How To Create a "Revenue Pizza" To Maximize Profits for Your Hospitality Business - Judith Cartwright

Josiah: I wonder if we could talk a little bit at a very high level, about the notion of managing revenue? Maybe the term itself is a bit problematic, but I think sometimes hotel leaders or hospitality leaders think about this process. They think we need to have a revenue manager. And I'm curious from your perspective, what are some of the misconceptions when people outside of this discipline think about revenue? What are some of the common things that people get wrong in your experience?

Judith: When we go back to revenue management, it all started within the airline industry, finding the right price for the right customer at the right time through the right channel. And it can be misunderstood or misperceived that all revenue management does is just increase the rates or decrease the rates. But, you know, there's just so much more that goes into it. You really have to understand how the end consumer is booking, and which channel they are booking through. So, I also like to say that it's not just finding the right price for the right customer at the right time, but it's also finding the right price for the right customer at the right time through the right channel. And that's really key especially when you look at markets that have a lot of B2B business from a lot of different countries, different nationalities, you have a lot of different booking behaviors, and that's really where you need to understand how it's priced, how the contracts are made and how then the buyers buy the inventory from the hotels. Revenue Optimization has since then evolved, you know, where you do take a look at the space and where you break down the revenues and the profitability per square meter when you look at the investment that was made. And then do you have any underutilized spaces available? So it's quite a complexity now. It's still very much misunderstood in terms of just being a nerdy Excel spreadsheet-driven function. Or, when you have a revenue management system, why do I need to have a revenue manager? Or I have a revenue manager in place, why do I need to have an expert help me with that? Or why do I need to have a bigger team? And it's now when you look at, you know, what the possibilities are if you take the whole teams onto the journey and you see revenue optimization as the gatekeeper of all strategies, who then is the connector between the operations department, between the sales, marketing, PR, the commercial functions. but then also between reservations and the GMs and then also the owners. To make sure that, first, the messaging gets amplified across all the various functions. A lot of times in hotels you have these functions work in silos. And, you know, not to exaggerate now, but you want to make sure that sales and marketing go out with the same message to their clients at the same time. And not that one is talking about Easter, and the other one is talking about Christmas and selling to different price points. And that's really then also where revenue optimization or revenue management, the discipline itself needs to really understand the lead times it takes for these commercial departments to secure visibility and to secure activations. And it might be different by market. And then to make sure that these price points that are being negotiated also stay in place and that you layer in your pizza. I always say, you know, it's like how you build a house or how you build a pizza. You build your foundation and then you have, you know, and then you have the next layer of business. And then on top, you have the secret sauce and the ingredients to optimize and maximize.

Josiah: Let's talk about the "pizza" a little bit more. What are those foundational layers and then how do you imagine kind of going up the pizza or the pyramid?

Judith: Yes, so that depends on the business mix that you have, but generally you would identify the business that gives you a good solid base. And that base business and how much you need of it depends really by season. It depends on who is traveling what are the segments that are traveling. So traditionally, depending, you know, if you have a corporate hotel, a large base business might be your corporate customer. and then also your groups, and then your leisure customer is then more dynamic, and then that's the business that you can yield on top. When you look at resort destinations, depending on how the end consumer can get there when you look into Asia Pacific or the Middle East, you have a strong layer of wholesale business, and then also then travel agent business, which is more dynamic than what it used to be a few years ago for those partners that have direct connectivity. However, the most dynamic segment is the direct segment. And that's something that you can yield, you know, based on supply and demand. But for that, when you build your pizza by season, by month, and then also for certain days, you really need to understand your demand patterns and what you need to get your optimum occupancy. And just because the overall demand is only for 50 or 60 percent at times, but it's in how do you optimize those 60 percent. And when you look now at the trends, you know, and how they have shifted, traditionally, you would have started selling the business from the bottom up. So, from entry category up into your suites and then the villas, they would have been the last room types to sell. But what we're seeing now, especially in the ultra-luxury space, is that the rooms or the villas, fill from the top down and then the entry category last. And that's also how you can play with your website. You can do A-B testing to see what converts first. You have room types appear from lowest price to highest. Or do you take more of the retail approach where you have from highest to lowest? So that is then also becomes aspirational, but then it still helps the end consumer to convert and to make that decision.

Josiah: So if you're building a revenue pizza, using this analogy, there is sort of that, what is the most consistent base of business? I imagine though, this has become incredibly dynamic in the last few years. If corporate travel was a consistent piece of business in the past, is that still true? Does that still work as we head into 2024 or is the world totally different now?

Judith: It's still corporate travel is still, you know, in certain destinations, it's still there, but it's not as strong as it used to be since the pandemic. And it's a lot more now, you know, where you see a lot more of the leisure customer, you know, people traveling from anywhere. But then also in the city hotels, you would have seen now some of the groups come back, and some groups are really strong, that would have replaced that. But then also the city hotels had to adjust their strategies. And they go out and, you know, convert some of the travel agent or the wholesale business in order to get that layer in. And then also something that we have seen, you know, for more from a real estate investment perspective, that a lot of the hotel owners now are also considering bright residences. Residences have always been around us, but it's just so much more dominant now than they were before the pandemic.