Reviving Revenue Management

Reviving Revenue Management

The Hearthstone Suites Hotel is an all-suite property with 250 rooms. A new property, the Fairmont Hotel, opened near Hearthstone Suites three months ago. Several months before the opening of the Fairmont, Laurie, the general manager at the Hearthstone Suites, pushed all her front office and reservations staff to sell as many rooms as possible. As she put it, "Whatever it takes, to stay competitive." The director of sales, Pat, supported the plan from day one, but Jodie, the front office manager, had misgivings from the start. Jodie was concerned that the revenue management program managers implemented a year and a half earlier would be totally useless because of the push for occupancy.

The most recent profit and loss statement indicates that Jodie's fears were realized. Though the occupancy is at budget year-to-date, the average daily rate (ADR) is down by $6. Also, the mix of commercial business is lower than planned—40 percent of guest mix instead of 50 percent. Also, the SMERF segment is higher than it should be—15 percent of guest mix instead of 5 percent. SMERF is a catch-all term for group business at substantially low rates—Social, Military, Educational, Religious, and Fraternal groups.

Jodie, Pat, and Laurie are in a meeting to discuss these latest figures. Laurie, the general manager, opens the meeting by saying, "Well, we've weathered the storm caused by the opening of the Fairmont. We managed to hold on to our occupancy level. But it looks like we have some regrouping to do. I trust you've each received the profit and loss statement I sent you. I'm concerned about the fact that we've lost so much of our share of the commercial business. And our ADR is much too low."

"I agree," says Jodie, "but I was just following orders when I had my staff focus on selling rooms. Our good occupancy rate has come at the cost of both revenue management and revenue. It will take quite a while to regain our former position."

"We all sat down and agreed months before the Fairmont opened that we should do our best to keep our occupancy numbers, and that's what we've done," says Pat. "You and your staff have worked hard and are to be commended, Jodie."

"Hear, hear," says Laurie, "and now we have some time to re-evaluate our position and start targeting that corporate segment again."

"I just hope it's not too late to win it back from Fairmont," sighs Jodie.

Later that day, Jodie gathers her front desk and reservations team to brief them about re-implementing the revenue management program. "I know you've all been putting a lot of extra effort into filling rooms over the past several months. I'm proud of you; the whole management team is. We've met our occupancy goals. The down side is that our guest mix is off. We've lost some of our commercial segment and gained too much of the SMERF segment. And our ADR is down a full $6. It's time we reviewed the revenue management program we use."

"The revenue what?" blurts Jack, a fairly new front desk agent. "You never told us about that."

"Now hold on a minute," counters Jodie, "some of you are so new that you haven't been fully trained in this program, but I know I've talked about it to some extent with all of you."

"Sure, you told me a little about it," offers Tracey, a reservationist. "I never have been comfortable with it, to tell the truth. One day I quote a guest $85 and he books a suite. A month later he calls back to book another and I quote $105. Then the guest asks why the rate went up—what am I supposed to say?"

"Well,

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