Revenue management in the holiday hotel industry. In #happyTalk04, we talk to Markus Seemann from 9seemeilen Hospitality about revenue management in the holiday hotel industry.
It is primarily about why — contrary to common clichés — revenue management makes sense and is successful for hotels in holiday destinations and how hoteliers benefit from it.
Our HappyTalk guest
Markus Seemann has always had a great passion for revenue management, the strategic analysis of processes and the analysis of logistics key figures. After completing his classic training in the 5-star hotel industry, he completed various positions at home and abroad. In both chain and private hotels, he has been able to demonstrate his talent in numerous management positions over 15 years.
In 2018, he decided to take the step into self-employment and 9 nautical miles of hospitality founded. 9nautical miles Hospitality sees itself as a partner to the hotel industry in order to also provide privately run hotels with access to professional revenue management.
Sebastián: One cliché persists: Revenue management is not for holiday hotels at all. My question to you: Why is it something?
Mark: I actually struggle with this cliché every day. Revenue management is a very, very big issue in the urban and chain hotel industry, and has been around for many years. And why does this also work in the holiday hotel industry? It's simple: because the product is as perishable as in the city hotel industry: We can only sell the hotel bed/room tonight. It doesn't matter where the hotel bed is, that's point one.
The second point is: We always have variable demand — regardless of whether the hotel room is in the city or in a holiday destination. And the third point is variable willingness to pay. This means that there are different market segments from which my guests come and they have a different willingness to pay different prices.
So it's 1:1 the same when you break it down to the topic of revenue management. And that is probably the first mental sticking point that you have to break up in order to say: it is actually the same, although it is actually very different.
Sebastián: Why do you think that hoteliers from this segment of all people believe that it is not for them? I hear very often: “But I don't even have a competitor with whom I can compare myself.” Perhaps you've had a similar experience?
Mark: Yes, definitely. I live in Meersburg, a very nice tourist destination. And there is of course a lot going on in summer in particular — and this is exactly the experience you get in all holiday destinations, whether that is the Black Forest, the Mecklenburg Lake District or my home in East Frisia.
Especially when it comes to the subject of competitors, I always say: Think about it, the guest, who comes from North Rhine-Westphalia, for example, in the end doesn't care where he goes. He wants a nice product in a nice location at an acceptable price. If this is not available on the market at location A, then it simply migrates to location B.
And: Even though I may be the only hotel in my own small town or in the surrounding area, I still have competitors across the region. Then, in the specific situation, it still depends on whether it makes sense to compare prices with supra-regional competitors.
You often hear: Yes, our season is always long. So right here on Lake Constance, the season lasts almost 8 months, until after the autumn holidays. But even in this long period of time, there are peaks. Of course, it would be nice: completely full from the beginning of April to the first week of November — the dream of every hotelier. But that is not the case. And if you look at your operating figures and dive a bit deeper into lodging, you can see exactly: there are recurring patterns. And they must be served at reasonable rates. Many holiday hotels still have the classic seasonal prices: winter rate when there is nothing going on and summer rate when there is a lot going on. It is super exciting that you can bring a reasonable price to the market in line with demand. On the one hand, of course, to meet higher demand with a higher price, but also lower demand with a lower price.
That is why, in my opinion — and I'm sure I'm speaking for you too — it is an absolute MUST to conduct revenue management in order to be able to work in an economically stable manner.
Sebastián: Let's continue with cliché number 2: With dynamic prices, I annoy my guests. Why do you think this is still so common in people's minds? Dynamic prices are widespread everywhere else — for example for flights.
Mark: That is always the last step I have to take to convince someone to do revenue management. I would like to vehemently deny that dynamic prices annoy guests. From my personal point of view, it is just a lack of willingness on the part of us in the hotel industry to provide guests with information. For example, if the guest comes from Saturday to Monday, then I need to be able to explain to them: On Saturday, you pay a bit more because we have a lot more going on there, it's less busy on Sunday and we can pass on the price advantage directly to you: That's why the rate is different.
I often find it a shame that hoteliers or those responsible for revenue management make up their thoughts and plans for the rates, but communicate them less well to the staff in the reservation or at the reception. Because they have to live and practice the bottom line every day and have an answer to the guests' questions. Otherwise, the guests will not be satisfied. But if you communicate that openly and honestly, then the guest also gets involved.
As you just said: we have so many points of contact with revenue management in our daily lives: Cinema is a good example: Apart from the fact that the different times are priced differently, we already have different seating categories in the big cinema chains — from love seats to wide leather chairs.
What all of us actually need to know: When we think back to the first lockdown, everyone wanted to bake. And what was the big demand: yeast. What happened in food retail: Yeast prices have exploded.
That is daily life and it should be the same for us in the hotel industry. I do the same with my customers: We bring the whole team together, especially those who deal with it on a daily basis, they are properly trained and briefed.
Then it is also easy for these employees to sell the guest not only the unit rate but also dynamic prices.
Sebastián: Let's dive deeper into revenue management: How do you set up your rates, what are the structures that you introduce for your customers? What is the construction kit that you use with your customers?
Mark: Yes, how do we actually get to a instalment, that is the core of the poodle. Be honest: most rates have grown historically. They were defined once, perhaps even compared with competitors. But I want to get away from that, because it's more of a gut feeling — and that's a bad advisor when it comes to money. I'd rather have it backed up with figures.
That is why we proceed as follows: We determine what the cost structure is, make a clean break-even analysis and build up our rate grid on this. Ultimately, I also need to know in which range I can “play”: Where is my lower price limit, am I actually allowed to sell below and how high can I go? So I already have a wide range that is available to me at market prices.
And then my construction kit or master plan is always a bit dependent on what kind of hotel it is and how many market segments there are.
And when it comes to installments, the sky is the limit: You can make as many as you want and that can definitely make sense from time to time. But I generally recommend a minimum of four installments: on the one hand, the cash rate or flexible rate or house rate, as it is called. This is the rate I take when a guest calls or sends an email to make a reservation. I have work here: The email must be answered or even the fax. That is the standard, so to speak.
Then I have an installment that is a bit cheaper. That is the homepage rate. I think it's very important and I still see them too rarely. This rate is slightly discounted because the guest does all the work for me: He selects the room, time period, etc., enters all his data and everything is added directly to the hotel program.
The third would then be a portal or OTA rate. This is a bit more expensive than the cash rate because we want to compensate for some of the commission. I even recommend setting this rate 10% above the cash rate, because the commissions are often between 11-18%. This allows you to repeat a large part of it.
And I still recommend a non-refundable rate as well. That's when we noticed that it (now and during Corona) is not as popular on the market. But it was highly relevant before and will achieve this again.
This gives us a good standard portfolio.
Sebastián: With the OTA rate, you had already briefly said that you were working with a 10% mark-up. Do you generally work with percentage increases and reductions or do you also take absolute ones?
Mark: I'm a fan of percentage increases and reductions. This can be better presented in later logistics controlling, accounting or advance planning. If I were to take a certain amount of euro, for example 10 euros as a premium, it is very much at a rate of 50 euros, but 10 euros at a rate of 150 euros is extremely low. That's why I prefer to work with a variable percentage premium, which always depends on the daily rate.
Sebastián: What is also exciting is the issue of restrictions. How do you deal with that? For example, do you recommend that your customers also use MinLoS and MaxLoS?
Mark: Absolutely. Very, very important. Many people are not really aware of this important issue. Using Meersburg as an example, it is very extreme: Weekends outside the summer holidays are very popular there. And it would actually be a very hindrance if you did not introduce a minimum stay for the weekend. A hindrance to good revenue management and to processes and work flows in the hotel. For example, you save yourself traveling to and from Saturday and have less personnel costs. I actually push this forward 99% of the time.
There are only a few destinations, that is not the case, there are none Restrictions necessary. But there are almost always patterns that confirm why I need to have a minimum stay — be it on weekends or long weekends. This contributes enormously to reasonable economic growth in our own company. And it doesn't matter which restriction is involved — be it MinLoS or CTA, etc. These are all small adjustments with which you can make a big difference within revenue management.
Sebastián: You are deeply rooted in DEHOGA. What exactly are you doing there?
Mark: Before becoming self-employed, I was general manager in private and chain hotels for a long time and had a lot of contact with the association. I find it an exciting platform for sharing knowledge. That's why I'm going to two weddings there, so to speak:
On the one hand, there is the DEHOGA Academy, where I give a lot of seminars, of course in the area of revenue and yield management. It's a lot of fun. Especially because there are so many different companies that come together there and the exchange is very intensive. It's essentially about the basics. You can't afford anything that involves higher consulting costs, but I can then provide that with 9 nautical miles of hospitality.
The other “wedding” is DEHOGA Consulting in Stuttgart. I support the team as a freelance consultant. On the one hand, in the area of digitization. This means that especially in the hotel/lodging industry, there are many systems (such as Happyhotel) to show hotels ways to better position themselves on the market and become more digital. On the other hand, there is of course also classic advice. A hotel is in trouble and is asking the association for help. When it comes to digitization and logistics, I can then help as a consultant. When it's more restaurant-heavy, a colleague comes. These are the two important areas.
This is particularly fun when it comes to long-term, not just selective cooperation, which then leads to success for hoteliers.
Sebastián: What do you think a hotelier should focus on in the future in order to be well positioned?
Mark: Good question — I've thought about this in advance. Three topics have popped up right away, which may not be new, but are extremely important for the future.
First, process optimization and digitization — both together. Digitalization can greatly support process optimization, whether in the logistics sector when processing reservations or automating pricing decisions. But process optimization is also a huge issue in catering and housekeeping. We have fewer and fewer staff in hotels, so it is important to work with the staff as well as possible — similar to industry.
The second important point is online marketing as a part of all marketing. Many hoteliers say: “Oh, I want to go to the OTAs Don't participate anymore, they always want so much money...” You can do that if you send last year's commissions directly to marketing invests. Because that is exactly what you pay for a portal: marketing expenses. The provider of the portal places me as a hotel with a very large reach that you usually don't have alone. If you want to be more independent of this, you can use the spending elsewhere in online marketing. But here too, it is important to develop a plan and not to proceed according to the watering can principle. There are many service providers and clever people who support you here.
And the third point is still the employees! We've already talked about it: Many thought that they would be able to attract new employees after Corona, for example because jobs in industry are being cut. But the exact opposite was the case! The situation was already tense as far as staff in our hotel industry were concerned. But now it's gotten a whole lot worse.
We must therefore move a bit more because the wage as an individual component is no longer sufficient. The collective bargaining agreement in Baden-Württemberg is a good one; many other federal states can cut a slice of it, but that alone is not enough. The needs of employees — particularly among the younger generation — have changed. I then have to make sure that I also offer additional services or bonuses. Such as private dental insurance. Someone told me this in a seminar: This hotel pays every employee supplementary private dental insurance — costs maybe 5 euros per person per month — and that's business expenses. And a huge added value for employees. I just have to set myself apart from my competitors in order to be attractive to the employees who are still available on the market.
