BENEDETTO CROCE AND REVENUE MANAGEMENT “Why We Cannot Help Calling Ourselves Christians” is a brilliant essay by Italian philosopher Benedetto Croce. The piece illustrates the Christian roots of European culture, and how it affects all of us, both believers and agnostics. Without trying to sound blasphemous, when I talk about revenue management, I like to paraphrase Croce’s words. Doesn’t RM, in fact, affect the way we do business in hotels, whether we are revenue managers, marketing people, general managers, receptionists, or housekeepers? It does. So, we cannot really help calling ourselves revenue managers. Or can we?
FROM OBSOLESCENCE TO VINTAGE: 20 YEARS OF RM
The commonly accepted definition of RM is the “process of maximizing revenue for perishable products, through the control of inventory and price.” That definition, however, is twenty years old, and (surprise, surprise!) nothing really has changed since the early ’00s. What always stroke me as odd with this definition is that it does not take the customer into account at all, and it merely focuses on demand and price flexibility. And, in the rare cases where it does (like in the famous 4R’s principle, where one of the R’s stands for Right Customer), the role of the customer is -at best- idealized, utopian. Without a real alternative, however, we grew accustomed (if not addicted) to these old-fashioned tactics. In vintage RM, price is arbitrarily (and, quite frankly, naively) segmented by market types , without taking into account that every customer is unique and reacts differently to the market. One example? The perpetual fluctuation of room rates can cause frustration and confusion in some travelers, while others, actively looking for discounts, thrive in this inconstancy.
CUSTOMER ARCHETYPES AND PERSONAS
And that is only part of the picture. Here’s another one, equally disturbing: vintage revenue managers see historical data as the Holy Grail, even though these data are rarely reliable, especially when not adequately normalized. These anachronistic rate dealers overfocus on the quantity of data over their quality, and that’s a slippery slope to take. There’s much ado on personalization and predicting customers’ purchasing behavior but, if the only metrics they’re analyzing are uneven historical data, they’re doomed to fail. Sure, historical data can provide a better understanding of seasonality yet, without proper customer archetypes (or, to use a more accepted definition, personas), RM won’t get very far. The same goes for sentiment analysis: with a company such as Tripadvisor candidly admitting that “2.1% of all reviews submitted to the site in 2018 were fake,” accuracy goes out the window.
RELATIONS > MARKETS
The sad truth is that, if vintage RM has certainly improved hotel performances, it also diminished the relationship between hotels and their guests, by undermining their trust. So, are we doomed? Not necessarily. First off, we should re-evaluate our understanding of RM, focusing on what I call the Customer-Lifetime-Value-Related Data. These data are typical in CRM processes, yet -oddly- almost entirely non-existent in RM strategies. CRMs operate in terms of relations and (unlike their older cousins, PMSs) do not analyze large consumer segments, but focus on highly specific targets (personas), to create a direct link between hotel management and every single customer. This link (or, even better, relation) is established and maintained by interacting with the customer through multiple channels and touchpoints. LTV is a (the?) key metric, as it projects profits based on the relationship cultivated with customers, rather than the (quite elusive) concept of market. The relationship starts from customer purchasing behavior, to continue across all phases of the experience: it is, therefore, mutual and dynamic, and it allows hotels to get to know their guests intimately, making realistic revenue predictions easier and more accurate.
THE RM IN CRM
So: CRMs help hotels getting the realistic value perceived by the personas, and can even help to overcome seasonality limitation, by understanding how much (and for what services) guests are willing to pay. In this two-way exchange, each touchpoint is analyzed and evaluated, separating the concept of delivered quality from one of perceived quality. The one between RM and CRM is, at a closer look, the perfect marriage (even semantically, as you cannot remove the RM in CRM), as it creates highly specific microclusters that can be marketed individually. The bottom line is that the value of a room no longer lies, like in the vintage definition of RM, in its cost, rather than in its perceived value. And, because value is, literally, perceived, it means that it is subjective, rather than objective. Here’s why the single one analysis that really matters is the personas; Otherwise we run in a self-referring, neverending vicious circle. Perceived value is the answer and, only when we adopt it as our key metric we can adequately understand the limitations of vintage RM variables, such as seasonality, competition, market trends, and room costs. This does not mean giving up on the elasticity of the offer en toto but, on the contrary, identifying possible ancillary sources of revenue (such as gym, SPA, or bike storage) based on personas.
YOU HAVE ONE CUSTOMER. NO, YOU HAVE TWO…
Historically, hotels adopted strategies previously tested by airline companies, and there’s no indication this trend is going to revert any time soon. If you pay attention to how most air carriers are implementing their rate strategy, you will see how they’re aggressively selling ancillary services, such as early-check-in or luggage delivery, with some low-cost airlines even launching their branded trolleys. The reason is evolutionary: ancillary services that become a fundamental part of the value chain. These services, if precisely marketed ad personam, generate more profit than the core ones. Problem is that this is easier said than done; let’s say you’re doing everything right: targeting your customers individually, focusing on ancillaries, etc. Yet, despite all the efforts, something goes wrong when the guest is in-house. Sounds familiar? The problem may be, again, semantic. What if you’re taking care of only one of your two customers (jaw-drop!)? Yes, because every hotel (every company, for that matter) has two types of customers: external (your guests) and internal (your team). And these two customers are in constant interaction: your team (internal customer), in fact, comes into direct and indirect contact with the guest (external customer) during evert stages of the process, regardless of the distribution channel used to book. The staff identifies the needs of your guests before they arrive, interacts with them during the stay, and stays in touch after they’ll leave. Consequentially, the less friction between these two (equally important, don’t forget) customers, the better the experience for both of them. The result? Operational efficiency, resource optimization, happier customers, and a highly motivated team. And the only way to reach this outcome is by putting humans at the center of the process. Not the market segments. Not the cost evaluation. Humans.
FROM VRM TO C2RM
These multiple touchpoints between your guests and your team, in fact, humanize the whole experience. Yet, it’s a two-edged sword: a negative interaction is enough to guarantee you a pesky review and undermine your reputation. On the other hand, the more positive the interactions are, the more the service is perceived in all its value (remember? value is the key). Rooms, no matter how well designed and decorated they are, are still just a sterile product. In every hotel experience, the human factor is the only feature that makes the difference and, to achieve this multi-team and multi-disciplinary approach, some fundamental prerequisites are necessary:
- An open-o-innovation corporate culture; (remember that there’s a demonstrated positive correlation between corporate culture and perfomance)
- An anti-hierarchicalapproach to hotel management that must involve all departments in the sales process and the value chain
- Integrated technologies to support and facilitate the process.
It’s what I call C2RM, the logical evolution of vintage revenue management: Customer-Centric-Revenue-Management. And, if we can achieve that, then we really can’t help calling ourselves revenue managers. Can we?