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Revenue Management: Centralize or Localize?
October 4, 2022 | Sarah McCay Tams, Director of Marketing Communications.
As a hotel company grows, deciding what revenue strategies should be held at head office, or centralized, or what should remain in the hands of local management teams, is often tough.
Dimitris Hiotis, Partner and Global Head of Leisure, Travel & Tourism at Simon-Kucher & Partners, has over 20 years of experience in pricing and dynamic pricing through various roles in industry and consultancy. From his early days at TUI to now leading the Tourism, Transportation, and Leisure Practice at Simon-Kucher & Partners, he has watched, consulted, and assisted industry leaders to take on this transition. And with all his years of experience, he believes a hybrid approach is often the best answer.
"Every hotel has local competition and challenges and so you do need to have that local input. However, from an efficiency perspective, it is better to have revenue management specialists centrally with a team focused on revenue strategy and pricing," he said.
"The ideal situation is to have a central team using data and sophistication to set up the revenue strategy and a process to involve local teams for exceptional pricing, such as when an event comes to town. But to do this you need to equip the hotel managers with easy information and involve them in the process. They are the best people to tell you what is happening in the local market. But it must be a hybrid; the science and the data have to sit in a central position with the local team having an input in the process."
How To Centralize?
As a hotel business grows, how does its leadership team take the company from local to potentially global? Hiotis has plenty of tips for teams scaling their hotel business, but he does warn that there could be growing pains.
"When you grow as a chain you move away from a world where you are identified by location. You are building a brand identity," he explained.
For Hiotis, companies need to ask themselves four questions:
What are we as a brand?
What do we represent?
Where are we in the market?
What is our proposition?
"You must form that identity first. Are you a no thrills or a premium five-star, do you want to be dynamic or remain static in your pricing structure? And from there, you can start to decide how complex you want your pricing to be. But it is vital to set out those principles early, otherwise, everyone will do their own thing. You need consensus," Hiotis said.
Managing the Change
To execute a centralized strategy, Hiotis recommends gathering a team of people who are already aligned with the process and building a pilot from that.
"Start with a pilot with GMs who are more welcome to it, and then extrapolate it once you start to see success," he said.
"Start internally, identify people who are interested in this, and then look for external talent, such as a consultant, to advise you on how you need to be set up," he added.
But how do you overcome the challenges of team members reluctant to change? Those whose mantra seems to be: 'We've always done it this way.'
"The pilot is to prove the story to these people. People are more convinced when they see it working. Carefully find the more willing, and work with them. Make sure you protect any revenue risk. Then, that success story team becomes your ambassadors, and they convince the others. It's about creating that revenue culture and empowering team members," Hiotis advised.
Going Glocal
Once a centralized strategy is set, leadership can then empower local teams to work within the strategy to optimize profit according to local opportunities.
"In a world where things are more central, and you need to empower local teams, it comes down to communication and collaboration. It requires a lot of work. You need a system and reporting that can be accessible to all parties, with the central team being the keepers of that," explained Hiotis.
The aim is to achieve one source of truth, with reporting that encompasses the entire hotel performance.
"Integrate this into something a hotel management team needs to look at every day, including review scores, local market RevPAR, etc., Then, when it comes to pricing decisions, most of them can be automated, but if local teams want to interrogate pricing changes they can, and it is easy to see why the price is being increased or decreased. You must make it an ecosystem with inputs from both sides."
Building the Ecosystem
An integrated tech stack, that combines a PMS, RMS, CRS, and other elements, can help scale this centralized strategy.
"The benefit of an integrated tech stack is that it gives you the ability to find proxies quickly. You can see hotels that perform similarly. Then you can start with that structure and refine it over time. Pandemic or not, there's always a need for historical bookings to start something. A machine learning method that learns from that setup and adjusts it quickly is very effective," Hiotis said.
However, Hiotis is again favoring a hybrid approach.
"You need a process that involves people and machines," he said. "Tech companies that were able to demonstrate the agility of the system and worked with clients to make systems less based on historical data fared well in the pandemic.
For Hiotis, such systems need to be able to create forecasts that are dynamic and pace driven, to pick up surges in demand and adjust the pricing accordingly. This, for him, is now more important than ever.
"We're in a strange period right now. Demand is back. Hotel teams are not thinking about revenue management if their system is yielding effectively. They are thinking about staffing challenges, and the chaos in airports, they are more operationally focused. However, a recession could be imminent, and the good times are not going to last."
Want to recession-proof your revenue strategy? Download our latest whitepaper The Hospitality Executive's Guide To RMS Technology, to learn how to adopt a centralized revenue ecosystem. Or contact us today to arrange a demo.
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