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Stop Blindly Chasing Demand and Focus on Profit

Since 2016, I’ve considered Cindy Estis Green to be one of the brightest minds in the hotel sector. Her key insight is that hotel commercial strategy directors have to become more sophisticated about which customers will be the most profitable after accounting for all costs.

Here’s my paraphrase of one of Green’s core insights: Too many hotel companies try to put heads in their beds without keeping an eye on maximizing total profit.

  • Like many insights in life, Green’s insight almost sounds too simple. After all, anyone can pay lip service to being thoughtful about their commercial strategy.
  • The reality is that many hotel sector leaders have been stuck in their ways.
  • “Everybody has sort of gone after any demand they could get and figured that if it was more than they had before, they were better off,” Green said. “But that wasn’t true.”
  • Green tried to warn hotel leaders that they needed to figure out which guests will be the most profitable after considering all sales, marketing, and service delivery costs and accounting for how much those guests will spend at a property over their lifetimes.

The pandemic blew up the way the hotel sector operates.

  • Most of the management companies cut their revenue manager and sales manager staffs in half.
  • Labor costs have tripled since 2019, and debt service has doubled. So hoteliers care more about margin.
  • Travelers have changed their behaviors. The timing, the rate sensitivity, and the types of products preferred have changed for all types of hotel buyers, such as individual leisure travelers, business travelers, group and events organizers, wedding planners, and so on. So the assumptions that many hotel company decision-makers had made, and the rules of thumb they used about understanding what guests want, or “the profile of demand,” had shifted.

In the past two years, many hotel leaders came to recognize that the old way of doing business isn’t cutting it. They decided to change their processes and assumptions to make sure they’re focusing more on growing the value of hotel assets and the contribution to profit.

  • To be clear, we’re not talking about tactics of setting room rates and allocating room inventory, which is called “revenue management.” Instead, we’re talking commercial strategy — a bigger set of levers that depend on a bigger picture view of what kind of business a hotel should go after.
  • “Before you start thinking about sometimes hourly decisions about pricing and room allocation, there needs to be a planning and resource allocation thought process,” Green said to me on Friday. “What should we even be pursuing? What’s the highest and best use of our funds and teams to go after?”
  • “A first task is to view the market in terms of optimal business mix,” Green said. “What does data suggest would be the ideal mix of business that would grow your hotel’s asset value the most?”
  • “Then it’s matching resources to that,” Green said. “You may spend more on digital advertising before, or maybe go more after influencers.”
  • A more thoughtful hotel leader might shift a salesperson’s role and targets to business that will be more lucrative, such as what days of the week or lengths of stay to pursue, or whether to go after certain types of convention business, let’s say. A marketer might change the types of promotions they run.

Fintech players are changing the demand game for hoteliers.

  • I asked Green what surprised her as she wrote her latest book. One thing she mentioned was the rise of the fintech players.
  • “What surprised me is the imminent growth of this new category, fintech, that has the potential to create more competition among OTAs [online travel agencies], the global hotel brands, and third-party metasearch,” Green said.

Read the full article at skift Inc.

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