Let’s get straight to the point and take one of the Hotel Groups we work with. They have 25 Hotels in their portfolio and have centralised Revenue Management and Distribution. Total Room Revenue is 195M euros. Total Acquisition costs including Payroll, Sales and Market spend and commissions is 42M euros That makes 21,54% acquisition costs. Net Revenue Contribution is therefore at 78,46% and 153M euros.
42M euros is a significant number and weights quiet heavily on the P&L. Now the goal this group set for themselves is to move the needle step by step by being both strategic and tactical.
We start with the big picture. Where do we stand? Map all the transaction based costs at the most granular level and then add all the sales and marketing spend. For the sake of full automation we wrote an interface to the finance system. Even though the data at this level is strategic still the availability of it is real time. At this point you know where you are and that means that you can set a strategic direction about where you want to be. The data is as granular as it gets and allows you to filter down to a combination of channels and segments. Acquisition costs are mapped at the transaction level.
From that point onwards you take a high level view of your marketing spend vs your segment and channel performance. Is investment in balance, does it yield the right ROI? am I overspending in a particular department or underspending against a specific channel or segment?
Furthermore breaking down the spend as a function of the customer journey will give tremendous Insight and uncover opportunities to drive either acquisition, or loyalty. Often you will find that particular areas of the customer journey have been neglected.At this point strategic decisions have been taken in optimising spend.
Now it’s time to get tactical. By using Forward Looking Data such as Demand 360 from Travelclick, OTA Search, Ranking and conversion data, coupled with airline arrivals and obviously internal hotel information a tactical Revenue strategy will be put in place.
Forecasts will be made, validated and pricing set. Everyone within the organisation can construct his own dashboard. This ensures 100% alignment on the strategy
All this will be coupled with Real time forward looking data on acquisition costs. For the first time Pricing and acquisition can be optimised together rather than in silos. Days of Interest can be represented on quadrants. High Acquisition Cost – High Demand, High Acquisition Cost – Low demand etc. Based on that tactical decisions will be taken to optimise channel mix, drive demand and decide on the most profitable Business.
So what is the result of all of this? We said that this group was looking to move the needle only slightly. Revenue increased by around 3% to 200M euro. The Net Revenue % improved from 78,46% to merely 79,56% This is 1,1 pts in improvement and does not seem much.
However this 1,1pts of improvement of net revenue equals to 2.209.000 euros! Sounds like a Butterfly effect: The sensitive dependence on initial conditions in which a small change in one state can result in large differences in a later state. Imagine when Machine learning kicks in…
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Vassilis Syropoulos, email@example.com
Karin Van Rhee, firstname.lastname@example.org
Nadine Boettcher, email@example.com