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Tips on Finding the Ideal Business Mix

The business mix basically means finding the ideal balance of different segmentations and using the channels effectively in your advantage. Your own direct website and channels are not sufficient to achieve your targets and therefore, you need to choose from hundreds of tour operators, travel agencies, large networks, reservation centres and OTAs. It may seem very tempting to hire a large number of partners and ensure a continuous flow of reservations, but this will mean losing control over profitability.

The primary aim of revenue management is selling the right product to the right customer at the right time for the right price and with the right pack.

Therefore; there are key strategies you need to apply to your property;

  • For days where you know you’re going to sell out or get close, the goal should be to incrementally raise rates as the date approaches to slow down bookings so you have rooms left all the way until that date when customers are happy to pay more for a room they really want.

  • Rates should be adjusted as much as possible from low to high leading up to each and every day based on the pace of bookings and projected demand

  • Paying attention to the competition, but not necessarily follow every move they make.

  • Instead of selling the rooms first come first serve basis, adopting more appropriate pricing decisions and filling your hotel with the most profitable mix of customers.

  • Systems and people must be in place at all times to react to changing demand and control inventory in a pro-active approach.

All of the above aiming to find the right balance in your distribution channels to ensure that you will have enough demand from each one of them to be able to filter and decide which is the most appropriate for the hotel.

You need to apply four key Strategic Revenue Management steps to succeed your goal;

Main Revenue Management leverage is “price discrimination”

Price Discrimination is basically, customers consuming the same good/service at the same time but at different prices and this can be applied with success to any perishable resource.

To be able to apply this principle you have to have enough inventory to cover the demand and choose the ones that will bring the greatest profitability to your hotel.

This process basically called finding a good business mix, combining early bookers and last-minute buyers, customers who are willing to pay more money for their room and others who won’t pay as much, those who prefer longer stays and those up for short stays. 

  • If we are tempted to sell many rooms in advance with discounts that incentivize it but we can find ourselves filling all the rooms in demand dates with lower rates.

  • If, on the other hand, we decide to bet on selling at a higher price to last-minute customers there is a risk of unsold rooms.

The achievement of good results has a lot to do with a good analysis of the historical data and the pick-up of reservations by distribution channels as well as with the decisions at promotion and marketing level oriented to each one of the market segments and type of guests; family, couples, singles, holidaymakers and corporate business guests.

Each distribution channel offers certain advantages and disadvantages compared to others. There are three categories;

  • Tour Operators / Wholesalers: They are very useful to make large promotions, launch offers or discounts that generate traffic but may not allow you to control your inventory as much as you wish to.

  • OTAs: They may allow you to control over your inventory better, some even work together with you to fluctuate the rates to fill your property but they will not allow you to reach the customer segments.

  • Direct Channels: Your own direct channel allows you reach first-hand information on what customers buy and when they do it, what they are looking for and what services and additional benefits they value most from your hotel. This is where your direct channel stands out above all others. With good analysis and clever marketing strategy, you can create the offers, promotions, add-ons or discounts that are best suited to capture the attention of your future loyal guests. Through mailings, newsletters or other inbound marketing actions or conventional media (newspapers, radio) you can reach the target audience based on their characteristics and that we believe will best adapt to your product, will have greater satisfaction in your facilities contributing at the same time to achieve maximum profitability.

Advantages of Direct Channels

Your own direct channels usually have lower distribution costs or commissions than above mentioned other channels, the conclusion is clear: betting on our direct channel brings together all the premises that define the Revenue management.

According to industry guidance, if you have your own direct booking channel; it costs 4% per booking and you need to spend 2%-4% on marketing per booking. Which basically means, you have on average 7%-8% operating cost per booking when booked online. On the other hand, you pay 17% to 25% OTA commission per booking you have received.

Considering your fix and variable costs which would be the same in both cases. Then let’s do the math; If you are selling a room with £100 your net profit would be £73 after tax, direct channel and marketing costs of £27. If you get this room via OTAs then you will spend £40 for tax and commission which would bring £60 net profit. So, the difference between OTA or Direct booking for per room per night is £13.

This does not mean that you need to ditch all other channels and use your own channels. This is even impossible for big companies such as Hilton, IHG etc. Finding the right balance, analysing the market, booking trends, keeping an eye of competition, predicting and manipulating the certain demand dates could really help your hotel to deliver better results on the bottom line. It’s about using the right channels to fill the threshold, reducing or closing them when you can utilise your own channels to gain an advantage while selling same or similar rates. The choice is yours…

I hope you find this article useful. Please feel free to contact us to get advice, assess your property needs and help to optimise the usage of the hotel's physical and human assets to achieve superior standards of service and deliver maximum value to owners and investors within agreed profit objectives. You can reach us either Contact tab on my website or via email directly on to arrange a private chat.

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