Guidelines – an important tool to reach the revenue goals
All hotels are aiming for maximizing and increasing their revenue. It is not enough just setting prices; one has to work strategically and conduct ambitious preparations which involves many different persons within the hotel to be successful. It is important to start with doing a prompt analysis of the business and that the management of the hotel agrees upon and sets a price strategy. To produce a price strategy and the guidelines and policies attached to it lays the foundation for the upcoming work with setting prices. Without having done these preparations, you are not ready to start with the price setting.
I was interviewing our expert in pricing and revenue management, Ognjen Lauseger with many years’ experience from Scandic Hotels, about what you have to think about and he told me the following concrete advices.
It is of course very problematic if the revenue of a hotel is diverting negatively in correlation to the goal of the hotel and becomes lower than expected. That is something you probably would like to and have to take care of. However, then you will have to have done your preparations beforehand and have a price strategy to start from. When being in the process of setting a price strategy, it is about analyzing and deciding what price level you want to present yourself as externally. Which guests do you want to appeal to? Do you want to be a premium hotel, or do you want to be a hotel in the low-cost segments? And how do you want to position yourself towards your competitors?
It is also about deciding which price level you do not want to go below and if you want to work with discounts or not. It is about considering and decide how to act when the competitors are lowering their prices – will you stick to your own price strategy then or will you follow your competitors? It is not only about setting the actual price, but also what signal you would like to send related to your trademark – these are important strategic decisions which are totally crucial to determine before you start the process to set the prices.
After having decided upon a price strategy you should also develop guidelines and policies connected to the strategy. Developing guidelines is about developing guidelines and a framework for which prices you would like to have for different segments, i.e. how to relate to different requests depending on the circumstances. It is important to keep in mind, that all of the guidelines are aiming for the hotel to follow the strategy in order to reach the revenue goals the hotel has.
There are many different types of guidelines which a hotel should develop. Among other things, it is about group requests and how to relate to them, to which conditions one would like to offer them a package etc. Corporate guidelines should also be developed with all the parties the hotel is doing business and has any type of agreement with - corporate, travel agents and tour operator. There should also be guidelines for different types of campaigns.
There are guidelines which concerns the public prices and they should reflect the hotels strategy regarding the trademark and its positioning. When it comes to the sales department, their mandate and security, then guidelines for contracts is what they have to rely on. Having guidelines is leading to security as well as predictability for many different roles at a hotel.
Possible reasons why the revenue is lower than expected
What could then be the reason why the revenue becomes lower than expected?
It can be depending on that a hotel has not followed the guidelines, i.e. lack of compliance with the guidelines. It can also be because of that the hotel does not have any guidelines at all.
Without guidelines and policies for the price setting, the price setting risks being ad hoc and depending on which person at the hotel who receives a request from for example a group or from corporate customers. Without guidelines there is an uncertainty about what the rules are, a lack of certainty which leads to uncertainty in the price setting process. If you do not have guidelines, it can also result in that you give too much discount which leads to leakage of revenue. All these potential problems show the importance of having guidelines and policies as it becomes unclear and creates uncertainty without them.
Needless to say, the hotels have to review their guidelines and policies regularly. Questions that has to be asked are: Do we have the right contracts? Does what we do the intended outcome? How do we reach the goal?
Three advantages with guidelines
One of the advantages with having documented guidelines is that you get a better ability to follow up if you follow your guidelines. By writing down and specify your guidelines and policies in a document, there is a possibility to review and evaluate them since you have something to relate to which gives a security and predictability. By having guidelines to relate to, you can ask the question what has not functioned and to follow up on possible reasons and problems.
Another advantage with guidelines is that it does not become dependent on only one person what the guidelines and rules are for revenue management and therefore much more transparent which leads to a less vulnerability for the hotel. It is of utmost importance that all departments at the hotel is involved so that you unanimously define what is regarded as a “good deal” in order to take the right decisions and to maximize the revenue.
Therefore, the third advantage with guidelines is that you get a much higher security within the organization regarding what the rules are, which leads to less subjective decisions in relation to revenue management and price setting. Having guidelines, can also mean that a hotel dares to say “no thanks” to less beneficial deals since they follow their decided strategy, which is developed further in the hotels’ guidelines and policies. By knowing the rules, since they are clear in the guidelines and policies, everyone at the hotel knows what to related to.
If you have followed the guidelines and despite that still has not reached the goals, that could mean getting the information about that something else is wrong, since you have followed the guidelines but still not reached the goal. Then, one must analyze why the goals are not reached.
This shows how important it is to first and foremost conduct a thorough analysis of your business and that the management of the hotel has agreed upon and set a price strategy. To develop a price strategy, with associated guidelines and policies, is laying the foundation for the upcoming price setting process.
A tool which facilitates the development of guidelines
Demand Calendar shows information regarding how the hotel has succeeded historically regarding rooms sold and for which days and to what prices etc., which is a good basis when you develop guidelines. By getting a clear picture of what you previously have performed, you can take well-informed decisions when you develop your guidelines. You can also use Demand Calendar in order to follow up if the guidelines have had the intended outcome and effect on your revenue. Demand Calendar makes it possible for everyone in the team to be involved and to work together both when developing the guidelines and with the follow up om the guidelines and the evaluation.