By Daniel Edward Craig.
Revenue management has always been a bit of a guessing game for hotels, involving competitive analysis, historic actuals, forecasts and intuition. But we don’t really know if travelers will buy until we put rates out to market. Which is why hotel managers are often on the phone with corporate trying to explain why their average rate or occupancy was lower than competitors’.
Today, thanks to new technology, much of that guesswork is gone. Increasingly, hotels are using review metrics, which aggregate and score ratings from review sites across the Web, to benchmark guest satisfaction ratings against competitors, to optimize rate strategy, and to make better revenue decisions.
At the forefront of this trend is Meliá Hotels International, the innovative Spain-based company that operates over 350 hotels in 35 countries, including such brands as Gran Meliá, ME by Meliá, Paradisus, INNSIDE, Meliá hotels, TRYP and Sol hotels, with iconic properties like Gran Meliá Fenix in Madrid and the future opening ME by Meliá in London.
“Hotel performance analysis has been in our company DNA for years,” says Fernando Vives Soler, Global Director of Revenue Management. “We analyze revPAR performance in a very detailed way, hotel by hotel, and consolidate data by region and brand.”
Early on, Meliá noticed that a critical ingredient was absent from optimizing their revenue strategy. “We wanted to find a way to push our hotels’ revPAR goals and performance, and to help them lead the strategy to get results,” says Vives Soler.
“From a revenue management perspective, the question is always: should we adopt an occupancy strategy, or a rate strategy, and which market segments should we focus on? Understanding our Average Rate Index or Market Penetration [Occupancy] Index was not enough. We were missing the key variables of online guest satisfaction and reputation performance, which also influence the buying decision process, and the ability to measure our individual hotels’ results relative to their direct competitors.”
While it was intuitive that revenue optimization is tied to a property’s online reputation, Vives and his team needed a reliable benchmark for online guest performance that took into account guest feedback across the entire spectrum of review sites. Meliá turned toReviewPro, which aggregates review data from hundreds of online sources to produce the Global Review Index™ (GRI), a guest satisfaction score that can be calculated for a given hotel, group of properties or brand, during any time period, and allows for performance comparisons with direct competitors.
The Global Review IndexTM has been used by the Group for several years now to track online quality performance across all brands. In fact, GM’s across the organization have specific GRI objectives for their properties, and a part of their bonuses are tied to the Index.
In the area of revenue management, Meliá created a new metric called the Quality Penetration Index (QPI), which is now incorporated directly into the ReviewPro solution. This is calculated by dividing the GRI for each hotel by the GRI of its competitive set. Essentially a measure of the hotel’s market share of guest satisfaction, the QPI is measured the same way hotels measure rate, occupancy and revPAR indexes using STR Global and MKG data, with 100 being fair market share.
This way, the company can “compare apples to apples”, explains Vives Soler. “We are able to identify strategic opportunities, understand the challenges and try to find potential for maximizing RevPAR. We use the data to understand positioning and performance, to react to pricing if it is too high or too low, and to determine which hotels aren’t getting as much of the pie as they deserve.”
The company plots data on a matrix with four quadrants similar to the graph pictured above. Here, Hotel 4 shows a higher rate of guest satisfaction than competitors, but a lower average rate, indicating an opportunity to increase rates. By comparison, Hotel 5’s guest satisfaction score is low relative to competitors, whereas its average rate is much higher. This suggests rates may be too high, and that either rates should come down or measures must be taken to increase overall guest satisfaction.
As an example, Vives Soler cites a Meliá property with a Quality Penetration Index of 120 but a RevPAR Index well below 100. Corporate saw this as a sign that rates were too low, but on-property management feared the market couldn’t sustain a rate increase. After a rate increase was tested, the data proved correct: a higher RevPAR Index was achieved while guest satisfaction (QPI Index) remained high.
Today, says Vives Soler, “For every hotel, no matter which Meliá brand, if it has a valid comp set, we cross our Revenue Generation Index (RGI) performance with reputation metrics. In little time, hotels have adopted ReviewPro as an important benchmarking tool to understand reputation and quality performance against their competitors.”
The benefits aren’t limited to revenue management. “As part of the hotels’ executive teams [our revenue managers] try to influence not only pricing, but also service and quality by working closely with operations, it has become easier for them to explain the pricing approach and to push operations to [uphold] high quality standards to ensure revPAR growth.” Meliá also uses review metrics to optimize rates by channel and market segment, to set operational budgets and to forecast potential revenue.
Going forward, says Vives Soler, “We plan to include these tools and reports in the hotel owners’ business review plans. I am sure the owners [will recognize] that Meliá Hotels International is a pioneer in implementing management tools that guide our hotels not only to highest levels of quality, but to the highest level of performance.”