting in the areas of sales, revenue management and customer service primarily but not exclusively to the hospitality industry. To find out more about the company click on www.carolverret.net. To contact Carol send her an email at carol@carolverret.com or she can be reached by cell phone (303) 618-4065. 
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