SETTING A NEW COMMERCIAL STRATEGY

The hotel industry isn’t alone: We’re living in a world that’s undergoing digital disruption. Look at what Amazon did to the main street retail sector or how Spotify has changed the music industry, among others. Add to this the recent pandemic and the related changes in consumer behavior that persist in the marketplace, and you’ll see it’s time to revisit the industry’s path to success.

The world of 2025 won’t be the same as the world of 1995, when many of the current commercial models for pursuing revenue were established. For that reason, it’s time to question many underlying assumptions that have been in place, such as the way we organize our revenue generating/ commercial staff; the performance metrics we use and the basis for their evaluation; and the way hotel budgets are built and assessed.

We’ve identified five areas where change is both needed and likely.

COST, CONTROL AND HOTEL ASSET VALUE

Digital technology companies are changing hotel economics. The costs of acquiring customers has increased along with the disruption in a hotels’ access to travelers as they embark on travel shopping, buying and/or staying. Many technology companies want to provide consumers with tools for each step in their travel journey. These relationships may divert guests from building affinity to individual hotels or hotel brands.

All these factors play into hotel profitability. Added to this are notably higher costs for labor, insurance, tax, utilities, and other operating expenses. As real estate assets, hotels are valued based on profits generated. But asset values are challenged when revenue acquisition costs reduce the top line, and erode the recurring customer base. Commercial strategy is an emerging discipline that enables revenue generation leaders to deploy techniques that place a priority on improving asset values; the commercial team includes revenue management, sales, and digital marketing leaders.

BUILDING A COHESIVE COMMERCIAL TEAM

The legacy “go-to-market” techniques hoteliers used to get and keep customers were built in an analog world when most business came directly to the property. Now upward of 80%-90% of customers tap digital channels at some point in the travel journey. Commercial teams need to adapt to this market reality. The changes may be less about specific organizational structure and more about the way the teams spend their time. These market changes call for expanded roles for each discipline, especially revenue managers, and the need for a high degree of coordination between revenue management, digital marketing, third party sales, brand marketing, and business transient and group sales.

One of the biggest changes is the need for the commercial team to intentionally execute on a plan to acquire a realistic business mix accounting for the highest profit contribution possible (by planning for acquisition costs) and measure results against it. The planning and resource allocation tasks add a strategic element for all members of a commercial team. Leaving daily and hourly changes to automated revenue management systems allows revenue managers time to apply analytical expertise for a bigger impact on profitability by having longer time horizons for a more sustained market view and to execute on both revenue mix and associated costs.

SPENDING VERSUS INVESTING: ACQUISITION AND RETENTION

Customer-facing teams have been highly focused on acquisition but would benefit by also thinking about retention. We’ve always had sales and marketing budgets, but in a highly competitive market with many well-funded third parties, intentionally planning for both acquisition and retention costs becomes critical.

Supplementing the transactional mindset about getting as many customers as possible on a daily basis, with the addition of “lifetime value” based on some degree of recurrence refines a new commercial perspective. This forces commercial leaders to think about which customers to pursue and the best sources to tap for the desired business. It also forces them to accept the fact that some expenditures are more of an investment to acquire a recurring customer. This ultimately leads to lower acquisition costs versus a transactional cost to book any room night possible. The latter results in hotels cycling through many new customers and potentially incurring higher acquisition costs.

NIMBLE DEPLOYMENT: PICKING UP THE SIGNALS

Consumer behavior is different in the post- pandemic world. This has changed the way hotels get both business and leisure customers, as well as altering many groups’ needs. Conventional wisdom is due for a change. Being nimble isn’t about daily reactions to spikes in rate or volume, which can often result in lost time chasing outliers (and is already handled well by most RMSs).

Instead, it’s about executing a sustainable plan aimed at improving profit contribution. You’ll need to monitor it at least weekly, but it should be based on monthly and quarterly time horizons. Many factors may change on a monthly basis, including:

• Number of sales staff and what they pursue in which markets and/or submarkets
• Decisions about which segments/channels to target; when and how much to spend to achieve this goal
• Predetermined spending on third party and digital and/or brand initiatives
• Measuring results based on contribution to profit. You need granular data to pick up the signals in each market on demand profiles and acquisition costs, along with coordinated execution with commercial team members.

MARKET FRAGMENTATION: FOCUSING ON LOCAL AND REGIONAL SALES

In the pre-pandemic world, big corporate accounts booked through large travel management companies often using global distribution systems or sending group bookings, filling many hotels efficiently from a central sales team. Post-pandemic, there’s a blend between leisure and business travelers who book many rate categories and use many channels, some controlled locally/regionally and some centrally.

Diffused demand requires sales teams to pursue fragmented sources. This leads to changing expectations for what brands and above property teams can accomplish. Commercial teams have to understand the opportunity in their own market(s) and proactively seek assistance to achieve their objectives, whether it’s from local sales effort, above property teams, or a global sales team. Making the sales effort efficient in a fragmented market requires a new approach for all teams.

The full version of Demystifying the Digital Marketplace will be available in print and via download in June 2023. For more information, visit Kalibri Labs at https://www.kalibrilabs. com. Stay tuned for the release of Kalibri Labs’ Commercial Strategy Certification, expected to launch for beta testing in Summer 2023. For more information regarding certification, please contact Jennifer Hill, jennifer@kalibrilabs.com.