By Stowe Shoemaker, Associate Dean of Research and Donald Hubbs Professorship, Conrad N. Hilton College of Hotel and Restaurant Management, University of Houston, and member, HSMAI Revenue Management Advisory Board

It is important that revenue managers understand customer loyalty because the balance of power between revenue management and customer loyalty is beginning to change. In the past, revenue management trumped customer loyalty. That is, if the choice came down to extracting the highest revenue for a room by selling the room to the first person that asked, or saving the room to sell to a loyal customer at perhaps a lower rate, the room was always sold at the highest price to the first person who asked for the room, regardless to the guest's past history with the hotel. This is the mentality that created "black-out" dates and "capacity control" restrictions that stopped loyal guests from exchanging points for rooms at times the guests would find these rooms most valuable to them. Now customer loyalty is being incorporated into the decision of who gets the room and at what price. The Starwood Preferred Guest Loyalty Program, for instance, clearly announces that there are no "black-out" dates or "capacity control."

The merging of customer loyalty and revenue management is also illustrated by two discussions I had with a senior marketing executive for a major international hotel firm at two different points in time. About 10 years ago this executive told me that while customer loyalty was indeed important, revenue management was more important as the immediate economic gains for revenue management were too large to ignore. Thus, revenue management trumped customer loyalty. However, when I recently had lunch with this same executive, I asked what kept him awake at night, the reply was "How do I ensure that I do not arbitrarily practice yield management on my best customers and as a consequence destroy the trust that we (the brand) have spent so much time trying to build."

In order to understand why customer loyalty is so important to the brand, it is necessary to remember that the business model of the major international hotel companies (e.g., how they make money) is growth through management contracts and franchise agreements. In order to gain management contracts and franchise agreements, firms must be able to offer the owner something the owner values. What the owner values most, of course, is a return on his/her investment. This return is generated, in-part, when the property has strong occupancy. One way hotel firms can help guarantee this occupancy is to have a large number of travelers in their corporate database. The firm can then discuss with the potential owner the number of loyal customers the firm has, as well as such characteristics as the frequency which members in their database stay in hotels, average revenue generated per night, demographic characteristics of the members, where they travel, etc..

Of course, for firms to have a database, customers must be willing to identify themselves so their behavior can be tracked. And, for customers to identify themselves, they must perceive that they are getting something of value. Research I have published has shown that part of this value is the belief that the firm will look after the customers' best interest. This includes the trust that the firm not practice opportunistic behavior (that is, take advantage of the customer because customers have no other options) on their best customers. Without this trust and other benefits provided to loyal customers (e.g., possible upgrades, easy check-in, etc.) there is no incentive for customers to identify themselves. If customers do not identify themselves, there is no database and with no database, there is no management contract. In other words, hotel firms pay their guests to identify themselves so they can use the guests' information to gain management contracts. Loyalty programs are then a tactic to realize their strategy.

It should now be clear that anytime the individual firm does anything that maximizes its own profit while at the same time making customers less loyal, the long term value of the brand decreases. The reader should now also understand why the senior marketing executive could not sleep at night.

The big question, of course, is how to create loyalty.

A way to think about creating customer loyalty is The Loyalty Circle, © as shown in Figure 1. The three main functions on the circle are Process, Value, and Communication. The reader will notice that at different points along the circle, there are places where the customer might exit the circle and hence the relationship. The goal of hoteliers is to keep the customer in the circle by executing equally well the three functions of the circle. Equality is the key to the loyalty circle. If hoteliers are great at creating value for instance, but do not effectively communicate with the customer, then that customer may leave the relationship.

On one side of The Loyalty Circle© is the Process, which is "how the service works." It involves all activities from both the guest's perspective and the hotelier's perspective. Ideally, there should be no gaps in this process. For the guest, the process includes everything that happens from the time s/he begins buying the service (e.g., calling to make a reservation) to the time that they leave the property (e.g., picking up their car from a valet.) All interactions with employees are part of this process.

For the hotel, the process includes all interactions between the employees and the guests, the design of the service operations, the hiring and training of service personnel, and the collection of information to understand customers' needs, wants, and expectations.

A second component of The Loyalty Circle© is value creation. Value creation is subdivided into two parts: value added and value recovery. Valued-added strategies increase loyalty by providing guests more than just the core product; that is, for hotels, offering more than just a place to sleep. Valued-added strategies increase the long-term value of the relationship with the service firm by offering greater benefits to customers than can be found at competing firms who charge a comparable price. Features that pertain to value added are of six types: financial (e.g., saving money); temporal (e.g., saving time); functional (e.g., making the process easier); experiential (e.g., enhancing the experience such as by getting an upgrade); emotional (e.g., more recognition and/or more pleasurable service experience); and/or social (e.g., interpersonal link with a service provider). Temporal value is important as business travellers have stated that they value their time at $100 per hour and anything that saves them time, saves them money.

Consider for instance, the check-in process of a hotel. Research reveals that many frequent business travelers want to go immediately to their room and do not want to wait in line to check-in. If they have to wait in line for 15 minutes, they mentally figure they have spent $25 to check-in. Waiting in line is especially annoying if the guest is a member of the hotel's frequent guest program and all guest's information is already stored on file. Certain technologies (e.g., blue-tooth software that works with one's PDA) allow guests to check-in, receive their room number, unlock their room, and have charges automatically billed to their credit card without having to check-in with the front desk. Moving these guests to this form of check-in would have the benefit of shortening the line for those guests who want to speak with a front desk clerk. This new check-in procedure speeds up and improves the process (functional value) and adds value because it saves the guests' time (temporal value).

The importance of value-added strategies in creating customer loyalty is illustrated in a study conducted by this author of business travelers who both spend more than $120 per night for a hotel room and take six or more business trips per year. The study revealed that 28% of the 344 who spend more than 75 nights per year in hotels (38% of the total sample) claimed that the feature "is a good value for the price paid" is important in the decision to stay in the same hotel chain when traveling on business. A similar percentage rated the features "collects your preferences and uses that information to customize your current and future stays" and "accommodates early morning check-in and late afternoon checkout" important in the decision to stay with the same chain. Both these tactics are examples of features that add value to the core product offering.

Value-recovery strategies are designed to rectify a lapse in service delivery. The goal is to insure that the guest's needs are taken care of without further inconveniences. Empowering employees to solve problems and offering 100% guarantee are examples of value recovery strategies. The key to value recovery strategies is that the complaints be taken seriously by the hotel and that processes be put in place so that the same mistakes do not happen over and over again.

The final component of The Loyalty Circle© is communication. This side of the circle incorporates database marketing, newsletters, and general advertising. It involves all areas of how the hotel communicates with its customers. When communicating with guests, it is critical that external communications do not over promise what the service can deliver. It is also critical that the communiqué reflect the needs of the customer and that s/he does not receive offers in which the customer has no interest.

If marketers can focus the organization on these components they will create loyal customers who will return over and over again. And most importantly, if they do not focus on the components of the circle, they will be forced to focus on getting more and more customers to replace those who have left the circle and more importantly, left the database.

By Stowe Shoemaker
Associate Dean of Research and Donald Hubbs Professorship
Conrad N. Hilton College of Hotel and Restaurant Management
University of Houston
229 C. N. Hilton Hotel & College
Houston, Texas 77204-3028
sshoemaker@uh.edu

About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board is responsible for providing leadership for HSMAI's Revenue Management Special Interest Group (SIG). The SIG is advancing the revenue management discipline by being its leading source for education, best practices exchange, thought leadership and networking for revenue management professionals, other sales and marketing professionals, and senior management in the hospitality industry. www.revmanagement.org

Members include:
* Chair: Warren Jahn, Ph.D., Revenue Management Training Consultant, InterContinental Hotels Group
* Vice-Chair: Scott Roby, Vice President, Revenue Management, Tarsadia Hotels
* Immediate Past Chair: Timothy Coleman, CRME, President, The Coleman Company
* Christopher Crenshaw, CRME, Director of Marketing Intelligence, Loews Hotels
* Jack Easdale, Corporate Director of Revenue Management, Gaylord Hotels
* Jon Eliot, CHA, CRME, Director, Revenue Optimization, Carlson Hotels Worldwide
* Bernard Ellis, CRME, Managing Director-Americas, IDeaS - A SAS COMPANY
* Tammy Farley, Principal, The Rainmaker Group
* Fred Heintz, CRME, Director of Group Strategy, Marriott & Renaissance Hotels of New York City
* Jay Hubbs, Director-Hotel Supplier Relations, Hotwire
* Burl Hutchison, CRME, Manager of Revenue Optimization, Sabre Hospitality Solutions
* Dan Kowalewski, Vice President Revenue Management Services, Wyndham Hotel Group
* Stowe Shoemaker, Associate Dean of Research, University of Houston/Conrad N. Hilton College
* Miguel Solis, CHA, CRME, VP Sr. Director Revenue Management, Hospitality Resource Group
* Trevor Stuart-Hill, CRME, President, Revenue Matters
* Paul Wood, CRME, CHBA, Senior Account Director, Sceptre Hospitality

Want to Learn More?
Topics like this one will be addressed as part of the 10-part Revenue Management Webinar Series produced by the HSMAI University, HotelNewsNow, andSTR. Begun February 23, 2010, and going through December, each month a webinar will cover various aspects of cutting edge revenue management in today's economy in conjunction with articles written by members of theHSMAI Revenue Management Advisory Board. If you're not able to attend a live program or the date has passed, archives are available.

By Jon Eliot, CHA, CRME, Director, Revenue Optimization, Carlson Hotels, and member, HSMAI Revenue Management Advisory Board

From HSMAI's Revenue Management Advisory Board -- It has been said that revenue management is part art and part science. All too often the practice of managing revenues, setting prices, and using rate and inventory controls is done based primarily on intuition, gut instinct, and "knowing" the hotel and market. These methods, the art, have validity but should be backed up with data and facts, the science. With the ever evolving distribution landscape, more dynamic pricing, changes to the competitive environment, and changes in guest behaviors, it is more important than ever to make data driven, fact based decisions in the practice of revenue management.

Part of the revenue management professional's role is to use historical and forward looking data to mold and support their strategies and tactics. Data driven decisions also serve to remove much of the emotion and conflict involved with determining long- and short-term revenue strategies. The use of data around history, demand, booking pace, segmentation, and competitive intelligence will help move revenue management decisions from "I think we should do ..." to "We need to do ...."

Making data-driven revenue decisions is not as simple as printing a stack of reports from the property management system. It also goes beyond having a number of subscription based reports and tools as well as a mass of spreadsheets the revenue manager spends a large percentage of their time updating. It is really about how you utilize the wealth of available information.

To bring more of the science of revenue management into the mix it is important to evaluate where you are now. A first step is to understand how many of your revenue team's decisions are made based on facts versus how many are made based solely on intuition and instinct. Take a step back and look at the process behind recent choices made. Were these choices the result of analysis, instinct, or a combination of both? This will give you a baseline of where your team is currently.

A next step would be to take a critical look at the tools and reports you are currently pulling together on a regular basis. It is important to understand the value of these reports. It is not uncommon for a revenue manager to spend a great deal of their time updating spreadsheets and pulling reports from various systems. Which of these reports are actually being used in the decision making process? Ideally a revenue manager should be spending more time analyzing data than compiling data. Efficiencies can be found when it is determined what is truly needed for the business as opposed to what is being done because it has always been done.

Another area of tools and reports to evaluate would be those purchased from a data services vendor. There are some excellent tools available from a variety of sources that provide a great deal of competitive and market intelligence, both historical and forward looking. These tools can be complex and are not always used to their potential. In evaluating the tools you currently subscribe to, ask yourself if you fully understand them and feel you are using all of the features. If you are not completely comfortable with the tool and all of its features, contact the vendor to get more information and additional training. These can be very powerful tools to aid in setting your property up for success. Make sure you are getting as much benefit from them as possible.

Once you have evaluated both your team's use of data in making revenue decisions and the data you have, it is time to bring it all together. Go back to the decisions you are typically making based on instinct, intuition, and just "knowing." Consider how you can use the data available to you to support these decisions. Do you have the right data? Do these decisions make sense when filtered by history, trend, market conditions, competitive response, etc.? This is not to say these instinctual decisions are wrong, but having the facts to back them up adds credibility to your decisions. The revenue manager should not only use data to support what they bring to the table, they should also challenge others to back up their assumptions with data.

Utilizing the data to make decisions will also aid in determining success factors. Whatever strategic or tactical choices are made, there should be an end result in mind. Without a sense of what your expectations are you will not be able to determine if the decisions made were effective or not. This is another place where the use of data comes into play, measuring results. By measuring results you can enable better future decisions by understanding what works well and what doesn't. To analyze your performance, ask yourself what you expected to happen, what did happen, what worked, what didn't work, and what you could do differently next time. This should all be backed up with data.

Bringing the science of revenue management into the forefront of decision making is vital. There are many systems and tools available to aid in decision making that are all data based. Embrace the use of data and the science of revenue management to make effective, revenue-positive decisions.

About the Author
Jon Eliot brings 20 years of hospitality industry experience to his role as Director of Revenue Optimization with Carlson Hotels. In this role, Jon is responsible for the development and delivery of hotel revenue programs. Jon joined Carlson Hotels Worldwide in 2001 and has been with the revenue optimization team since 2006.

Prior to joining Carlson Hotels Worldwide, Jon built progressive experience in front office, reservations, sales, and revenue management roles at hotels under the Hilton, Omni, Westin, Radisson, and Crowne Plaza brands as well as the Albany (NY) County Convention and Visitors Bureau.

In addition to earning the CHA and CRME designations, he has completed a Certificate in Revenue Management through the Cornell University School of Hotel Administration. Jon graduated from Penn State University with a BA in History.

About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board is responsible for providing leadership for HSMAI's Revenue Management Special Interest Group (SIG). The SIG is advancing the revenue management discipline by being its leading source for education, best practices exchange, thought leadership and networking for revenue management professionals, other sales and marketing professionals, and senior management in the hospitality industry. www.revmanagement.org

Members include:
•Chair: Warren Jahn, Ph.D., Manager, Revenue Systems Training AMER, IHG
•Vice-Chair: Scott Roby, Vice President, Revenue Management, Tarsadia Hotels
•Immediate Past Chair: Timothy Coleman, CRME, President, The Coleman Company
•Christopher Crenshaw, CRME, Director of Marketing Intelligence, Loews Hotels
•Jack Easdale, Corporate Director of Revenue Management, Gaylord Hotels
•Jon Eliot, CHA, CRME, Director, Revenue Optimization, Carlson Hotels Worldwide
•Bernard Ellis, CRME, Managing Director-Americas, IDeaS - A SAS COMPANY
•Tammy Farley, Principal, The Rainmaker Group
•Fred Heintz, CRME, Director of Group Strategy, Marriott & Renaissance Hotels of New York City
•Jay Hubbs, Director-Hotel Supplier Relations, Hotwire
•Burl Hutchison, CRME, Manager of Revenue Optimization, Sabre Hospitality Solutions
•Dan Kowalewski, Vice President Revenue Management Services, Wyndham Hotel Group
•Stowe Shoemaker, Associate Dean of Research, University of Houston/Conrad N. Hilton College
•Miguel Solis, CHA, CRME, VP Sr. Director Revenue Management, Hospitality Resource Group
•Trevor Stuart-Hill, CRME, President, Revenue Matters
•Paul Wood, CRME, CHBA, Senior Account Director, Sceptre Hospitality

Want to Learn More?
Topics like this one are being addressed as part of the 10-part Revenue Management Webinar Series produced by the HSMAI University, HotelNewsNow, and STR. Begun in February 2010, and going through December, each month a webinar will cover various aspects of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you're not able to attend a live program or the date has passed, archives are available.

By Warren T. Jahn, Jr., Ph.D., Manager, Revenue Systems Training AMER, IHG and Chair, HSMAI Revenue Management Advisory Board

From HSMAI's Revenue Management Advisory Board -- Have you ever asked yourself "How do I find the 'PERFECT' transient price?" and then become overwhelmed by the number of factors and data sources to consider? Know that you are not alone! All hoteliers struggle everyday with this conundrum. And let's be honest, finding the "perfect" transient price may only sometimes happen. The "perfect" price today may not be the "perfect" price tomorrow.

So, what is a "perfect" transient price? Well, it's the place where price and occupancy meet to maximize revenue. But remember that at any point in time, this place may shift due to a number of factors. Therefore, having a dynamic transient pricing strategy is a necessity to successfully achieve larger revenue gains.

I cannot tell you how many times I have seen transient pricing strategies where a hotel sets their prices at a proportionate amount above or below a competitor's price. When the competitor changes prices, they change prices following a similar pattern. We could call this the monkey-see, monkey-do transient pricing strategy (see Figure 1).

Then there are the hotels that follow transient pricing strategies where they have their weekday price and their weekend price. We could call this the business/leisure rollercoaster transient pricing strategy (see Figure 2).

Both of these strategies are flawed, because they only focus on one specific pricing variable. Monkey-See, Monkey-Do focuses only on what the competitors are charging, and Business/Leisure Rollercoaster focuses only on two main consumer types in the market (business and leisure travelers). While both of these factors are definitely important in determining price, you must consider them together.

In order to make the best transient pricing decision, consider basing your transient pricing analysis and strategy on three key factors: 1) demand forecasting, 2) market prices, and 3) the consumer.

Let's discuss the importance of each of these factors in determining the "perfect" transient price.

Demand Forecasting. Many people argue this is one of the most importance factors in a transient pricing strategy. However, a lot of hotels either do not have a demand forecast or only forecast up to the physical capacity of their hotel. Just focusing on the constrained demand forecast will limit the revenue potential for your property. Accurately anticipating the overall unconstrained demand provides a much clearer picture of the overall demand in the market (see Figure 3). In the end, you will have a better understanding of the additional opportunities you may have to drive your transient prices. Lucky for us, there are countless revenue management tools, systems, and services which can assist you in accurately determining your unconstrained demand forecast. But only focusing on the demand forecast is not enough. We need more information to make the best pricing decisions.

Market Prices. How many times have you compared the prices of similar products either at a store or online before making the purchase? We all do this, and guess what…so do our customers! With the Internet, it is easy for consumers to compare hotel prices. It would be irresponsible of us to not consider our competitiors' prices, but determining when too and when not too is very important. Not all consumers shop around. Many are loyal to a specific product for reasons like value, service, location, loyalty program, etc. Begin to track and analyze through which channels your consumers are booking your products and determine when they are comparing you against the competition. Consider utilizing a rate shopping product, so you have up-to-date market price intelligence. Combining market price analysis and an accurate demand forecast will get you closer to determining the best transient prices, but one more factor will further enhance your strategy.

The Consumer. This is the individual who purchases your products, but...when are the big spenders in the market? And when are the limited spenders in the market? Offering discounts to the big spenders can potentially lead to money left on the table, and offering elevated prices to the limited spenders can potentially lead to unrealized revenue. Tracking consumer spending patterns by lead time and day of week may assist you in determining when these different consumer groups are purchasing. There are also some emerging tools and systems that can do some of this work for you. Combined with demand forecasting and market price analysis, your transient pricing strategy will only be strengthened.

In this challenging environment, re-structuring your transient pricing strategy is a valuable process. Gone are the days of setting one price and letting it ride. The best formula is a dynamic strategy which encompasses an accurate demand forecast, consideration of market prices, and knowing what consumers are in your market at any given time.

The only way to know if a price will be successful in the market...is to try it!

About the Author

Warren T. Jahn, Jr., Ph.D. is manager of revenue systems training AMER in the Global Hotel Learning Division of InterContinental Hotels Group (IHG). Dr. Jahn leads a remote-based team of senior training consultants who conduct field-based and e-learning training workshops in the areas of revenue, sales, and systems for all IHG affiliated properties and brands in the US and Canada. Dr. Jahn is also an adjunct professor in the hospitality and tourism management program at Strayer and Devry Universities. He previously worked as revenue management training consultant in the IHG's Global Revenue Management Division. He is currently a member and chair of the HSMAI Revenue Management Special Interest Group and has served HSMAI as a member of the revenue management sub-committee assisting in the development of the Certified Revenue Management Executive (CRME) program. He earned both his undergraduate and masters degrees from the University of South Carolina, and doctorate from The University of Tennessee.

Dr. Jahn can be reached at (404) 428-8917 or warren.jahn(at)ihg.com.

About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board is responsible for providing leadership for HSMAI's Revenue Management Special Interest Group (SIG). The SIG is advancing the revenue management discipline by being its leading source for education, best practices exchange, thought leadership and networking for revenue management professionals, other sales and marketing professionals, and senior management in the hospitality industry. www.revmanagement.org

Members include:

• Chair: Warren Jahn, Ph.D., Manager, Revenue Systems Training AMER, IHG
• Vice-Chair: Scott Roby, Vice President, Revenue Management, Tarsadia Hotels
• Immediate Past Chair: Timothy Coleman, CRME, President, The Coleman Company
• Christopher Crenshaw, CRME, Director of Marketing Intelligence, Loews Hotels
• Jack Easdale, Corporate Director of Revenue Management, Gaylord Hotels
• Jon Eliot, CHA, CRME, Director, Revenue Optimization, Carlson Hotels Worldwide
• Bernard Ellis, CRME, Managing Director-Americas, IDeaS - A SAS COMPANY
• Tammy Farley, Principal, The Rainmaker Group
• Fred Heintz, CRME, Director of Group Strategy, Marriott & Renaissance Hotels of New York City
• Jay Hubbs, Director-Hotel Supplier Relations, Hotwire
• Burl Hutchison, CRME, Manager of Revenue Optimization, Sabre Hospitality Solutions
• Dan Kowalewski, Vice President Revenue Management Services, Wyndham Hotel Group
• Stowe Shoemaker, Associate Dean of Research, University of Houston/Conrad N. Hilton College
• Miguel Solis, CHA, CRME, VP Sr. Director Revenue Management, Hospitality Resource Group
• Trevor Stuart-Hill, CRME, President, Revenue Matters
• Paul Wood, CRME, CHBA, Senior Account Director, Sceptre Hospitality

Want to Learn More?
Topics like this one will be addressed as part of the 10-part Revenue Management Webinar Series produced by the HSMAI University, HotelNewsNow, and STR. Begun February 23, 2010, and going through December, each month a webinar will cover various aspects of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you're not able to attend a live program or the date has passed, archives are available. Also, these and other timely revenue management and Internet marketing topics will be the focus of the HSMAI Revenue Management & Internet Marketing Strategy Conference, co-located with HITEC, June 21 in Orlando, FL.

HSMAI recently spoke with best-selling business author Rafi Mohammed, whose books include The 1% Windfall and The Art of Pricing, about his thoughts on pricing and hotels.

HSMAI: How do you start a conversation in your hotel or company about pricing, and who should be involved?

Rafi: Pricing is a topic that affects many different levels of a company - from the CEO to the sales force. For a hotel, a pricing discussion should start with both the general and rooms managers. After a pricing strategy is developed, it should be rolled out to frontline employees.

HSMAI: There has been a lot of concern in the hotel community in the last two years regarding discounting. What is your opinion of discounting as a sales strategy?

Rafi: For hotels that serve repeat visitors, heavy discounting can devalue a property. Understandably, prices needed to be lowered - but there are techniques that can minimize damage to perceived value such as maintaining price but throwing in extras (parking/meals) and "buy three days for full price and get a fourth for free" promotions. The point is to maintain a high price point in consumers' minds.

HSMAI: Why do you think it is a mistake for companies to set just one price for each product?

Rafi: Quite simply, as businesses understand and capitalize on in virtually every facet of their strategy: customers are different. Many companies have different products, marketing strategies, and distribution outlets. But when it comes to price, they just offer one option. The key to better pricing is to profit from the simple fact that customers have different pricing needs - this involves offering a mix of different prices and plans.

HSMAI: What is the "profit disconnect" you say exists in business today?

Rafi: The key profit disconnect that I have found is that companies work and invest to bring their products to market, and then drop the ball when it comes to setting prices. Focusing on better pricing allows companies to reap the financial benefits that they are entitled to from their hard work.

Rafi will be discussing the premise of his latest book, The 1% Windfall which illustrates how even a 1 percent increase in price can significantly boost operating profits, during a keynote address at HSMAI's Revenue Management & Internet Marketing Strategy Conference, June 21 in Orlando. Far from recommending price hikes, Rafi's book (and speech) focuses on offering "win for the customer/win for the company" pricing strategies which can reap a financial windfall for firms that concentrate on their pricing strategy. Booklist calls The 1% Windfall "an excellent book."

Rafi Mohammed has been working on pricing issues for the last 20 years. Rafi is the founder of Culture of Profit, LLC, a business consulting company based in Cambridge, Massachusetts that works with companies on their pricing strategy. He also holds the title of Batten Fellow at the University of Virginia's Darden Graduate School of Business. A frequent commentator on pricing issues to the print media, Rafi has also made prime time appearances on CNBC as an expert pricing commentator.

In addition to Rafi's keynote address on "How Successful Companies Use Price to Profit and Grow", Strategy Conference attendees can choose from among 16 breakout sessions on timely revenue management and Internet marketing topics. For more information on the conference, visit www.revmanagement.org.

By Trevor Stuart-Hill, CRME, President, Revenue Matters, and member of the HSMAI Revenue Management Advisory Board

From HSMAI's Revenue Management Advisory Board -- Knowledge is power, so it stands to reason that what you don't know can hurt you (or at least your revenues). When it comes to the fast paced world of Internet marketing, this statement is especially true.

3rd Party Internet Channels
Think of your approach to distribution through 3rd party Internet channels as you would a mutual fund investment. Not all are designed to perform the same way, so it is helpful to ensure that your portfolio is diversified -- that you are participating to an appropriate level in select models at the appropriate time. When assessing which programs to participate in and when, it is helpful to know that 3rd party Internet channels can be categorized into 5 primary business models*:

1. Retail (like Booking.com, Quikbook.com): Retail model entities can be identified by the fact that the supplier collects payment directly from the guest and pays a commission (most often 10%) after the fact to the retail model entity.
2. Merchant (like Hotels.com, Travelocity.com, Expedia.com): In the case of a Merchant model, it is the entity itself that collects payment from the guest and is therefore the "merchant of record" in the transaction. The supplier then collects payment from the merchant model entity in the form of a net rate (often this net rate "floats" off a rate of the day or best available rate plan).
3. Opaque (like Hotwire and Priceline Packages): The term opaque refers to a model in which some element of the transaction is "hidden" from the consumer. This hidden element could be the name of the property which is revealed only after the consumer makes a purchase. In the case of a package where air, car and hotel are bundled together, the price of individual components is not revealed.
4. Auction (like LuxuryLink, Pricelin's Name Your Own Price): As expected, in the case of an auction model, several consumers may "bid" on a travel experience, but not all will be successful in securing the purchase.
5. Referral (like TravelZoo, TravelTicker): With a referral model, the "call to action" is defined by the supplier. Often this call to action is the supplier's proprietary website or a unique reservation telephone number. The financial arrangement between supplier and distributor is most often advertising-based, transaction-based or some combination of the two.

It is important to recognize that with each of the 5 business models, consumer motivation and behavior differs, costs of distribution vary considerably, and such things as brand positioning and pricing integrity need to be factored in. It is also important to consider such things as booking windows, stay patterns, contribution potential, cannibalism, channel conflict, ease of management, ancillary revenue impact, marketing exposure and seasonality. If you are just looking for a place to start, I highly recommend that you begin by tracking your channel production in order to establish a baseline -- you may just be surprised by what you find.

Proprietary Internet Presence
Your own Internet presence -- your proprietary website and associated booking engine along with social media initiatives -- are critical components of your overall distribution strategy. With a seemingly endless stream of press releases and an overwhelming number of differing opinions on this topic, it is easy to become confused. The good news is that there a number of basic tenets you can rely on that have remained unchanged.

There are 3 basic components to search engine marketing (SEM).

1. Search engine advertising (SEA) -- is where a supplier pays for advertising space, just as they would perhaps in a newspaper or magazine. Unlike with a newspaper or magazine, the pages on a search engine such as Google change constantly, so search engines must rely on "keywords" that an end user types in to serve up relevant content. If an advertiser has successfully bid on a keyword (pay per click -- PPC model) that an end user has typed in, then their listing will be displayed. In the case of Google, this would be in the "sponsored links" section at the top and right side of a search result. If a consumer then clicks on the sponsored link, the advertiser will be charged for the amount of their key word bid (cost per click-- CPC). Popular keywords such as "hotels" will result in millions of results. Of course, there isn't room in the sponsored links section for millions of ads, so only the highest bidders will be displayed. Because of this dynamic state, the bid process is best left to professionals whose entire focus is on SEA.

2. Search engine optimization (SEO) -- is where a supplier's listing is served up for consideration (underneath the sponsored links) based on a number of factors. These factors may vary from search engine to search engine and they also change over time; however, there are a few basic staples:

• Keyword relevancy -- that is, does the website contain text and terms that are relevant to what the consumer is searching for?
• Keyword density -- in other words, assuming that relevancy exists, how often do those key words show up on the website?
• Indexing -- search engine spiders "crawl" websites periodically searching for content that can be indexed for rapid retrieval. The more often web content is refreshed, the more frequently search engines will crawl a particular site -- which generally has a positive impact on search results. Certain site content such as flash elements, photographs, and databases either can't be crawled or are avoided by the search engines. Ensuring tags (text descriptions of the content that can't be crawled) are both accurate and current is a good way to reduce any barriers to the indexing activities of search engines.

3. Linkage -- if a number of websites or web pages (such as blogs) link to a supplier's website and those websites and web pages have high keyword relevancy and density, then the supplier's website will likely enjoy higher ranking within the natural, or organic, search results. The key here is to actively seek linkage partners that would be helpful for your operation. Think racetracks, colleges, CVBs, museums, etc.

A few basic metrics are available to assist you in measuring site performance.

1. Traffic -- There are a number of ways to measure traffic to your website. One of the industry standards is "unique visitors." Unique visitors are counted when an end user interacts with your site (views pages, generates requests, etc.). If no activity occurs within a given time period, then subsequently occurs again, a new unique visitor will be logged. Reviewing traffic trends associated with such thing as marketing initiatives, season changes and pricing adjustments is very helpful to revenue managers.
2. Bounce Rate -- The bounce rate is normally depicted as a percentage. It reflects situations where a visitor both enters and exits at the same page without visiting other pages on the website in between. Looking at bounce rates associated with various pages is helpful in understanding if there may be page load issues or perhaps if content is out of date or otherwise irrelevant to what the visitor expected. Frequently updating content such as special offers is one example of how to reduce your bounce rates.
3. Click Through Rate -- The term "click through" is a measure of visitor activity as they click on an ad or button on your site and are taken to another area such as a booking engine or a landing page. From a revenue manager's perspective, knowing how a particular special offer or ad is performing or identifying trends associated with how easily visitors can find links to your booking engine is critical.
4. Conversion Rate -- Also referred to as the "look-to-book" ratio, the conversion rate measures the percentage of guests who visit your booking engine and also end up making a purchase. Conversion rates in the hospitality business can vary depending on the complexity of the property (accommodation choices), nature of travel (business vs. leisure) and other factors. Conversion rates in the 1% - 3% range are normal for leisure resorts with a variety of accommodations whereas conversion rates in the 6% - 9% range can be expected for well-known corporate properties in major cities. For properties that offer purchasing options beyond rooms such as pillows, clothing and souvenirs, conversion rates can be associated with visitors clicking through to store fronts.
5. Intent to Purchase -- The intent to purchase metric is a relatively new concept and there is no industry standard for it. It is introduced here as a composite of the above metrics and a way to assess overall consumer propensity to buy. Internet marketing ROI is often associated with room bookings coming straight from the booking engine attached to a website. While this is a straightforward measurement, it misses the mark in terms of overall activity that may be broadening exposure to new audiences for a given property or brand.

A process can be established and maintained to help ensure success.
Set time aside to meet regularly with your web developer and/or Internet marketing counterpart and marketing director to collaborate on such topics as:

• Linkage opportunities.
• Targeted search engine advertising (SEA).
• Search engine optimization (SEO) strategies.
• Key metric analysis.
• Marketing initiatives and campaigns.
• Guest behavior -- from the point of site entry, right through the booking process.
• Trends associated with research vs. booking windows.
• Special events and demand generators that may be leveraged.

Revenue management principles still apply.
As intimidating as the world of Internet marketing may seem at times, key revenue management principles still apply. After all, your proprietary website is an important distribution channel -- one that you can have a great influence over. Here are some places you may wish to start:

• Measuring offline revenue impacts.
• Knowing which feeder markets are critical and when.
• Understanding booking windows and length of stay trends.
• Ensuring that promotional offers and packages are loaded correctly.
• Actively focus on both rate plan and unit type merchandizing.
• Measuring production.

For more information on this topic, read the white paper "Effective Internet Marketing Strategies for Recessionary Times" published in 2009 by HSMAI's Travel Internet Marketing Advisory Board.

*This concept was first introduced in the textbook "An Introduction to Revenue Management for the Hospitality Industry -- Principles and Practices for the Real World," Pearson Prentice Hall 2009.

About the Author
Trevor Stuart-Hill founded Revenue Matters in the spring of 2009 to provide industry recognized revenue management and distribution services that go beyond optimizing distribution channel production to include total property performance. He has been a part of the leadership team at Sabre Hospitality Solutions (formerly SynXis), and held executive-level roles at Sage Hospitality Resources and Destination Hotels & Resorts. Trevor is a certified professional pricer (CPP) and certified revenue management executive (CRME), and was one of the founding advisory board members for the HSMAI Revenue Management Special Interest Group. From 2008 - 2009 he chaired the HSMAI Travel Internet Marketing Advisory Board. He is co-author of An Introduction to Revenue Management for the Hospitality Industry -- Principles and Practices for the Real World, a textbook currently in use by colleges and universities around the globe. In 2008, Trevor was recognized as one of the Top 25 Extraordinary Minds in the hospitality and tourism industry for outstanding innovation and vision. Trevor can be reached at Trevor@RevenueMatters.com.

About the HSMAI Revenue Management Advisory Board
The Revenue Management Advisory Board is responsible for providing leadership for HSMAI's Revenue Management Special Interest Group (SIG). The SIG is advancing the revenue management discipline by being its leading source for education, best practices exchange, thought leadership and networking for revenue management professionals, other sales and marketing professionals, and senior management in the hospitality industry. www.revmanagement.org

Members include:

• Chair: Warren Jahn, Ph.D., Revenue Management Training Consultant, InterContinental Hotels Group
• Vice-Chair: Scott Roby, Vice President, Revenue Management, Tarsadia Hotels
• Immediate Past Chair: Timothy Coleman, CRME, President, The Coleman Company
• Christopher Crenshaw, CRME, Director of Marketing Intelligence, Loews Hotels
• Jack Easdale, Corporate Director of Revenue Management, Gaylord Hotels
• Jon Eliot, CHA, CRME, Director, Revenue Optimization, Carlson Hotels Worldwide
• Bernard Ellis, CRME, Managing Director-Americas, IDeaS - A SAS COMPANY
• Tammy Farley, Principal, The Rainmaker Group
• Fred Heintz, CRME, Director of Group Strategy, Marriott & Renaissance Hotels of New York City
• Jay Hubbs, Director-Hotel Supplier Relations, Hotwire
• Burl Hutchison, CRME, Manager of Revenue Optimization, Sabre Hospitality Solutions
• Dan Kowalewski, Vice President Revenue Management Services, Wyndham Hotel Group
• Stowe Shoemaker, Associate Dean of Research, University of Houston/Conrad N. Hilton College
• Miguel Solis, CHA, CRME, VP Sr. Director Revenue Management, Hospitality Resource Group
• Trevor Stuart-Hill, CRME, President, Revenue Matters
• Paul Wood, CRME, CHBA, Senior Account Director, Sceptre Hospitality

Want to Learn More?
Topics like this one will be addressed as part of the 10-part Revenue Management Webinar Series produced by the HSMAI University, HotelNewsNow, and STR. Begun February 23, 2010, and going through December, each month a webinar will cover various aspects of cutting edge revenue management in today's economy in conjunction with articles written by members of the HSMAI Revenue Management Advisory Board. If you're not able to attend a live program or the date has passed, archives are available. Also, these and other timely revenue management and Internet marketing topics will be the focus of the HSMAI Revenue Management & Internet Marketing Strategy Conference, co-located with HITEC, June 21 in Orlando, FL.