Hotel Entrepreneur making the most out of this Lock down – On a mission to making art of continuous learning Viral”. Ups and downs are a part of life…But what matters the most is how we bounce back after every dive.
I expect that this may be one of the more controversial articles I have put together, partially because it will question some conventional mindsets in the restaurant industry as well as raise some alarm to some of the “emerging norms.”
With that being said, let’s get started!
The hospitality industry has learned some hard lessons over time as it relates to the effective and beneficial use of technology. In some cases, it has leveraged the medium to deliver value to their business, and in other cases it has over the long run brought hardship and increased competition for rooms, revenue, and profitability. One could argue that the travel and leisure industry could be the poster-child for the adage that “hell is paved with good intentions.” Here are a few lessons that the restaurant industry should take note of and learn from the hospitality industry.
Yield Management as a Key Revenue Driver
In the general scheme of things, Revenue or Yield Management is a relatively new thing in the hotel business, only becoming popularly used and leveraged in the last 10-15 years. Early iterations can be traced back to 2000, but it has only been with the improvement of data collection, customer marketing, data normalization, analysis, and improved business tools that the practice has become more effective.
The premise is simple: create a model that predicts demand based on a myriad of conditions and construct an artificial ladder of price levels that increase or decrease based on these conditions. As a consumer we experience these levers being pushed and pulled all the time as we book an airline ticket or stay in a hotel; we can check hotel rates for three days in a row for the same period of time and come up with three different rate quotes. Why? Conditions change, demand increases, demand decreases, other hotels are showing less availability or other lesser-visible conditions have changed.
The travel and leisure industry is constantly honing their skills in this art form to maximize profits during peak and shoulder periods while mitigating the impact during the soft seasons. While there is a lot of science behind the numbers, it is a coveted skill that requires a fair amount of art as well to be effective in this area. If you have a good Revenue Manager, be sure to take care of them!
The restaurant business could learn a thing or two from the leisure industry and look at ways to maximize their profitability by adopting a variable pricing model. It’s interesting that we as consumers are more than happy to pay variable pricing for the same product or service (in the form of hotel bookings and airline tickets) yet we are horrified at the thought of a burger being more expensive at lunch time than at 4 pm. Some operators experiment with this concept by introducing a discount at 4 pm or marketing Happy Hour pricing rather than saying the price at noon is a surcharge. While it is an argument in semantics, it does sit much better with the consumer.
However we couch it, the strategy is very sound and should be leveraged to a much greater extent than it is today. Operators that do have time-of-day pricing more likely do not extend this strategy to day of week or more creative practices for fear of confusing a customer or perhaps even slowing down speed-of-service, but being creative in this manner can be an effective tool to smooth out the massive demand peaks and raise the soft periods in a typical day. With labor costs being a major determinant in the cost model of a restaurant, does it not make sense to try and leverage the resources you have appropriately?
Not only could the restaurant business look at tier pricing, but how about the notion that different table locations in restaurants have greater value? The airline industry and even theaters are now experimenting with this concept, and early returns are quite positive. Is there a problem with charging a customer $10 more for an ocean-view table rather than one by the kitchen? Our only objection is our own internal mindset that we are driven to be the consummate hosts and that placing a premium on seating location will somehow dampen the experience. How about a prime table location on a business Saturday night at prime time? You get the idea. All it will take is one “industry early-adopter” to take the plunge and you’ll see that this concept will spread. If it makes you a little uneasy to think about this concept, that’s ok – change can often cause initial nausea or agita.
The Parasitic Nature of Third-Party Distribution Channels
During one of the big downturns in the travel and leisure industry, airlines and hotels looked to the marketplace to help them market their products and offer new channels for consumers to find and book their offerings. The marketplace answered, and while it initially looked like a savior for the industry, it could easily be viewed as something less than that today. The hotel business saw the growth of third-party distribution companies like Expedia, Booking.com, Travelocity, and a myriad of others who were technology companies that had no product to sell other than re-marketing airlines, hotels, and car rentals. While they were highly effective at marketing their services and reaching a larger customer-audience than any single brand could muster, it came with a heavy price. It is not uncommon for these OTA’s (or Online Travel Agency) to take 25-30% of the total room revenue for a hotel booking.
With their expenses being much lower than those of a hotel or resort, the OTA’s can outspend the brands in the conventional marketing space as well as on the Internet. Try an experiment: google any city (like Paris) and the word “hotel” and see how many listings out of the first page of listings are actually hotel companies. The results are quite frightening; the OTA’s are out-SEO’ing the hotel chains and as a result they are heading them off at the pass. The brands are responding by trying to create greater value for the consumer to come directly to the hotel website or have active campaigns in the hotel to convert the guest to a direct channel to eliminate future fees but the battle is an uphill one.