The business mix: finding the ideal balance

Reading Time: 5 mins. 10/01/2018

Jorge Guimerá, Revenue Manager at Ferrer Hotels, talks about the importance of the hotel distribution mix to maximize the business profitability and about how our own channel can help improve results.
In the day to day of a Revenue manager there is a lot of information to manage and usually the work is focused on the tactical part, the short - medium term. After reviewing daily reports of occupation, pick up and evolution of key indicators, the Revenue Manager must make decisions regarding inventory management, rates and restrictions. If you have a good structure of segmentation, the right control of bookings and accurate reports, the analysis will provide data to make decisions not only at the hotel level but also depending on distribution channels and characteristics of the customers looking for our property.
However, the true potential of Revenue management relies mostly on planning, forecasting and strategy. An organization that intends to make good revenue management should have a sales and marketing plan that includes Revenue management criteria on which to make decisions. Even if you are taking the first steps it is advisable to sit down and strategise: decide who and how we want to sell our hotel rooms.
At present, hotel distribution is widely diversified. A hotel can choose from hundreds of tour operators, travel agencies, large networks, reservation centers, bed banks or online travel agencies (also known as IDS "internet distribution system" or OTA "online travel agency"). 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. After all, the work of a Revenue manager starts by finding the right balance in their distribution channels to ensure that they will have enough demand from each one of them to be able to filter and decide which is the most appropriate for the establishment.

There is a key principle in Revenue Management and it is that without a demand higher than your offer, you will hardly be able to correctly manage your income. As an example, if you have a room where you can hang 4 frames and you only have 3, you will likely hang all 3 of them. If, on the other hand, you have 10 frames, you will surely choose those 4 that you like most, those that you feel like seeing every day or those you feel most proud of. The same happens with customers in a hotel: Our goal is to reserve the ones that will bring the greatest profitability to the establishment.
We call this process finding a good business mix, combining early bookers and last minute buyers, customers who are willing to pay a lot of 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, we can find ourselves filling all the rooms before even starting the day in question. If, on the other hand, we decide to bet on selling at a higher price to last-minute customers there is a risk of remaining with unsold units. 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 (taking into account the characteristics of each of them) as well as with the decisions at promotion and marketing level oriented to each one of the market segments (family, couples, singles, vacation or business clients).
At this point, each distribution channel offers advantages and disadvantages compared to the others. In some channels we can make large promotions, launch offers or discounts that generate new traffic, but may not allow us to control the desired flow of reservations (tour operation). Other channels allow us to have control over the inventory and even modulate the rates at which we sell our rooms, but they will not allow us to reach accurately the customer segments that we would like to (OTA's, beds banks).
And this is where our direct channel stands out above all others. Through the direct channel we can have first-hand information of what customers buy and when they do it, what they are looking for and what services they value most from our hotel. With a good analysis we can create the offers, promotions or discounts that are best suited to capture the attention of the users. Through mailings, newsletters or other inbound marketing actions or conventional media (newspapers, radio) we can reach the target audience based on their characteristics and that we believe will best adapt to our product, will have greater satisfaction in our facilities contributing at the same time to achieve maximum profitability. If we add that direct channels usually have lower distribution costs or commissions than the rest of the channels, the conclusion is clear: betting on our direct channel brings together all the premises that define the Revenue management.

After all, doesn’t seem so difficult to bet on a direct channel, right? 

Jorge Guimerá is the Revenue Maganer at Ferrer Hotels, hotel chain with more than 50 years of experience. They have operations in Mallorca and Menorca and is distinguished by their orientation to the customer satisfaction.